A Bad Argument Against Raising Fast-Food Wages

Yesterday, I wrote about Denmark's high fast food wages and the bad arguments that are used to dismiss them. Also yesterday, Matt Yglesias came in with a new argument that is worth addressing here.

In his piece, Yglesias quotes this part of the Times article:

And the Danish restaurants are less profitable. With fast-food wages in the United States so much lower than in Denmark, and the price of Big Macs in the two countries similar, Mr. Ashenfelter said, "It must be that U.S. McDonald's are far more profitable." The higher wages and the higher menu prices help explain why there are 16 McDonald's per million inhabitants in Denmark, but 45 McDonald's per million in the United States, Mr. Jurajda said.

He then argues that this is "suggestive" of the conclusion that 65% of fast food workers would lose their job in the US if it had wages similar to Denmark's ((45-16)/45). This is a rather silly conclusion.

The number of McDonald's per capita in a given country is going to be primarily driven by factors unrelated to wages. Mexico, for instance, has 402 McDonald's restaurants and 122 million residents, giving them 3.3 McDonald's per million residents. It would seem to follow from Yglesias' analysis that if McDonald's in the US were to pay Mexico-level wages (which I assume are considerably lower), then 93% of McDonald's workers would lose their jobs. I use Mexico here, but an eyeballing of the Wikipedia page on this matter indicates that nearly every country, even poorer countries with lower wages, has a lower McDonald's per capita density than the US.

A reverse analysis could be made as well. Last I checked, Germany (at least Berlin) is utterly awash in Doner Kebab fast food spots. I can't find any figures on the matter, but I would guess their Doner Kebab restaurant density is perhaps 50 times or more higher than the United States' Doner Kebab restaurant density. Does this indicate that if the US adopted German wage-setting practices, Doner Kebab restaurants would flourish? Does it mean if Germany adopted US wage-setting practices that the number of Doner Kebab restaurants would dramatically shrink?

I get the point that Yglesias is trying to make here, but he's gone about it in the wrong way. Non-wage variables that differ between the US and Denmark (e.g. food and dining preferences, duration and intensity of McDonald's expansion efforts) almost certainly account for the vast majority of most countries' differential McDonald's densities.

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