Big Macs, Big Profits, and Low Wages

In a properly working economy, a booming business would be good for everyone involved in building that business: shareholders, executives, and workers. 

In a broken and dysfunctional economy, the shareholders and executives would get richer and richer while the workers lived in poverty. 

What's happening at McDonald's leaves little doubt about what sort of economy America has today. According to a recent investigation by Bloomberg reporter Leslie Patton, McDonald's saw its profits soar by 135 percent between 2007 and 2011, and found itself with so much cash last year alone that it devoted $6 billion to dividends and stock repurchases and paid its CEO, Don Thompson, $8.8 million.

Given this success, and all the money sloshing around, you'd think that workers at McDonald's would see their fortunes rise as well. Well, you'd be wrong. 

Many McDonald's workers earn just over the federal minimum wage, near-poverty incomes, and have barely seen any pay increases in recent years. The CEO of McDonald's makes over 500 times what the average worker does, and that disparity has doubled in the past decade, according to Bloomberg. A typical McDonald's worker would have to work a million hours -- the equivalent of a century of full-time work -- to earn what Don Thompson does in a single year. That's obscene. 

If all this sounds familiar to fans of Demos, it's because wage inequality in the restaurant industry is strikingly similar to inequality in the retail industry, which Demos documented in a recent report. That report argued that things can and should be different -- that retail companies could pay workers better and still do well, offering low prices to consumers. And we documented the huge positive effects to society if retail workers were paid at least $25,000 a year: some 1.5 million workers would rise above poverty or near-poverty conditions. Of course, the first thing those workers would do with their extra earnings is buy more stuff, which would have broader benefits to the economy -- creating tens of thousands of new jobs.

It is said again and again that raising the minimum wage would be a "job killer." In fact, the opposite is true: capitalist economies flourish best when prosperity is shared and workers have extra cash in their pocket to spend. Stagnation occurs when money piles up in the investment portfolios of the wealthy. After all, a greater supply of capital won't produce the magical results supply-siders imagine if there is slack consumer demand. 

McDonald's is a case study of what's wrong with the current economy. It's not just Don Thompson and other top executives who is rolling in extra dough; it's McDonald's shareholders, who've been collecting big dividends in addition to gains in stock price. Too bad that most stock in the United States is owned by just the top 10 percent of all households and so this extra wealth generated by McDonald's is more likely to be saved then spent. 

Meanwhile, typical workers at McDonald's are just scraping by with zero discretionary income. And just to be clear: Many of these workers aren't teenagers saving up for iPads. They are adults in the prime of their careers, which is also true of underpaid retail workers. Many McDonald's workers are doing so poorly that they qualify for public assistance programs like the EITC, SCHIP, and food stamps. As Bloomberg reports:

A growing proportion of fast-food employees get federal assistance to buy food, according to census data compiled by the University of Minnesota Population Center. The proportion of fast-food workers who receive food stamps rose to 26.9 percent in 2010, compared with 15 percent of all Americans, the data show.

In other words, McDonald's business model is being subsidized by the taxpayers and serving as a drain on national resources. That's screwed up, and conservatives who complain endlessly about the supposed "takers" in U.S. society need to open their eyes to the parasitical nature of the low-wage business model. This is capitalism at its absolute worst. 

One last, disturbing thing about McDonald's is the way that it is deploying its vast wealth in the political sphere to fight democratic efforts to create a fairer economy. McDonald's has spent hundreds of dollars lobbying against increases to the minimum wage. But it's workers, with no union representation, don't have the resources to buy an equal voice in the corridors of power. 

None of this is okay. And it all flies in the face of the conventional explanation of why wages are so low for many workers in the U.S. -- because of unstoppable forces like globalization.

There is nothing inevitable or unstoppable about McDonald's parasitical business model. All we need is more democratic control of the most important part of U.S. society -- which is the economy.