McDonald’s wage hike: Speculation, and the science

McDonald’s has become the latest in a series of major corporations, like Wal-Mart and Ikea, to announce modest raises for wage employees. Though falling well short of typical calls for a living wage – which aims for a starting rate of $15 per hour – McDonald’s will boost some entry-level wages at $1 above the legal minimum, and implement a handful of other benefits for its employees.

Why are they doing this?

If we’re interested in facts, there are a number of ways we could answer this question. We could, for instance, interview some of the relevant decision makers at McDonald’s – company economists, financial analysts, management, and so on – or review internal records to try to tease out their rationale. Alternatively, we could attempt some kind of empirical analysis of the various pressures and incentives facing McDonald’s as a firm within the broader econo – or, you know, whatever:

Did corporate McDonald’s suddenly see the wisdom of the arguments pushed by the Service Employees International Union campaign for $15 per hour fast food wages? That seems unlikely. More plausibly, they decided the cost was worth it in exchange for an expected public relations boost that McDonald’s surely hopes will translate into more sales. Walmart was likely thinking along the same lines when it announced in February that it would raise all workers to at least $9 per hour.

That’s what University of Georgia economics professor and self-described libertarian Jerry Dorfman wrote today for Forbes magazine.

The first problem with this is that it’s almost certainly incorrect. Basically everyone else who has bothered to research the trend – from the right-wing Wall Street Journal to the crypto-Marxist New York Times – have arrived at another conclusion. Companies aren’t doing this as a PR stunt to boost sales; they’re doing it because a tightening labor market is forcing them to compete for workers.

“There was a risk that McDonald’s could lose its better employees to other companies that compete for low-wage workers,” the NYT reports.

This isn’t just armchair, ahistorical conjecture – it’s informed by internal company sources, including CEO Steve Easterbrook, and grounded in well understood facts about things like unemployment rates and challenges currently facing the fast-food industry.

Which brings us to the second, and much bigger problem with Dorfman’s analysis: it isn’t an analysis at all. The language here – “seems unlikely…more plausibly…surely…likely” – should clue us in that we’re now immersed in pure speculation. Dorfman doesn’t dismiss the role of unions because he’s familiar with the role of the labor market in setting the company’s wages; he dismisses unions because he’s a libertarian and he doesn’t like them.

Instead, Dorfman begins with the libertarian’s favorite conclusion: that savvy captains of industry are finding new ways to get rich, no thanks to the lowly workers. He then retrofits this onto the situation at hand through the magic of “an expected public relations boost,” which transforms a wage hike into a weirdly indirect but insanely effective hamburger ad. Nowhere along the way do we get anything even remotely resembling a scientific analysis.

But that’s how capitalism works. Memorize some one-size-fits-all supply-and-demand arguments and a short glossary of clunky jargon, and there’s no need to trouble yourself with empirical investigation or rigorous inquiry. Invent novel ways to praise the genius of our entrepreneurs while dismissing the relevance of the poor and powerless, and you too can write from Dorfman’s “generally free market, libertarian perspective.”


Photo courtesy Steve Rhodes / Tumblr.

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