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McDonald’s Jobs Are Drive-Thru, Not Dead End

Almost 20 years after I installed my first “Open Bloomberg” terminal as a technology consultant in New York City, I seem to have come full circle. I’m typing this from a desk in Bloomberg LP’s Washington office, where I am surrounded by four monitors. And, not incidentally, some of the best writers and editors I know.

I’ll be blogging, as always, on your favorite topics: business, economics, public policy, with a little bit of cooking thrown in. Only now I’ll be doing it with full access to a Bloomberg terminal, which is like giving an 8-year-old full access to a Hershey warehouse (not to mention Bloomberg’s legendary free snacks).

Speaking of food, a sample budget put together by Visa Inc. and McDonald’s Corp. is rocketing around the Internet. Most of the commentary suggests that McDonald’s is heartless, and gauche, to suggest how its employees might live on the embarrassingly paltry wages that they are paid. (According to the Census Bureau’s American Community Survey of 2009-11, median earnings for a fast-food worker were $18,564 a year.) The budget is based on two jobs, which has aroused special ire: Is McDonald’s telling its employees to get a second job so they don’t have to pay them anything?

Source: McDonald's and Visa Budget Journal

Source: McDonald’s and Visa Budget Journal

Not exactly. The budget above comes from a sponsored site at Practicalmoneyskills.com. Jointly backed by McDonald’s and Visa, the Practical Money Skills Budget Journal seems intended to push paycheck debit cards and garner a few brownie points for the two brands. It’s not necessarily aimed at McDonald’s workers. The person in the model budget could be part-time at FedEx and picking up shifts delivering pizzas on their off days. Or it could be a young couple just starting out. The budget doesn’t say, because again, its purpose seems to be to make you feel warm and fuzzy about paycheck debit cards, not tell McDonald’s workers how to budget their pay.

Moreover, a number of people are claiming that this budget is not merely unkind, but downright Draconian — “the amounts specified in this budget just aren’t enough to get by, at least not safely,” Irregular Times says.

This seems overdramatic; $24,000 in after-tax dollars is not princely. But it doesn’t put you at significant risk of death or dismemberment. While $800 a month is not a lot to have for clothes, entertainment, groceries and sundries, even taking inflation into account, that was a lot more than the disposable income I had when I first started at The Economist. After student loans, rent and taxes, I had about $300 for everything else, including utilities and MetroCards.

To be sure, I had health insurance, which at the time would otherwise have cost me $400 a month. I lived in a building with heat, and with my tiny apartment, electric and gas weren’t much. And I didn’t need a car. On the other hand, I did need a MetroCard, which was $70 a month. And I lived in New York, where everything was expensive, and anything you couldn’t carry home from the store had to be delivered, for a fee. Unless an extra freelance check came in, my budget was so tight you could bounce a penny off it. I often went vegetarian not out of principle, but because I couldn’t afford meat.

So, many of these numbers don’t seem wildly unreasonable to me. The health-care line item obviously doesn’t cover insurance or major medical problems; presumably, they’re assuming that you’re a young worker who maybe buys birth control or pays $100 to go to the doctor once or twice a year. That’s not a crazy assumption given the demographics of their workforce. This is not what the world should be like, but the purpose of this worksheet is to show people how to budget a limited income, not to make a political statement about Obamacare.

If you are a middle-class professional, and you attempt to imagine replicating your own lifestyle on McDonald’s wages, you are bound to feel panic and outrage. But that’s not actually the task facing people who work at McDonald’s, or people with a household after-tax income of about $24,000 a year.

The McDonald’s workforce skews young. The average age of a fast-food worker is almost 30 right now, but that’s because of the recession; in 2000, it was 22. The average McDonald’s line worker is not planning to put two kids through college on their salary. Only a minority are trying to support just themselves exclusively on their minimum-wage paycheck; they are living with a spouse or partner who makes at least as much as they do, or with parents or other relatives who make more than minimum wage. Moreover, very few people stay in entry-level minimum-wage jobs for very long (though again, the Great Recession has made this happen more than it used to); those workers eventually get promoted or leave for a more promising job.

Those who don’t — who actually try to support a family on minimum-wage paychecks — will end up with substantial government support. They’ll get the Supplemental Nutrition Assistance Program, the Earned Income Tax Credit and, in many places, they will now be eligible for Medicaid.

Is that going to be easy? No. But is it impossible? Also no, which we know because there are millions of people in this country doing it. Keep in mind that most McDonald’s workers don’t live close to New York City or Washington, the sources of much of the commentary I’ve seen. These are, respectively, the first- and fourth-most-expensive cities in the country. In many areas, the median after-tax household income is not that far from that on the McDonald’s worksheet, and it’s pretty easy to rent a room in a friend’s house for less than $600 a month. Memphis, Tenn., for example, has a median household income of $35,000, which, according to Paycheckcity.com’s take-home calculator, would give a single person about $2,300 a month after taxes. And that’s the median — 50 percent of the city is below that. You should not develop a theory of household finance that declares that the city of Memphis does not exist.

Survival on such a lean budget is possible because people who do it are not trying to live the atomized life of an upper-middle-class college graduate. They band together, sharing rent, cars and cash when needed, handing down clothes and generally spreading fixed costs over as many people as possible.

Should McDonald’s pay enough to support a thrifty-but-not-too-difficult independent lifestyle? Is that now the minimum decent standard for society? Obviously, a lot of people think that they should. Washington’s City Council just passed a “living wage” law directly targeted at Wal-Mart Stores Inc. that aims to force the retailer to pay its workers $12.50 an hour.

What would that look like nationwide? Let’s set the floor a little above the amount in the budget — about $27,500 after taxes, which will allow them to enjoy the full McDonald’s budget, plus health insurance on an exchange. That’s a minimum wage of $13.75 an hour for a full-time worker, almost double the current minimum; obviously, everyone else would also have to be paid more. The minimum that a two-earner household could bring in would be $55,000 a year — not that far from the current median income for a two-earner household.

Even if it were possible to mandate that everyone in the country make almost the median income, this would come with a cost; I’d guess that most economists would agree that such a hike in the minimum wage would cause fairly significant job losses. The direct cost of labor at an average McDonald’s is about 25 percent of payroll, according to Burgerbusiness.com, and of course, everything else they buy also has a substantial labor component. If everything at McDonald’s cost, say, 30 percent more, they would sell fewer burgers and need fewer staff.

The real question no one has actually answered is whether every job should pay you enough to live on your own, or whether it’s OK for there to be jobs that are mostly a temporary arrangement, a waypoint en route to somewhere else. It doesn’t strike me as obviously wrong for those jobs to exist — especially when the alternative may be no jobs at all. Even if I did think it was wrong, I’m not sure what I’d do about it. You can make McDonald’s pay people more per hour. You cannot keep McDonald’s from cutting those hours.

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