Minimum Wage Increases, Lost Jobs, and CEO Pay

by Matthew Stollak on Tuesday, May 28, 2013

On May 15, Milwaukee fast food workers struck demanding, among other things, an increase in the minimum wage to $15 an hour.

However, many in the retail industry argue that increasing the minimum wage will not only limit job creation, but cost jobs as well.

In April, McDonald's more than tripled the pay packages last year for its new CEO Don Thompson and the man he replaced, Jim Skinner.

So, if the minimum wage increase cost jobs, wouldn't enormous pay increases for the CEO have the same effect?


Some rough math: McD's has 761,000 employees. If all made $7.50/hr and got a $7.50/hr raise to $15/hr each person would make an extra $11,000/yr. That's over $8.6 Billion. I don't know what the CEO makes, but I know it's not that. Plus if cooks make $15, then shift managers must make $17 and store managers must make $22 etc. Not to mention line cooks that have worked there 5 years now making the same as a guy walking in.

If the CEO can show that he has created enough profit to warrant the raise I can't argue it. However, if McDonald's profits have dropped, giving the CEO a huge raise and a line cook a nickel, it's in very poor taste and not going to help morale at all.

by Anonymous on May 28, 2013 at 7:50 AM. #

Good comment, and appreciate the math.

Let's do some more math. If pay would increase to $15/hour, and a worker works approximately 29 hours a week (we can't have that worker earn health care benefits under the Affordable Care Act), that would equate to approximate $22,000/year.

A $4.4 million increase represents approximately 200 of those jobs. Couldn't we save half those jobs if the CEO only got a $2.2 million increase?

by Matthew Stollak on May 28, 2013 at 8:05 AM. #

The "black hole theory" of the minimum wage:
Physicists theorize that inside a black hole the laws of physics breakdown. When the minimum wage falls far enough below what the market would bear the laws of supply and demand breakdown. Doubling today's federal minimum wage should lead to a disproportionate explosion of demand for the goods of minimum to median wage paying employers.

If we cut today's minimum to median wages in half that wouldn't help McDonald's or Wal-Mart, would it? This wage cut must already have taken place when we would need to triple today's minimum wage to catch up with doubled productivity since 1968 (almost quadruple the early 2007 minimum wage -- the median wage stagnated as productivity doubled too).

Doubling today's minimum wage to $15 an hour would add 50% to Wal-Mart's wages but only 5% to Wal-Mart's prices – 100% to McDonald's wages but 33% to McDonald's prices. $15 an hour being today's median wage, half the workforce would get raises percentage multiples of pass through price increases.

This win-win effect could not go on forever. At $30,000 a year consumers would buy a lot more fast food and retail items than they will at $15,000 a year – hugely pent-up demand. Going from a $30,000 year minimum wage to $40,000 would raise prices (3% at Wal-Mart; 11% at McDonald's) but not add much to demand – though some people would have more money to spend -- a wash? Somewhere in between is the edge of the black hole.

by Denis Drew on June 3, 2013 at 2:40 PM. #

In light of the recent positive economic data in the USA & UK, one wonders if we're in the death spiral predicted by economic analysts 18 months ago.

Wages are falling both in terms of value and real terms. Bankers bonuses will only be taxed after an almighty political battle and all the while, Main Street is suffering.

by Insight247 on June 6, 2013 at 9:18 AM. #

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