California Rep. Barbara Lee wants us to “do the math.”
So, Dear Reader, let’s all break out our calculators…
Rep. Lee, who represents Oakland, up in Northern California, sparred with other members of Congress earlier this month over how high to raise the federal minimum wage. Right now, that wage is set at $7.25 per hour.
Granted, that’s pretty low, given the shark-jumping cost-of-survival in America.
But Rep. Lee… she wants to hike the minimum wage to $50 per hour.
Fifty.
Not fifteen.
Fifty.
In urging us to “do the math,” Lee referenced a report that found a family of four in the San Francisco Bay Area would need $127,000 a year just “to get by.” Of course, that’s the Bay Area, on the most notoriously pricey spots on the planet, and not, say, Ottumwa, Iowa, or Punxatawney, Pennsylvania.
But we’ll overlook that egregiousness for a moment to address the notion of earning $50 per hour—$104,000 per year—for flipping hamburgers or welcoming people to Walmart…
To be clear, I am not belittling those jobs in the slightest. Honest work is honest work.
But I am saying Barbara Lee has spent too much time breathing Northern California air if she truly thinks $50 per hour will raise the living standards of America’s low-wage workers.
Hell, to think that any particular minimum wage will save lower-paid workers is ludicrous.
Let me say right off the bat that I’m not a believer in “let the free markets do what they want.” That’s a disaster too. The “free market” would sell its grandmother into prostitution if it thought that was a way to squeeze out an extra percentage point of profit…
But a “wage” does not exist in a vacuum.
Raise minimum wages to $50 per hour for the burger flipper, and the shift manager at Bob’s Burger Barn is going to demand $65 per hour. And the store manager is going to demand $80 to $100 per hour. And the district manager is going to demand $150 per hour.
You can see how trouble flows upward, like an exploded sewer main.
But Barbara wanted us to “do the math,” so, Dear Reader, we math…
The typical Mickey D’s (to pick a business with low-wage workers that we all know) racks up about $3.5 million in annual sales, according to Franchisechatter.com.
About 26.6% of that goes to so-called “cost of sales.” Those are the costs for buying the ingredients, keeping the lights on, the fryers frying, and paying the salaries of sandwich assemblers, cashiers, and the like. Crew payroll and manager payroll, in particular, amounts to about $650,000, based on other franchise data I’ve seen.
You can already see that at an annual salary of $104,000, the typical McDonald’s franchisee could hire six people to run the store, assuming the owner of that franchise wants to maintain profitability and actually earn a return on investment.
Just so you know, the typical McDonald’s functions on a team of between 80 and 100 workers.
Let’s be generous and say a franchisee hires a skeleton crew of 80 to keep the eatery going. At fifty bucks per hour, that’s $8.3 million in annual crew salaries. And that’s assuming everyone makes $50, including managers and whatnot. The real number is likely closer to $10 million.
So just to hire a skeleton crew to run a McDonald’s at $50 per hour is nearly 3x what the average Mickey D’s gathers up today in annual sales of double cheeseburgers and Happy Meals.
And clearly, we all know what that means: McDonald’s menu prices would have to shoot the moon.
But here’s the real nut of this nutty idea: The person earning $50 per hour would be in the exact same financial position they’re in right now because consumer prices would have to rise throughout the economy so that business owners can make a profit and feed their own families, too.
Fifty bucks an hour would in no way solve the low-income worker crisis in America today.
It would simply mean that $100,000 becomes the new poverty wage floor.
Thing is, I’ve seen this in action… in Switzerland.
I popped into a burger joint in Zurich several years ago (before inflation was a global phenomenon). Just your basic burger shack near a high school. It was populated by students grabbing lunch, jabbering, gossiping, and cramming for an afternoon test. So, you know, not really what you’d call fine dining.
I ordered a basic cheeseburger, fries, and a Coke Zero.
That was the entirety of my order.
My bill: $42
I was gobsmacked.
When I met up with a Swiss friend later (an investment manager), I asked him about that craziness.
“What you don’t realize, Jeff, is that the guy who mops the floors at night is making close to $75,000 a year. Salaries are crazy here. Prices have to be high.” (Again, this was about a decade ago.)
That is precisely what would happen in America. And it’s only logical that this would be the case.
So, Dear Babs: I did the math, like you asked.
It doesn’t math.