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This Is Why Stagnant Working Class Wages Are Unsustainable...


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Thompson also noted that in the U.S., fast-casual restaurants now appear to be performing a bit better as customers with a little more to spend skew toward those chains. However, McDonald’s main customer base “isn’t faring quite as well in the current economy.” And that’s made competition with rivals such as Burger King and Wendy’s all the more fierce. All three chains have been aggressively promoting their value menus in the fight for customers.

This is what happens when companies - ironically, like McDonald's itself - has a business model based on large profits by keeping wages and benefits low. The whole system gets to a point where the workers can't buy the s*** their own company is selling.

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The excuse is that prices should drop as a result. Maybe if we wait another hundred years it might happen. Until then, we can expect more trimming of the labor costs. "Sorry Joe but you aren't buying enough of our shït and we have to let you go to maintain profits."

But there's a limit to how much they can do this. There is a minimal number of employees needed to physically run each restaurant. The CEO isn't going to be down there taking people's money, so they NEED people to do those things. And as they lay off people and approach that minimal number of workers, their ability to boost profits by cutting worker jobs and salaries disappears. So at some point, their profits are going to drop until there are enough good paying jobs for people to once again start buying their products. What all of these companies are doing is slowly putting themselves out of business. The problem is that they're only concerned with the short-term profits they can make over the next few years.

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But there's a limit to how much they can do this. There is a minimal number of employees needed to physically run each restaurant. The CEO isn't going to be down there taking people's money, so they NEED people to do those things. And as they lay off people and approach that minimal number of workers, their ability to boost profits by cutting worker jobs and salaries disappears. So at some point, their profits are going to drop until there are enough good paying jobs for people to once again start buying their products. What all of these companies are doing is slowly putting themselves out of business. The problem is that they're only concerned with the short-term profits they can make over the next few years.

It's such a basic concept too. Why can't the CEOs and economists understand it?

Plus it would be nice if the government told these CEOs that they are no longer going to subsidize their workforce just so they can keep raking in profits.

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It's such a basic concept too. Why can't the CEOs and economists understand it?

Plus it would be nice if the government told these CEOs that they are no longer going to subsidize their workforce just so they can keep raking in profits.

I think a lot of CEOs probably do understand it. Again, I attribute it to short-term profit incentives. What's the incentive of a CEO making millions to protect the profits for shareholders to increase wages and benefits? In the long term, it's not sustainable, but for now they're making huge profits and see no reason to do anything that would eat into those profits.

A lot of our economic system is plagued by short-term incentives that are destructive to the economy in the long-run. The housing bubble was a classic example of that.

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I'm confused. Just a week ago we saw that these companies were having record profits and using that to justify the increase in minimum wage. This week they are all in a fierce fight for consumers because they can't afford to eat there. Which one is it?

Record profits would indicate that they are not having a problem finding consumers to buy their product. If that is the case, saying this is misleading is putting it nicely. If they are not having record profits, then some people need to go back and edit their facts supporting raising minimum wage.

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I'm confused. Just a week ago we saw that these companies were having record profits and using that to justify the increase in minimum wage. This week they are all in a fierce fight for consumers because they can't afford to eat there. Which one is it?

Record profits would indicate that they are not having a problem finding consumers to buy their product. If that is the case, saying this is misleading is putting it nicely. If they are not having record profits, then some people need to go back and edit their facts supporting raising minimum wage.

Read the OP and then try again.

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Read the OP and then try again.

I did, and I stand by my post. Record profits indicate they are not in a fierce battle for consumers. If their primary market of consumers can't afford to buy their product, how can they have record profits? That doesn't make sense and does not hold up to logic at all. Logic would indicate a drop in sales and profits if your primary market can't afford your product anymore.

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I did, and I stand by my post. Record profits indicate they are not in a fierce battle for consumers. If their primary market of consumers can't afford to buy their product, how can they have record profits? That doesn't make sense and does not hold up to logic at all. Logic would indicate a drop in sales and profits if your primary market can't afford your product anymore.

Record profits aren't mutually exclusively with fighting for the dominant position on the market share.

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I did, and I stand by my post. Record profits indicate they are not in a fierce battle for consumers. If their primary market of consumers can't afford to buy their product, how can they have record profits? That doesn't make sense and does not hold up to logic at all. Logic would indicate a drop in sales and profits if your primary market can't afford your product anymore.

Then you didn't read it very carefully, nor the follow up posts to which you commented.

AT THIS MOMENT these companies are making record profits. But McDonald's is now seeing the consequence of their business model where they are having to admit that their main base (including people like their own workers) aren't able to afford their products. That shows why the business model is UNSUSTAINABLE, as in cannot be continued into the LONG-TERM future. Nobody said they are in dire straights AT THIS VERY MOMENT. We said that it was not something that could be sustained LONG-TERM INTO THE FUTURE.

But please, continue the "ZOMG youz said theyz record profit now youz say dey collapzin" nonsense.

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The excuse is that prices should drop as a result. Maybe if we wait another hundred years it might happen. Until then, we can expect more trimming of the labor costs. "Sorry Joe but you aren't buying enough of our shït and we have to let you go to maintain profits."

The funny thing is that one of the responses in the article is that they are adding higher priced items to their "Dollar Menu":

To address concerns that the strategy could eat into profit margins, McDonald's recently updated its decade-old Dollar Menu. The "Dollar Menu & More" now includes items that cost around $2 and $5. McDonald's said the new menu is meeting expectations.

They're having to shift their pitch to higher income people and market themselves as no longer cheap fast food for the masses.

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Record profits aren't mutually exclusively with fighting for the dominant position on the market share.

Yes, but that is not the point of the OP. If it were, my rebuttal would be that competing restaurants have and will ALWAYS fight for the dominant position in the market share, so that would not be evidence of anything.

Then you didn't read it very carefully, nor the follow up posts to which you commented.

AT THIS MOMENT these companies are making record profits. But McDonald's is now seeing the consequence of their business model where they are having to admit that their main base (including people like their own workers) aren't able to afford their products. That shows why the business model is UNSUSTAINABLE, as in cannot be continued into the LONG-TERM future. Nobody said they are in dire straights AT THIS VERY MOMENT. We said that it was not something that could be sustained LONG-TERM INTO THE FUTURE.

But please, continue the "ZOMG youz said theyz record profit now youz say dey collapzin" nonsense.

This is another invalid post. Many employees at many establishments cannot afford the products of their employer. How many sales reps at Gucci actually shop regularly at Gucci? If they do, they are one of the millions of Americans swamped in debt, and they cannot actually afford to shop there even if it is what they choose to do. Does the bus boy at Chops regularly eat at Chops? Unless he gets hooked up, I sincerely doubt he's spending his paychecks there.

Where did McDonald's admit that their own employees cannot afford their menu? I cannot imagine that being the case. You can get three things off the dollar menu that has your entire daily caloric intake recommendation. $3.21 for a full days worth of food. Even at minimum wage, $60 per day earned, only 5% of your income is spent on food. The majority of Americans spend WAY more than that on food.

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This is another invalid post. Many employees at many establishments cannot afford the products of their employer. How many sales reps at Gucci actually shop regularly at Gucci? If they do, they are one of the millions of Americans swamped in debt, and they cannot actually afford to shop there even if it is what they choose to do. Does the bus boy at Chops regularly eat at Chops? Unless he gets hooked up, I sincerely doubt he's spending his paychecks there.

Where did McDonald's admit that their own employees cannot afford their menu? I cannot imagine that being the case. You can get three things off the dollar menu that has your entire daily caloric intake recommendation. $3.21 for a full days worth of food. Even at minimum wage, $60 per day earned, only 5% of your income is spent on food. The majority of Americans spend WAY more than that on food.

Yeah, because people only need to eat one meal a day. rolleyes.gif

Go back and read the OP again. Then read the post to which you just responded. Hint: There's a bit of nuance in the statement that pertains to a larger point that you are obviously missing.

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Raising the minimum wage will not reduce poverty. This is a well proven bad idea. Good rhetoric will convince people to do it, but it will not help.

It is like the misleading statement that the top 1% have more wealth than the bottom 40%. True but misleading. If you have a net worth of $0.01 or more, then you are wealthier than the bottom 40%.

"There are lies, damned lies and then there are statistics."-SC

Edited by Flip Flop
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Some boats have been lifted by the economy over the past 30 years. But the rising tide hasn't lifted all boats:

income-quintile2-12.gif

a rising tide won't lift all boats, it will only lift the ones that float. Some people will drown in the economy around them. I'd guess that to be around 10% of the population. It's the rest of them that I'm worried about.
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