Author Archives: Tom Masterson

Fast Food Workers Demand Living Wages

The news was full of items about wages this past month. First up, let’s talk McDonalds, shall we? They were in the news for a couple of reasons this past month. First, they put out a sample budget that apparently was meant to help someone working for them for minimum wage. It certainly sheds some light on the thought processes at work in the multi-billion-dollar-profit corporation. First and foremost, the budget assumes two jobs, the first one presumably being a full-time minimum wage job at Mickey D’s. The monthly net income of $1050 is a little hard to swallow, though. That would be about the amount left from a full-time (40 hours per week) minimum wage job after payroll and Medicare taxes are deducted. But many minimum wage employees at McDonald’s and other fast food franchises have a hard time getting full-time schedules. The second job nets almost as much per month. So really we’re talking about McDonald’s suggesting its workers work 2 full time jobs here. This is already unrealistic. Since these types of jobs have shifting and unpredictable schedules, the probability of managing to juggle two of them full-time is what we economists like to call very low.

But let’s assume that this sort of balancing act is doable. What does this mean for the person doing these two jobs? Let’s do some simple math, shall we? There are 168 hours in every week (that’s 7 days times 24 hours). Two full time jobs add up to 80 hours per week on the job. That leaves 88 hours per week to do the fun things in life, like sleep (the doctor-recommended sleeping time is about 56 hours per week: 7 days times 8 hours), bathe and eat. Also commuting to your low-wage-paying but super-helpful-with-your-budgeting job. And also that other job. Don’t worry, you’ll have plenty of time to see your kids when you retire. Of course, at $2000 a month, you’ll never be able to retire. OK! Moving on!

So what else is in the budget. Healthcare? You bet! The health insurance line item is $20 per month. Got that? Let me repeat it for you. The health insurance line item is $20 per month. Does this need further explanation from me? It apparently does need further explanation at McDonald’s. If you’re listening, McDonalds, healthcare even though it will be more affordable when the Affordable Care Act goes into full operation, will still cost more than $20 per month. McDonalds’ own cheapest option for their employees is over $50 a month (and that’s not a family plan, I’m guessing).

As the Forbes writer Laura Shin points out, there are no line items for child care, gas, groceries or clothing. But come ON. There is a line labelled “other” that is $100 a month. Take THAT Laura Shin! Also, please let our readers know where they can find quality childcare for less than $100 per month. Also, how to become breatharians. (On a side note, PLEASE DO NOT ATTEMPT TO LIVE ON AIR ALONE! YOU WILL DIE!!). Thanks for the help, crazy McDonald’s Human Resources person.

We’re not done with McDonalds, yet. Though we’re now talking about fast food workers in general (not just those that work at McDonalds), a lot of the coverage has focused on McDonalds because of the whole budget thing and because they are the symbol of fast food in this country. This past month, in a continuation of a campaign by Fast Food Forward, an organization that is attempting to organize fast food workers in large cities around the country, fast food workers staged one day strikes throughout the country. There was not much coverage of this story in the news. Their demands are simple: $15 an hour. That’s twice the current minimum wage of course. But, $15 an hour would mean that the target of McDonalds poverty budget could work just one job and still get the meager take home pay represented by that budget. That would still be a huge improvement for workers at those restaurants, who often do not get full-time hours even at their current low pay. What would this mean to you, gentle readers? If you eat at McDonalds, you would see a very small price increase, even if you assume that all of the extra cost is passed along to you in higher prices. Economic studies of minimum wage increases in fast food restaurants have shown that not all of the increase is passed on, though. How’s this for a crazy idea: the company could take smaller profits. You probably NEVER hear that if someone’s talking about the minimum wage. Except someone like your humble narrator, of course.

Won’t a higher minimum wage ruin everything forever, though? There is a compelling case that it will not. An interesting case was made by Nick Hanauer (one of those intertewbz entrepreneurs) in Bloomberg News, of all places. Summing up, he says “Raising the earnings of all American workers would provide all businesses with more customers with more to spend.” This is just common sense. It is also one of the rare cases where economic logic and common sense coincide.

References:

Colbert: McDonald’s Budget for Minimum Wage Employees Proves They Don’t Care About Math | Video Cafe

Why McDonald’s Employee Budget Has Everyone Up In Arms – Forbes

Hold your burgers, hold your fries, make our wages super-sized » Balloon Juice

Your Big Mac would cost shockingly little extra if McDonalds workers were paid $15/hour by David Atkins – Hullabaloo

Fighting Back Against Wretched Wages – NYTimes.com

Fast food strikes intensify in seven cities – Salon.com

Largest Fast Food Walkout Begins in Seven Cities | The Nation

The Capitalist’s Case for a $15 Minimum Wage – Bloomberg

The Economics of a Higher Wage Floor – NYTimes.com

Making $7.75 an Hour, and Figuring There’s Little to Lose by Speaking Out – NYTimes.com

 

Abstract Labor: House Prices Won’t Be Rising for Long

[cross-posted]

James Hamilton, at Econbrowser, notes that he’s surprised by the 0.75% increase in average house prices (as measured by the S&P/Case-Shiller Index of twenty cities). He also says he’s skeptical because of the backlog of unsold homes, likely increases in foreclosures, and high, rising unemployment, especially since Calculated Risk is, too. I agree that there’s reason to be skeptical, especially since this rise in prices is likely to be a surge of people cashing in on the Obama stimulus package’s $8,000 tax credit for first-time home buyers, which expires this fall. If prices continue to rise beyond that critical point, I’d say my skepticism (and CR’s and Hamilton’s) are wrong.

Jobs Report + Stress Tests = More Zombie Banks

Zombie banks

Check out this entry from Calculated Risk if you’d like a shot of cold, hard reality about the value of the happy Stress Test predictions. So far, unemployment is exceeding the “more adverse” stress test scenario and already higher than the peak unemployment rate in the baseline scenario. That rough beast slouching towards Bethlehem not to be born, but to die, is Bank of America.

Calculated Risk: Employment Report: 539K Jobs Lost, 8.9% Unemployment Rate

CBO Director’s Testimony Ignores Most Obvious Use of Cap-and-Trade Revenues

Congressional Budget Office Director Douglas W. Elmendorf summarizes his testimony to Congress (there’s also a link to the pdf file of the full testimony). Unfortunately, the simplest way to ‘distribute the value of carbon allowances,’ to paraphrase Elmendorf, is not mentioned: dividing it up equally. The technical details (division!) have been dealt with before on this blog by Jonathan. Why would this obvious alternative be left out? My inner conspiracy theorist whispers that it’s left out to make giving away allowances the most politically viable alternative on the table. After all, why should all those poor folks benefit, when the rest of us have to shell out more at the pump?

Director’s Blog » Blog Archive » Testimony: The Distribution of Revenues from a Cap-and-Trade Program for Carbon Dioxide Emissions

Is the Fed powerless to stop inflation if the economy recovers?

Steve Matthews and Michael McKee at Bloomberg seem to think so. But a simple idea occurs to me: if the Fed is really worried that banks will cause inflation by drawing down reserves, can’t the Fed just raise the required reserve ratio (that’s the percentage of a bank’s deposits [your checking account, for example] that it is required to keep in it’s reserve account at the Fed)? This seems too simple. Am I missing something or are Bloomberg’s reporters?

A flawed second draft of history

In “A flawed first draft of history“, FT editor Lionel Barber gets history wrong (again). He claims the origins of the financial crisis were too hard to spot even for financial reporters, because they were to be found “in the credit markets, coverage of which in most news organizations counted as a backwater.” All those derivatives and such were the root of the problem. Actually, as some economists predicted,* the origins of the current crisis were to be found inthe bursting of a huge housing bubble (you may have heard of this). The Financial Times, on the other hand, believed Harvard economists who found that the growing number of households in the US meant that the increase in housing prices was warranted. Third time’s a charm!

* I predicted it, too, when I first heard that the Fed was raising interest rates again in 2004. Alas, I have no written proof.

Who will raising FDIC limits help?

UPDATE, below

The part of the new bailout bill that’s supposed to bring along the most formerly reluctant House members is to raise the coverage limit for Federal Deposit Insurance Corporation (FDIC) insured personal deposits (which includes savings and checking accounts, cds and money market accounts) from the current level of $100,000 to $250,000. Obama, McCain and the FDIC all approve. See this story, for instance. But who does this really affect? Using data from the 2004 Survey of Consumer Finances (the 2007 numbers aren’t yet available) and adding all covered accounts within households (note that this overstates coverage, since the insurance covers accounts not households) produces this table:

Number of Households Percentage of all Households
Less than $100,000 106,433,692 94.9%
Between $100,000 and $250,000 3,976,714 3.5%
More than $250,000 1,698,530 1.5%

That’s right, this plan will help to insure that 3.5% of households with deposits over $100,000, but not the 1.5% with deposits over $250,000. I guess they’re on their own. Actually, most people in both of these categories already keep multiple accounts, to stay under the insured limit, so it will help not that much. However, it does make it look like a “compromise was reached on an improved bill,” allowing representatives to say that they held out for their constituents while they’re campaigning over the next month.

You don’t suppose that’s the point, do you?

UPDATE:

meanwhile, FDIC is doing a fine job slowing down lending.

McCain v. Obama on taxes

As discouraging as votes on things like FISA and telecom immunity have been, there are still some enormous differences between the two major party candidates. For example, there’s the distributional impacts of their tax policy proposals, as well-illustrated in the figure below from the Tax Policy Center’s newly updated analysis (click on image to enlarge).

 

Figure 2 from Updated Analysis of the 2008 Presidential Candidates

(Tip of the Econ-Atrocity chapeau to Paul Krugman)

Good News! Drilling ANWR would save $0.02 per gallon, 10 years from now!

Just when you thought there would never be any good news about the economy, oil, or anything along comes this. McClatchey reports that a new report commissioned by Ted (“the internet is a series of tubes“) Stevens (R, Alaska) finds that drilling the Arctic National Wildlife Refuge in Alaska would, in ten years, bring the price of a barrel of oil down by $0.75. Wow. At today’s prices ($135 per barrel and $4 per gallon) that gives us a 2-cent reduction in prices at the pump. In ten years. Seems well worth it to me (in opposite-world; for fans of Superman, that’s Bizarro World [thanks Bob!]).

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