McDonalds, Taco Bell as Welfare Queens: Over Half Their Workers Use Public Assistance

Like Walmart, the fast food industry has taxpayers as a silent partner. But sadly, we don’t get shares or dividends.

The National Employment Law Center has been publishing reports on how the rock-bottom wages paid to fast food workers force them to rely on public assistance. The NELC released two new documents yesterday that drill further into the issue. Here’s an overview from the Washington Post:

Taxpayers are spending nearly $7 billion a year to supplement the wages of fast-food workers, even as the leading fast-food companies earn billions of dollars in annual profits, according to a pair of reports released Tuesday.

More than half of the nation’s 1.8 million “core” fast-food workers rely on the federal safety net to make ends meet, the reports said. Together, they collect nearly $1.9 billion through the earned income tax credit, $1 billion in food stamps and $3.9 billion through Medicaid and the Children’s Health Insurance Program, according to a report by economists at the University of California at Berkeley’s Labor Center and the University of Illinois.

Overall, the “core” fast-food workers are twice as likely to rely on public assistance than workers in other fields, said one of the reports, which examined nonmanagerial fast-food employees who work at least 11 hours a week and 27 weeks a year.

Even among the 28 percent of fast-food workers who were on the job 40 hours a week, the report said, more than half relied on the federal safety net to get by.

The Post deserves credit for flagging at the top of the piece that the fast food industry is handsomely profitable as a result of this stealth subsidy. It’s not as if they can’t afford to pay better wages but it sure is more lucrative for them not to.

But many readers will have looked only at the headlines, and not delved into the stories proper. And the headlines don’t finger the employers as welfare queens. Some examples:

Half of fast food workers need public aid CNN

Majority of Texas fast-food workers on public assistance San Antonio News Express

Low fast-food wages supplemented by billions in govt welfare – report RT

Fast-Food Workers Are Costing the U.S. $7 Billion a Year in Public Aid Time

The Time article does a perversely masterful job of shielding the restaurants from blame. Here’s how it starts:

Those cheap fast-food prices conceal a huge hidden cost—even if you never pull into a drive-thru. New studies by the University of Illinois, University of California, Berkeley, and the National Employment Law Project find that taxpayer-funded safety net programs effectively subsidize fast food workers’ low wages.

In other words, the implication is that if there is any culprit, it’s American’s appetite for bargain fries and burgers. We only get an oblique reference in the sixth paragraph to the idea that the companies themselves might have something to do with this situation:

Of course, fast food companies aren’t the only ones that rely on minimum- and low-wage workers; big-box retailers like Wal-Mart have also come under fire for what they pay employees. But researchers found that 44 percent of restaurant and food service workers were enrolled in one or more assistance programs, the highest of any industry.

A July report by the NELC demonstrated how these badly-paid workers were the bulk of industry employees:

Screen shot 2013-10-17 at 1.06.14 AM

…how low the pay really is…

Screen shot 2013-10-17 at 1.08.04 AM

….and how, contrary to industry claims, the jobs aren’t a stepping stone to better things. Working for a McDonald’s is no longer mainly a part-time or summer job for high school and college students. Only 18% are below 18 and living with their parents; even if you include all minors (which also picks up ones living on their own) and college students living at home, you reach only 1/3 of total employees.

And the claims that front line workers can become managers and owners? Complete hogwash. Most fast food stores are franchises, and they don’t go for sweat equity:

Screen shot 2013-10-17 at 1.16.43 AM
Screen shot 2013-10-17 at 1.17.12 AM

This Real News Network interview with Jack Temple of NELC not only debunks the industry’s efforts to defend its practices, but also describes how it is playing a central role in driving down wages:

More at The Real News

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    1. Van

      Thanks for the most comprehensively useful link I’ve come across on NC. Anyone having counter arguments to Ellerman’s ideas please pass them on. I’m still in the infatuation stage of looking at employment contracts being at odds with the labor principle of private-property appropriation.

  1. kimsarah

    Thank goodness for McDonald’s and Taco Bell. Imagine what the jobless rate would be without them.
    Imagine what the “real” jobless rate would be.
    What a Kroc.

    1. diptherio

      The problem is not the jobs themselves, but rather the distribution of the revenue stream that results from them. In the absence of public assistance programs, the owners would have to distribute the revenue more justly (i.e. give the workers more) or else their employees would, literally, starve to death. The owners are able to capture a much larger portion of the revenue stream than would otherwise be possible because they can depend on the beneficence of the government to keep their employees from starving or freezing to death.

      If fast food franchises could not be profitable at all if they paid their workers a living wage, then they shouldn’t exist at all. If fast food can only be profitable with government wage support for the workers, they should either be out of business, or publicly owned. Ray Kroc and his ilk have benefited far more, personally, from the existence of public assistance programs than any of their employees.

      1. Jeff Z

        Not so sure. Much labor in the past in the U.S. didn’t really pay a ‘living’ wage. The ‘subsidies’ for such low wages emerged in different guises. If working in the Chicago stockyards in the 1880s didn’t provide enough for a family, then the worker’s wife worked as a domestic, or performing domestic duties for others in the neighborhood. And his kids likely also worked. There were also private and religious charities that worked to alleviate some of the burdens of poverty.

        Or consider the idea of ‘pin money’ that emerged in the 1960s and 1970s as women began to enter the labor force in much larger numbers. The argument for paying them less was that they were married, so they didn’t really need the job. Her husband was thought to be the primary breadwinner. Her job was regarded as paying for extras, like ‘pins’ to complete her outfit. Her husband’s pay enabled her employer to reduce her wages below what they otherwise would have been.

        Note how an idea about the ideal family structure affected economic and business thinking. Note how this ‘ideal’ allocated one paying job to the household, to the husband. The economic reality for the very poor and large parts of the working class has almost always been much different.

        1. anon y'mouse

          pin money may have derived from “egg money”.

          it is said that women had significant income from home-based industries, prior to the 1960’s revelation that women could work outside the home FOR AN EMPLOYER and earn extra dosh.

          women supposedly controlled much of the trade in cloth in 17th century Italy.

          women all over the world are still supposedly providing the majority of agricultural work. many people can eat because of this very low paid work.

          women have always worked both inside and outside the home.

          none of this is meant as a rebuttal, btw.

      2. DavidS

        Great point.

        This may be a major reason why Americans possess comparatively fewer skills compared to more advanced economies – these jobs, much like those in retail, have been de-skilled.

        They have been engineered (mostly by consultants) to be highly process-oriented and therefore require virtually no decision-making or judgement. In short, they have automated, except for now the robots are still people.

        This stands in marked contrast to independent businesses (not to be confused with franchises), where a) employees perform far more unstructured tasks and b) the opportunity to learn critical skills while on the job still remains, as does the opportunity to advance to a more senior position, as virtually all decision-making takes place locally.

        As independent businesses have largely disappeared in recent decades, to be replaced by corporate owned chains in which the overwhelming majority of the skilled employees are concentrated in a single headquarters location where most decisions are made.

        The effects on the quality of the labor force have been dire.

  2. JGordon

    I agree. I personally believe that all jobs, not just most jobs, should be utterly demeaning to point of stripping citizens, er I mean “consumers”, utterly of their human dignity. Such as these fast food jobs. Once everyone is sufficiently miserable, the American people will be much more amenable to having another revolution.

    Or as many are already doing, we could all just plead disability, drop out and start collecting benefits. Which is not a bad plan either, since it would lead to the same positive end: collapse of the current system. I like your attitude kimsarah; we could get along.

  3. middle seaman

    Businesses are make huge profits and typically right away. Fast food joints can’t raise costs of burritos to $10, no one will buy them, so they pull the money from their workers. The communication and telephone businesses raise prices and extract the money directly from the customers. In the US we pay three times as much as European do for Internet connection. In addition, the speed and volumes we pay for are way lower than the European one. The clothing industry charges hundreds of dollars for any product of any level above zero quality. We do know that the product is made in China for pennies.

    I believe it’s called American Capitalism.

    1. skippy

      Did someone say – ***American Capitalism*** – and who’s been driving that ship for the last 40ish years….

      “The moral justification of capitalism does not lie in the altruist claim that it represents the best way to achieve ‘the common good.’ It is true that capitalism does—if that catch-phrase has any meaning—but this is merely a secondary consequence. The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.” — AYN RAND

      Skip here… braking it down…

      1. morals are synthetic a priori – no perfect knowledge – religious in origin (go read about it, highly conflicted).

      2. Altruism is a measurable, testable and repeatable measurement.

      3. “man’s rational nature” is another synthetic a priori – no perfect knowledge – totalizing of thought – philosophical whack job.

      Skippy… Kant Kan’t

      1. MikeNY

        You are right that Rand was a bad philosopher; she was a worse novelist.

        You are also right that a philosophy that insists that all human actions derive from self-interest is false; Popper would say it is unfalsifiable. You are also right that it conflicts with most religions, which take altruism as a fact.

        Others here (Banger, from Mexico) have noted these problems with modern capitalism. I would only add that it is by no means clear that capitalism ensures man’s survival qua man, or man’s survival at all — since it pits him unceasingly against his brother, and considers the earth and all creation merely as the raw materials of production.

        We need to find our way to another economic ethic.

      2. readerOfTeaLeaves

        The moral justification of capitalism lies in the fact that it is the only system consonant with man’s rational nature, that it protects man’s survival qua man, and that its ruling principle is: justice.” — AYN RAND

        ‘moral justification’, my arse.

        Rand needed to read a lot more anthropology, which lays bare the lie about man’s ‘rational nature’.

        Too bad David Graeber’s “Debt: The First 5,000 Years” was not written during her lifetime. Although, given what I’ve read about Rand, it probably would have made her head explode.

        1. Thisson

          The “moral” foundation for free markets is Ludwig von Mises’ “economic calculation” problem.

          1. MikeNY

            I would submit wrt to von Mises that efficiency should not be confused with, or equated to, morality. More is NOT always, categorically, better. Distribution matters; equality of opportunity matters; social cohesion matters; peacefulness is preferable to violence.

            I would also submit that, while everything that can be measured is real, not everything that is real can be measured — and one does violence to human existence to ignore this fact.

        2. Natural Indeed

          Ayn Rand liked to think herself and the entrepreneur heroic. Right until she want on Medicare. She relies on an ethical claim, justice, to assert that being unjust is ‘natural.’ No, here’s what’s natural: Man is the animal that lives in a town, city, poleis. Throughout pre-history and early history people lived in tribes and clans. Letting a very skilled hunter, warrior, or wise person eat more may have been fine, but letting them keep all the food wasn’t, because hunting alone didn’t work. The apparatus of “civilization,” the techniques to centralize wealth and power, changed the equation. There is nothing ‘natural’ about shoving the employee’s cost off to the taxpayer. There is nothing “natural” about assuming a profitable McDonalds doesn’t require the roads, schools, laborers, police, electricity, and all the other support that makes a drive-in profitable. No society can give the least able people a luxury life, but neither can any prosper allowing the benefits of infrastructure and social programs to be exploited for private accumulation of gain.

          1. anon y'mouse

            “No society can give the least able people a luxury life…”

            say what? we already DO. we give those least able to care about their outsized impact on others and the environment the most luxurious life imaginable.

  4. Skeptic

    Some health/nutrition organization should do a financial analysis of the health costs associated with all that Industrial Pink Slime, misnamed food. Then add it all up and serve with a soupcon of alacrity.

  5. Clive

    If you squint enough and think happy thoughts for a little while, you can just about discern that the notion that corporations must take some responsibility for improving the lives of the societies which feed them is gaining at least a modicum of traction.

    At least here in England. A drearily-worthy report in the usual turgid fashion has been released today and is getting some coverage, at least in the left of centre MSM:

    “We call on employers more actively to step up to the plate. They will need to provide higher minimum levels of pay and better career prospects in a way that is consistent with growing levels of employment. Half of all firms should offer apprenticeships and work experience. And unpaid internships should be ended in the professions.”

    All good stuff. Of course, what the report doesn’t answer is, if wages are to rise absent some magic improvement in productivity (and an many industries especially catering, lodging, retail etc. there’s limited scope for improved efficiency) then EITHER margins must be compressed OR prices must rise. If prices are allowed to rise absent corresponding increases in wages then the squeeze on the middle class simply continues.

    So, profitability must fall. But those corporate turkeys are not about to vote for Christmas (or should I say Thanksgiving).

    They will have to be compelled to (either via government policies or social pressure). Don’t see either of those emerging yet…

    The defining dilemma of our age.

      1. Clive

        All of which makes me mildly — very mildly, I’m not that convinced yet — optimistic. I was born in the early 1970’s so once I got into long pants all I was ever exposed to was Regan/Thatcher free market fundamentalism. Me, and, I guess the rest of the Western world.

        All that indoctrination will take a long time to shake off. Took me decades and I’m a pretty fast learner. It’s like turning around a supertanker. For the longest while, it’s as if nothing’s changed, the alteration in course is nearly imperceptible.

        But… even five years ago, to suggest that the “free” (cough) markets weren’t the perfect and only solution was to invite derision. There simply was nothing else on the table.

        Being able to describe the problem is half the solution. Or, as a minimum, ask the question.

        Q. Daddy, “What are corporations *for* ?”
        A. (2008 vintage answer) “Why, to make money for their shareholders, child”

        A. (2013 vintage answer) “Erm… well… let me see now…”

        1. readerOfTeaLeaves

          Early in his “Treasure Islands: Tax Havens and the Men Who Stole the World”, Nicholas Shaxson predicts that ‘tax’ will be a key issue of the 21st century. I think his prediction was spot-on.

          Like you, I see it in small ways.

  6. GRP

    Should we change the purpose of corporations from maximizing shareholder wealth to maximizing the living standards of the employees? Or perhaps set a maximum EPS (earnings per share) for any coproration over a specific size and tax everything above that at 100%?

    Or perhaps those who feel this is completely unfair and know a fair way of running a fastfood business should themselves start one, sell same foods at same price, pay the employees living wages and make a reasonable profit too. After all there would be no franchise fees to pay which should be a saving for the enterpreneur, all the costs (other than employee wages) being the same as that of any regular fast food franchise. This could even become a movement running all the other fastfood businesses into the ground.

    1. cwaltz

      One of the arguments capitalism makes is disingenuous if indeed shareholders are supposed to be the recipients of profitability. It’s been said that capitalism is supposed to reward productivity- shareholders have little to do with that- and the sky high productivity rates of America certainly don’t seem to be shared with the workers who actually produce and sell products.

      You do make a good point though. The investment class has gobbled up almost all the gains that corporate America has made. It’s left practically nothing for workers.

    2. Yves Smith Post author

      This “purpose of corporations is to maximize shareholder value” is made up garbage that came into vogue after Michael Jensen wrote an Harvard Business Review article that argued that CEOs should be paid like entrepreneurs, they needed equity-linked pay. CEO pay exploded. Jensen later repudiated the paper.

      Equity is a RESIDUAL CLAIM. Legally, shareholders come LAST, not first. Companies need to satisfy all other obligations first: paying vendors, which BTW include employees, meeting regulatory obligations, paying interest, and paying taxes.

      Legally, the equity of publicly traded stocks is an extremely weak and ambiguous claim. It means “you have a vote we can dilute at any time and we’ll pay you dividends if we have the dough and are in the mood.” The idea that people who are dumb enough to buy such a weak and vague promise should be catered to is really upside-down but in happens because they’ve gotten management in cahoots to screw everyone else.

    3. s spade

      The only way to change things is for people to stop eating the shit sold in fast food outlets. There isn’t any good reason to eat any of it, ever.

      On the other hand, there are food carts offering delicious meals in just about every American city.

      1. anon y'mouse

        living in the Capital of Food Carts (Portland, or) I often wonder about how the individual who work in those are being treated & paid. the only thing that somewhat assuages this worry is the fact that many appear to be worker-owned and operated.

        I don’t really have enough money to justify eating out at them, but if I did I would ask the workers what their experiences are like. don’t you remember Anthony Bourdain’s comment that the New York restaurant industry would have to shut down without illegal alien workers? that should be worrisome to all who eat out in New York. illegal status generally means more exploitation.

  7. Carolinian

    There is a way to require employers to surrender more of their huge profits for the public good. It’s called taxation. And there is a well known way to fairly bring health care to low wage workers: single payer. As for wages, how much energy does the left devote to raising the minimum wage–the best way to help these workers? Very little I’d say.

    So I’m not really sure what is gained by feeling morally superior to the owners of McDonalds or Walmart when they act in entirely predictable ways. The problem for the working poor is that the American left has raised the white flag on all of these issues and shown little stomach for fighting for economic equality–the toughest fight you can have in a country like ours.

    Therefore time to bring back the s word. Capitalism unrestrained by a competing socialist ideology is failing all over the world. I’m not holding my breath of course. Our mostly middle class left commentariat has little skin in this game.

  8. Ep3

    Yves, great post, tho I was surprised how short it was.

    From what I have seen from working as a line worker for 2 years at a McDonald’s is the following. Generally, someone will enter as a franchisee and have rights over certain territories. From what it seemed like tho is that the corporate mcd controlled profits by controlIing the amounts it charged for franchising fees, thus limiting profit. Then I also have noticed that stores that became profitable would have additional stores set up in their area and reduce the sales at the original store. This then cuts back on staffing and profitability of stores, which reflects on employment and pay. Also, from a collective bargaining standpoint, since many stores in a given geographical area can be owned by different persons, employees are not interconnected. Because that seems to me from a health insurance group bargaining position that McDonalds employees would have great negotiating power due to their numbers. But the insurers would only look at each franchisee as a group. So instead of 100 stores negotiating health care, you have 6.
    Not sure how versed you are in food and retail yves but let me take a minute to update folks. On the profit & loss, the cost of goods is the food of course. The target number is usually 30% of sales. Then labor is computed the same way, at 30% of sales. This then leaves your fixed expenses (rent, utilities, etc.). McDonald’s has a computer system that computes labor and cogs perpetually. So if sales drop after lunch, instead of redirecting persons to other job functions (maintenance, employee training), persons are sent home to get labor costs down.

    1. Malmo

      McDonald’s has spent the past 40 years surpressing any and all organized labor movements within it’s confins. It has an elaborate labor relations division consiting of highly skilled attorneys whose only mission in life is to snuff out even a hint of worker rebellion. I remember back in the early 80’s when their stud Oak Brook corporate headquarters attorney in this division, Stan Stein, boasted to me personally that McDonald’s had a 100% perfect record in labor disputes within the company. In other words for the corporation to remain viable and profitable there was zero tolerance for any collective bargaining commencing for shift workers. The whole goal of McDonalds labor relations division was to prevent any labor orginations from forming. To my knowledge they have been 100% successful since my conversation with Stein. Their model here is the model all fledging fast food concerns copy, I’m sure. Employees be damned. Shareholders rule.

  9. PaulW

    Sounds like a slave labour class. Yet if people can’t even earn enough to feed themselves and must also collect food stamps then aren’t we talking about a Holocaust slave labour work force. Quite unsustainable.

    Questions: how much of this is really starvation wage? Do fast food earnings go to luxuries, while food stamps cover the daily bread?

    In Canada I know a number of people who work at WalMart. Also know people at Tim Horton’s. They’re middle class just as I am. They have a home, they don’t go hungry, home computer, cable tv etc… They even own cars, cell phones, lap tops(which I don’t) and certainly eat out and shop more than I do – I’m pretty cheap. I don’t know how much of this is sustained by running up debts but it doesn’t seem as dire as the picture being painted south of the border. Perhaps the Nazis could have made Auschwitz sustainable if they’d provided the prisoners with debit cards?

    Time will tell how dire this situation is. Can’t help but wonder how many people are taking advantage of the situation to work and to also take social welfare of some form. As a poster pointed out: just go on Disability. The Obama Generation strikes again!

    1. cwaltz

      The whole entire point of the article is that these people are working and taking social welfare. Why? They don’t earn enough to cover the basics.

      A full time minimum wage earner earns $295 a week BEFORE PAYROLL TAXES. Using the formula the government provides for percent of pay for housing of 30% that means they get a whooping $310 for housing. I live in Appalachian SW Virginia, not known for it’s expensive lifestyle, and there isn’t a single living arrangement that allows for someone to live on that without some sort of roommate. Hell, you need $400 for a studio. Using the thrifty USDA plan, you need $168 a month for food. You’ve now blown through over half your budget and you haven’t even covered transportation, utilities, medical/dental, etc, etc.

      They aren’t using these programs because they’re scammers, they’re using them because their employment situation is abysmal and not likely to get better when even a year at community college is over 1/3 of a FULL TIME worker’s pay.

      1. NotTimothyGeithner

        If I imagine they are driving Beamers, I don’t have to feel bad about complaining about the generosity of the American welfare system!

        1. cwaltz

          As long as we’re taking a trip to imagination land then why not imagine them with magic carpets and genies that grant wishes? ;)

    2. anon y'mouse

      “you have a flatscreen tv and cable, and i’m supposed to feel sorry for you? why are you spending (my tax provided) food stamp money.”

      I won’t stick up for cable tv (blech) but what are these people, worn out by work and transit to/from plus the struggle to survive supposed to do with any extra time they have left over? go to the symphony? stare at the walls? rearrange all 3 of their major pieces of furniture?

      granted, we need to be encouraging the use of libraries and productive leisure, but that’s another argument for another day.

      you can’t live or work without a cell phone. especially in a job that places you On Call for the entire week, but only pays you for 23 hours. nor can you risk running around without one in an automobile held together with duct tape and plastic garbage bags.

      we need a further development, from Soccer–>Walmart–>Welfare moms. a march with those would surely include many nail and hair extensions, and very expensive tennis shoes on display. because if you’re poor, you have to look like a bag lady to fit into another person’s preconceived notion of what kind of karmic justice you deserve in this life.

      1. Ed S.

        you have a flatscreen tv and cable, and i’m supposed to feel sorry for you? why are you spending (my tax provided) food stamp money

        Idiots who make these smug comments (and you do occasionally hear them) miss two points:

        1) That flatscreen (a high-end luxury in 1999 @ $16k but not today) are ALL that some people have. And anyway, how else could you transmit propaganda about the Job Creators?

        2) If it takes a flatscreen and cable to preserve domestic tranquility, it’s a cheap price to pay.

        1. J Sterling

          Flatscreen schmatscreen. I want to know how anyone with a minimum wage job who’d like a TV (sybarite!) would actually go about getting one with a cathode ray tube today. I haven’t seen one outside of a municipal dump since I don’t know when.

        2. anon y'mouse

          if we were serious about art in this country, or history, or any other darn thing than our museums would be free and open longer hours, so that the working person might be able to educate themselves and take part in the advantages of their culture, place, history and so on.

          didn’t Russia do that? the working people went out to symphony in the evening because it was free.

          if the rich want to add to their posterity, and keep lampposts without their names gracing the bottom, then they should be working to make more of this kind of thing “free”. but I guess that was the product of a more enlightened oligarchy.

  10. Teejay

    To Kimsarah;
    A cold read of your comment leaves me wondering if you’re serious or sarcastic. Clarity took a hit for the sake of brevity. Say again please.

  11. rps

    “The life of a corporation is, indeed, less than that of the humblest citizen.” People v. North River Sugar Refining Company, 7 N.Y. Supp. 406 (1890)

    The American Revolution was an attempt to overthrow the type of corporate powerbroking that we see everyday in contemporary America. Virginia was an English Corporation, North Carolina was created as an English Corporation, and Maryland was “chartered” in exactly the same manner. The East India Company, the corporation that plundered much of the Western Hemisphere in its search for valuable resources and goods, was an English Corporation. As Grossman succinctly states: “The colonists did not make a revolution over a tax on tea. They fought for many reasons, but chiefly to create a nation where citizens were the government and ruled corporations. So even as Americans were routing the king’s armies, they vowed to put corporations under democratic command.”

    Corporations in colonial days were specially chartered, which meant that an order of the legislature was necessary to charter a corporation. In those days, these specially chartered corporations were created ONLY for “public purposes”

    Throughout the 1800’s and early 20th Century, the quo warranto power remained a powerful tool through which to dissolve a corporation that had not obeyed the law or had violated the public trust in other ways.

    All fifty states still have corporate charter revocation statutes that allow for revocation of charters when the corporation has “misused” or “abused” the powers granted to the corporation within their charter. Most of these states leave the decision to request revocation of a corporation’s charter to the Attorney General. Others, like Delaware, require the Attorney General to initiate revocation proceedings when requested to do so, and when presented with reasons that the corporation has abused its charter powers. Still others, such as the statutes of the states of South Dakota, North Carolina, Massachusetts, Kentucky, Alabama, Delaware, Mississippi, Tennessee, and Texas, allow private citizens to file charter revocation lawsuits.

    Excerpts from Sierra Club manual

  12. Dan Kervick

    “We only get an oblique reference in the sixth paragraph to the idea that the companies themselves might have something to do with this situation.”

    I thought the article painted the full picture pretty well, Yves. For example, this paragraph:

    Those workers are left to rely on the public safety net even though the nation’s seven largest publicly traded fast-food companies netted a combined $7.4 billion in profits last year, while paying out $53 million in salaries to their top executives and distributing $7.7 billion to shareholders, according to the second report, by the National Employment Law Project, a worker advocacy group.

    The cited report shows that McDonald’s employees alone account for about $1.2 billion in public subsidy. Of course, every dollar that McDonald’s does not have to pay their employees due to the effective public subsidy is a dollar of additional net income. In 2013, McDonald’s will pay between $4.5 and $5 billion in dividends to its shareholders, and its shareholder equity will rise by about $1 billion dollars. So the public subsidy is supporting the growth in McDonalds’s shareholder wealth.

    1. Yves Smith Post author

      You clicked on the wrong link. I was referring to the Time article (see preceding sentence and link above that) and there is no such statement.

  13. Richard Lyon

    The response of the fast food industry to the union drive for a $15/hr. wage has been to threaten to automate the jobs out of existence. The technology for food producing robots already exist to some extent. The issue would be the cost of installation vs savings realized. An increase in the minimum wage would alter the balance of that equation.

    1. Banger

      I would favor making fast-food or anything else we can think of to be, in fact, roboticized. I’m all for eliminating jobs as we currently view them. I don’t think that our destiny ought to involve slaving srambling for the “right” to live. I think the left starts to advocate for more automation, more replacement of humans by robots to force us all to contemplate just what does it mean to be human. Are there things we ought to be doing that really benefit others and the environment? I think we are ignoring real human needs for inclusion, celebration, nurturing and to work at things that nurture our higher brains and what I would call the soul.

      I think we have to work because the system is structured to favor the bosses who run the work world and it has nothing to do with achieving anything resembling human happiness.

      1. DolleyMadison

        Wendell Berry (“What ARe People For” and countless other books) says that we have made work so intolerable that the only thing it is good for is escaping from…

      2. Richard Lyon

        Technology has long forced changes in the nature of work and will continue to do so. There is the possibility of trying to manage those changes in a positive direction that distributes the benefits broadly over society or of sitting back and letting it make life ever more brutal.

        1. Massinissa

          Work is fine. There will always be work that needs to be done. Work that doesnt need to be done, that can be automated, is pointless, especially if its slave-labour that doesnt need to be done.

          The problem with automation is that it goes directly to the owners of capitalism, but theoretically that could be fixed by either

          A. Socializing the gains of the automation

          Or failing that

          B. Taxing the owners of the automated machines halfway to death

          1. Dan Kervick

            Yes, but the usual pattern is that once things people used to do become automated, people turn their attentions to other things they could have been doing instead and that yield kinds of valuable things they previously couldn’t afford the time and resources to produce, maybe individually, maybe in groups. They figure out ways of specializing and dividing up that new labor, and of exchanging its products among themselves for other things they want. At that point the new forms of work have become part of the economy, and the work has become somebody’s “job”.

    2. cwaltz

      The technology exists to make a robot that goes from making burgers to taking orders to cleaning up messes that customers make?

      They’ve been threatening automation forever. Even in places like Japan where they’re looking at automation because they lack manpower they’ve been unable to make it affordable. Additionally, most of the robots require a human to “supervise” and would require a skilled worker to “maintain” it. They’d still end up employing people, probably more expensive people.

      1. Richard Lyon

        Two trends are going on with automation. The technology is advancing rapidly and as in every other branch of technology, unit costs are declining. The area where it is progressing most rapidly is in manufacturing. One of the reasons for that is that the potential savings on present labor costs are higher.

        The other trend is pressure on labor costs. In the past it was cheaper to off shore manufacturing jobs to low wage economies than to install the automation technology available at the time. As those low wage economies have developed from the investment labor costs are beginning to rise.

        The fast food industry does not have to replace every single worker to leverage automation. They could probably reduce the present labor force by about half with present technology. As long as that labor force is working for present minimum wage, there is less incentive to do so.

        1. cwaltz

          The average fast food joint generally only has a handful of people working at a time. You’ve got a counter /dining person , a drive thru person, two or three people (the third person acts as a floater for breaks and lunches) in back making food and a manager.

          The machine I saw that made burgers(and only burgers) had a cost of over $100,000 and it required a person to refill/ trouble shoot it(you’d technically be “saving” man power of 1 person(since you’d still need a second person to offer your 1st guy a break.) You could potentially create a touchscreen for ordering but then you’d have to deal with problems if the screen were to malfunction and it’s not traditionally been overwhelmingly popular here in the US to use automation(we tend to prefer people.)

          My bet? By the time you achieved savings for that robot, you’d end up having to renew a contract for maintenance on the thing. Eventually automation may become cheaper(Japan is now looking at subsidizing their development because they are in dire need of bodies to fulfill positions like nanny or secretary) but I wouldn’t bet on it being anytime in the near future. I’m still waiting on my hoverpack.

          1. Richard Lyon

            It is not a single robot. It is a combination of automated systems. Touch screen ordering and automated checkout has already become common in various forms of retail operations. That replaces counter and drive through staff. The chain franchises have already cut costs and staff by preparing most of the ingredients in central plants and shipping them frozen to the outlets. Computer systems can be centrally managed. Those are things that have already been done or can be done immediately to eliminate jobs. Whatever, the present cost of fully automated food preparation is, it is coming down rapidly.

            Your efforts to claim that somehow this will never happen are not well supported by reality. I am not cheering for the fast food industry, but this is a process that is underway in a broad range of industries. It is going to make the ability of the economy to provide jobs much worse than it already is. It is not something that can be wished away.

            1. cwaltz

              The sophisticated machinery that performs multifunctions are cost prohibitive. The ones that aren’t that sophisticated are affordable but don’t really eliminate the need for labor, they just end up shifting labor from making a product to troubleshooting machinery(which requires a better educated staff that’ll command better compensation.

              If the technology were around and affordable then they’d already be using it. As it is, places like Japan are now subsidizing robotics to try and bring the costs down because they lack the people to fill “low skill” positions.

              I’d also add that robotics would be a crap shoot. It isn’t like coffee dispensing machines that you place coins in hasn’t been tried before(I have fond memories of getting watery hot cocoa from such a machine). Additionally these machines don’t eliminate labor, they just change the needs of the employer.

              For the record, the DoL has food preparation as one of the top 4 fastest growing occupations and expects it to continue well into 2018.

  14. mcarson

    Please start putting these numbers in context. If over half of 1.8 million workers receive benefits totaling $7 billion then we are subsidising fast food at the rate of $7,000 per subsidised employee. (I’m assuming 1 million out of 1.8 million is “more than half)

    $7,000 per worker is a number that gets people’s attention. It lets me look at a counter and see 8 people and realize $28,000 a year to subsidise these people, right here.

    Most people here know math well enough for millions and billions to have meaning, but I don’t, and I’m not the dumbest person I know.

    1. cwaltz

      It’s also actually helpful when it comes to determining where wages ought to be. $7000 a year works out to an additional $3.37 an hour for a full time worker.

      The 50 economists that posited that minimum wage should be $10.50 aren’t far off. With the $7000 in additional income wages would be brought up to $10.62.

      1. anon y'mouse

        if $10.62 is just surviving, then it is too low.

        how can we morally justify someone working full time and not having enough left over to do more than simply survive?

        how can a person like that ever really save for a real emergency?

        one 2 week illness or dead automobile, and they are back in the arms of Big Gov.

        just because the gov’t is subsidizing up to the livable standard does not mean that a lot of other vital maintenance issues in that person’s life are not being totally neglected. critical failure happens because there is no slack in the economic system. $10.62/hr would cease the Big Gov subsidy of McDonald’s, but it would not do anything to solve the problems in these people’s lives.

        1. cwaltz

          It wouldn’t eliminate all their problems but it’d be a good start.

          For the record, I also believe that employers should be required to offer a week of leave/vacation. It’s completely unreasonable to expect someone to never be ill or need personal time. It’s also foolish to think that someone constantly living on the edge financially isn’t going to be investing energy they would use to be productive into worrying about personal problems like paying the bills.

  15. Jon Claerbout

    Is the welfare program subsidizing McDonalds, or is McDonalds subsidizing the welfare program? I can’t figure it out. Maybe it’s neither.

    Is failure to tax churches subsidizing them? I can’t figure that out either.

    1. Yves Smith Post author

      Are you serious?

      Low wage workers are over half of McDonald’s workforce. The reason it can get away with giving them less than a living wage and irregular hours on top of that is public welfare. That is a subsidy to their profits, a massive one.

      And yes, the tax exempt status of churches is INTENDED to be a subsidy to them.

  16. tar, etc.

    I’m thinking of a new restaurant chain called Mandates and Clawbacks. For me, it’s the revelation that Medicaid costs are to be controlled by using the ultimate death tax… er, estate tax, on those falling from the middle class. No one, present company excluded, saw this coming when they supported candidate Obama who wanted no mandate and pledged to not raise your taxes if you earned less than $250 a year.

    New, improved Medicaid has a 100% tax for some. If it is fair and desirable to do that, then why not apply the same logic to other programs? Shouldn’t fast food workers be legally indebted to pay for their food stamps, too?

    Or maybe it’s not the workers but the employer from whom taxpayer largess should be recouped. And speaking of businesses being required to forfeit assets the same as recipients of social programs, why not have insurers pay back all the premiums being subsidized in the name of Affordable Care?

    Come to think of it, why not rewrite corporate charters with a federal charter laying out progressive taxation based on how useful the corporation is in keeping citizens off social welfare rolls in the first place? Set a very low rate for employee profit-sharing companies and set upside limits on management compensation based on a multiple of average wage paid… that kind of thing.

    But we all know no real change is possible so long as bribery in Washington is rampant and occurs in broad daylight. Until we regain representative government the only possible outcome is the continued selling out of the public interests to monied interests whose main industry now is looting… us.

  17. backwardsevolution

    Dan Kervick – good post. You said, “So the public subsidy is supporting the growth in McDonalds’s shareholder wealth.” Looks like it.

    But if we assume that the top 20% of workers pay most of the income taxes, perhaps they end up giving it all back? In one door, out the other? Of course, that wouldn’t include the 1% who usually pay nothing. I’m just talking about the engineer, the teacher, people who do pay a lot in taxes.

    But, you are right, somebody is definitely benefiting here, otherwise they wouldn’t be in business. If you charge the consumer more, he’ll stop eating out. If you ding the shareholder (tax him more), he’ll stop investing. Follow the money – where is it? Is the franchise owner making unconscionable gains and not paying his employees enough? Are the corporations offshoring their profits and not paying enough taxes? I think that’s a given.

    Middle Seaman said, “In the US we pay three times as much as Europeans do for Internet connection.” Perhaps workers wouldn’t be needing so much assistance if other costs were lower. Karl Denninger is often harping about how much productivity has increased, which he says we should be benefiting from with lower prices, yet prices continue to rise. This productivity needs to be passed on to consumers in the form of lower prices for health care, education, cable, Internet, etc.

    Increased productivity should equal lower prices, but this hasn’t been happening. Follow the money, and tax the shit out of those who aren’t passing it on.

    1. Dan Kervick

      Yes, I agree these redistribution questions can be hard to compute. Who does pay the taxes? Who owns the shares?

  18. tar, etc.

    The next political movement should blend the best of Occupy and the Tea Party. If we steadfastly insist on a center ground, we are a majority. The Tea Party became a revival of the right wing who can’t get over religious issues and libertarianism defined as the freedom to be owned by billionaires. Occupy got occupied by the same tired themes of gay rights and unions. We need to set aside the partisan sacred cows and work for our common survival. We can help people prosper and do it in a way that doesn’t just increase the welfare state.

    Along with a rewrite of corporate charters, make unions a universal suffrage. For example, one of the most destructive taxes going is property tax. So teachers’ unions and taxpayer-paid management sit down and set terms with the silent financier, the taxpayer, not present. (Two wolves and a sheep problem.) It has resulted in an unsustainable imbalance between what the union and management see as deserved and what the taxpayer can afford. But the taxpayer is also a worker, but without the ability to negotiate the same deal.

    We are just starting another cycle of unions getting selective pay increases and other benefits for groups such as Bart employees. It is time to stop having one class of citizen-worker who deserve healthcare, pensions and wage increases, and another that is completely thrown to the wolves. The consideration needs to extend to all workers in some law of proportionality. This would prevent the resentment of those who pay the taxes for the select few and also have to compete in the marketplace on an ever-decreasing share of the prosperity.

    After all, it is the proportion and balance that makes an economy work. We’re where we’re at now because politically connected interests can freely raise prices while the citizen-consumer-client-patient cannot. The consumer of healthcare, housing and education is merely a pass-through for profits who not only receives no benefit from the higher costs, but is being actively impoverished by them. Both parties pretend not to notice this. We need a new party.

    1. anon y'mouse

      I have never met an overpaid teacher. administrators & tenured professors, maybe, but considering all of the hours that they actually work and all of the work that they actually do, and the importance of that work, teachers are not overpaid.

      you want someone only “worth” 30k per year in charge of instructing your kids? considering how vitally important that task is, and how much skill and education it takes? really?

      teachers quite frequently spend their grand summers off teaching, planning for the next year, and obtaining ongoing education to keep themselves up to the standards and practices of their profession. teachers spend their evenings grading and reading the work of 30 to well over a hundred students, depending on grade level. teachers work in an environment in which going to the bathroom for 5 minutes is a luxury, and if someone brings a peanut to class little Timmy might have an anaphylactic spiral.

      do you know any teachers? do you observe how they dress, what they drive, and how they live? if you’ve seen teachers living in the lap of salaried luxury, I would surely like to meet them because I have never experienced a posh teacher. come on, I need a role model in my life.

      1. savedbyirony

        Brava, seriously, brava! (…little Timmy might have an anaphylactic spiral.” people all to often forget about that exciting part of the job!) In addition to what you mentioned, in the part of the country i live in public school teachers have as well been for years taking pay/benefit cuts/freezes due to the economy and school systems inabilities to pass levies. (I live in Ohio, so Gov. Kasich also has a gift for finding other ways to move public education funding to charters.)Their professional talents are constantly questioned and teaching abilities undermined by the use of standardized texts, tests and other course materials. They often bring in food and other items for their struggling students. And more to the point of Yves essay about ethics and complex systems, teachers tend to still have functioning social ethics. Not taking into consideration the growing online “education” push, teachers working conditions are such that they work with fairly small groups of people for long stretches of time and often form strong social bonds. Plus a significant part of the value generated for both them and others by their work is the empowering of other people, especially the young. And they and their unions will come out not only in support of their own interests but quite often other populist ones. For example, they supported Occupy in force, and in Ohio the teachers unions were amongst the best organizers and movers during the repeal of S.B.5 (which was our states collective bargaining busting bill.) I remember the excellent piece that was up not too long ago about movements,leadership and finding leaders -and Karen Lewis of the Chicago Teachers Union came to mind as an example of a very dynamic,shrewd and candid populist leader of a combined professional and community based movement.

        1. anon y'mouse

          all of the things you list are EXACTLY the reason that teachers as a group must be broken by those who hold power. because they are one of the last bastions standing up for the “old” (read-human) ways rather than the technocratic, economo-man one where hoops will be handed down from above and the rest of us will be left simply to jump through them.

          although, the poster does somewhat redeem themselves when they point out that having only -some- workers in unions with benefits and guarantees contributes to an environment of jealousy and a call by the taxpayers to race to the bottom. but, (s)he fails to realize that cost is the FIG LEAF justification that gets the public rolling along on its resentment track, when what is really going on is that the leash of social control of the lower orders is being shortened and turned from leather to chain. without the socially aware teachers, counselors and social workers who will stand up for the lower orders and their ability to develop their own lives and purposes?

          1. savedbyirony

            I would include the growing and quite activist nurses’ union movement as well. There’s the poster “banger” on this site who argues that we have no real organized oppositions on the left (or however one wants to describe folks working for “progressive” reforms) who can exercise real power and influence. Well, such considerations are matter of degree and sphere of influence. Plus reform (or revolution) is a process. I don’t see things quite as bleak as no organizing on the left so much as too much seperation between organized groups sharing mutual interests and goals. And i also think there are actually forces working to build those connections and coordination. People here will probably jump all over me for suggesting that the problem in American with pulling off successful populist pushback is less about a lack of community ethic in our society’s greater population as a mass means to get that collective message out and to quiet all the intentional and constant psychological manipulation and political chaff thrown up by the nearly omnipresent mass media. Sometimes it amazes me actually how hard they have to work to keep us so distracted and rattled. They never let up on the pressure. i will also probably be jumped on for mentioning that i think the new catholic Pope could be a real bonding force for progressive economic change. He is a plain speaker, so when he says capitalism is an evil, he says it clearly. He’s already out there telling riffed miners over in Europe that they need to not only pray but fight, and he supports them in this! Plus, there are over 1.3 billion Catholics world wide and despite how the American press likes to spin it Catholicism has a very strong social justice message that does talk about economic justice quite clearly and nows how to organize and inspire (just look at Network Lobby). I’m using that large organized religion as just one which has the potentional to build left pushback. There are many others.

      2. tar, etc.

        You missed my point. I’m asking people to think outside the entrenched ideas. I didn’t say teachers were overpaid. I am saying extend the union concern for making a living to the people who pay for the teachers. If Dems keep making it teachers versus the ungrateful people who should pay more for them – well, it’s not going to expand the franchise.

        1. anon y'mouse

          “For example, one of the most destructive taxes going is property tax. So teachers’ unions and taxpayer-paid management sit down and set terms with the silent financier, the taxpayer, not present. (Two wolves and a sheep problem.) It has resulted in an unsustainable imbalance between what the union and management see as deserved and what the taxpayer can afford. But the taxpayer is also a worker, but without the ability to negotiate the same deal.”

          this paragraph plays right into the hands of that divide-and-conquer idea that you later try to solve with the mass-union idea (one I agree with, btw). the idea that teachers and such are overpaid due to their union power to bargain for higher pay “regardless of what the taxpayer can afford”. can the community afford more children in it? why don’t we start at the root of the issue. if there are more children, they require more teachers. and books, and equipment, and so on. if you are trying to say that keeping property-owning taxpayers on the hook for all of this is unjustified, then that is another angle on the issue as well but not one you personally went down on with this message.

          i’m not even sure that the bulk of school expenditure is ON the teachers and not on energy, maintenance of the buildings, a multitude of liability issues that districts have to confront ON THE FRONT END, administrators, and so on. and yet, nearly every conversation begins with the overpaid teachers because, as you are correct to point out, this feeds the jealousy between -pampered union employees- and the public taxpayers, with fewer benefits and guarantees, being forced to pay them.

          hopefully you will understand that when you pull up these ideas, they are already a loaded gun which has been concocted to pull a particular cognitive trigger. then you go on to use the idea as if it were justified, without asking whether it IS justified. is it? i’m not totally sure that it is. hence my response.

          1. savedbyirony

            Actually, at present the Chicago Teachers Union is advocating out in the streets and loudly elsewhere for increased wages for both low paid private and public workers. In as much as there is a push to unionize other work forces in their city, i don’t much doubt that teachers’ union would support them.

          2. savedbyirony

            By the way, in Ohio many school districts have fallen seriously into the red because of the 2008 crash and also because they were tempted into BIG building projects by dangled “matching” state funds. It’s a complicated tale, so i won’t go into it all. But teachers pay/benefits are not what have driven this state’s school districts into economic distress. It’s a combination of factors mainly coming from the “privatize public education” front.

  19. Walter Map

    …the National Employment Law Project find that taxpayer-funded safety net programs effectively subsidize fast food workers’ low wages.

    Let’s remove the spin, shall we?

    The National Employment Law Project finds that taxpayer-funded safety net programs effectively subsidize the profits of fast food billionaires.


  20. grace

    why did we have to wait until october 2013 for this to become news?! that mcdonald’s workers rely on welfare should not come as a surprise to anyone.

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