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Posted on May 12, 2015 -
Read Reizner's Way to Wealth
By John Reizner |


I saw a debate recently on financial television regarding the 10% pay increase that McDonald’s gave to some of its workers. The protagonist in an interview stated that the fast food servers may still need food stamps and other government aid for their families to survive economically.  He supports the movement to unionize these assembly line workers and advocates a $15 per hour entry level worker wage.
 
Fast food workers may indeed require government aid or more than one job to get by. However, consumers will have to accept much higher Big Mac prices if these employees are to receive the $15 per hour that they seek.
 
It may be economically unviable for McDonald’s to pay entry level workers that wage as their business could be further undermined by competition from the likes of “In and Out Burger,” “Sonic,” “Wendy’s” or “Carl’s Junior” should they price their food above the rest of the fast hamburger market. The economics of selling Big Macs and Quarter-Pounders may not support $15 per hour wages for these employees.
 
Entry level jobs in the corporate workforce are often not well paying for those even with college degrees. In fact since the financial crisis a good part of the workforce work in jobs beneath their education for less money than they earned before the economy tanked. This is caused by a poor economy that has been in a structurally induced deflation since the economic crisis.
 
My wife came to this country with $14 in her pocket and she initially worked for $400 per month and then 24/7 to support herself and her three children who were abroad – catching her sleep when possible on the job. When I first had the privilege of knowing her – she was working three jobs to make a better life for herself and her family.
 
When my step-daughters came to America, their first job was at McDonald’s. Our daughters do not have college educations. They worked hard for everything they achieved. The oldest is now a nurse after much study and years of work experience, the middle daughter now works for the state, and the youngest worked her way up to be manager of the largest store of a major clothing chain. They are outstanding individuals and incredibly hardworking. I know that they are more accomplished and better-rounded individuals than this commentator- me - their step-father. I continue to have much to learn from my wife and daughters.
 
They are example of how through persistence and hard work just about anything can be attained. They do not feel that they are entitled to anything – let alone demanding a $15 wage for their first jobs at McDonalds. Their jobs at McDonald’s were stepping stones to teach them the skills and to gain the experience to work with the public and to move up their station in life.
 
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McDonald’s is a good company that has created over a million jobs that would otherwise not be there. The number of jobs created is certainly much more than Ray Kroc, who bought the small chain in 1961, most likely ever envisaged. He must have been gratified by how the company grew into a major corporation with billions in worldwide sales.
 
Before the attempt to unionize McDonald’s workers is discussed, shouldn’t we ask whether the employee’s on the fast food line are upwardly mobile within the hierarchy of jobs at that firm? Ideally, flipping burgers should be a stepping stone to either job advancement within the company or to a better job elsewhere.
 
It is probably only in the current economic dilemma that we are now facing that workers in McDonald’s assembly lines think of themselves as being stationary in a their jobs as steelworkers might feel working at U.S. Steel. Making and serving hamburgers at restaurant chains such as McDonald’s or Burger King are probably not the servers’ “life’s work” and the job probably should not be vested with generous pension benefits or the kind of pay that unionized workers experience at manufacturing firms such as Ford. GM or U.S. Steel.
 
McDonald’s should offer encouragement and assistance to their entry-level workers in moving up the ladder either from within the firm or elsewhere– whether that is providing job training, education assistance or encouraging their workers to have a good attitude. If the chain does not value its employees enough to promote from within, then its corporate culture needs to be changed.
 
The fact is that you can’t make it economically making burgers, but it’s a starting point – not an end in itself. It is McDonald’s and its employees decision whether they unionize or not, but it is also up to the firm whether they provide advancement within the firm. It is in the firm’s own interest to provide further opportunities to its employees who do their jobs well.

 
The fact is that the economy may no longer provide in scale the kinds of jobs that fast food workers might wish to attain in life. Exceptions to this are within the booming field of health services and state and federal government jobs.
 
Have a substantial amount of the adult population instead simply “given up” participating in looking for work and being employed? What are they doing? Are they uncomfortable not participating in the economic system?
 
America is now divided along class lines – with the middle class becoming smaller. Our President has launched an attack on the middle, upper middle, and upper classes with the intent of redistributing wealth to those he favors: those who are in fact suffering the most from his lack of understanding of what truly causes an economy to grow.
 
President Obama believes that the people that take their savings and start a business such as when Ray Kroc bought and expanded McDonald’s did not build their businesses – instead the benefits of Ray Kroc’s idea of growing the chain and the growth of his personal savings should ideally belong to his workers. The President’s economic policies reflect his socialistic ideology and his inability to understand how capitalist economies truly work and grow.
 
Our leader's attack on college savings accounts favored by many middle class families as a favored method of providing for their children’s’ college education was fortunately stymied. A new 1.4 trillion dollar tax increase has been proposed. As long as Obama is in power – there will be one large tax increase after another. Tax increases are a disincentive to individuals who may wish to start a business to improve their lives. Obama’s main “solution” to our economic troubles is to take from those who “have” in this moment and give their money to those who “have not” in this moment – not accounting for dynamic changes in the economy over time.
 
The former Soviet Union provided (though poorly) for its citizens but the State possessed all the wealth and power – the citizens of that failed state and bankrupt ideology lost their liberties in the bargain. Taxing those with money and giving it to those who you feel need it or who are your constituency in the form of entitlements and assistance is not a viable economic policy.
 
I think that former President Clinton knew that, or he was forced to recognize that fact – enacting targeted tax cuts to propel economic growth. President Kennedy lowered taxes by 25% when he was in office to stimulate economic growth in the 1960’. And that policy worked!
 
As an unintended consequence of the failure of his economic ideology and by his design, President Obama has led the charge to facilitate enrolling tens of millions (almost 50 million citizens on food stamps) to receive the growing menu of services provided by government. These millions represent a dependent constituency for the President and are a vested interest group. This is not the mark of a vibrant economy.
 
Economists on the Street may be misreading what is the “recovery” in the economy by looking through the rose-colored glasses of a suspect six-year stock market rally. I ask whether the economy been making substantial progress toward a sustainable recovery or is the country actually in danger of slowing down again?
 
Those who are not asset holders and who do not have stock portfolios of size have been left behind economically. This new class of Americans are non-participants in any form of economic growth – either working multiple jobs, paying off student debt, and/or receiving government help. The primary cause of the green shoots in the economy may be the two trillion dollars created by the Federal Reserve’s policy of monetary ease over the last seven years.  Americans certainly have not received much bang for their buck for that money.
 
The housing sector, car sales and job growth have been the three pillars of this recovery as car sales are accelerating and pending home sales are up over 10%.
 
It is common knowledge that many current car loans are “subprime,” and the six-year car loan is a new phenomenon that has taken hold on consumers. Consumers appear to be “stretching their budgets” to buy cars let alone to pay their rent. The reality behind the strength of car sales may be that consumers are still strapped – and many have experienced wage deflation even after almost seven years of quantitative easing by the Fed.
 
How many Americans have been working two or more jobs just to get by? How are new college graduates going to manage their burdens of student debt and become upwardly mobile economically as a result of the benefits of their academic effort without high quality well-paying jobs? It’s going to be a long time before they fully participate in the economy – unless they do obtain very good jobs. The good news in the last jobs report is that while fewer jobs were created, the jobs that created were higher paying.
 
The economy may emerge from this “growth” depression if there were more innovative solutions to the problem of structural economic decline than the government raising taxes on families and spending those funds through payments to citizens affected by the lack of real economic growth. But it may be difficult for the affected population to extricate itself from need without great determination while unwise leaders are shaping our economic future.
 
 

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