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All Da King's Men

Fixing The McJobs Problem

By David King Published: October 26, 2013

In my last two posts, I discussed the expanding welfare state and the government's debt problem (which is actually a government spending problem). Government dependence is growing by leaps and bounds. For example, in the year 2000, 17 million Americans received food stamps. Today, that number has grown to 47 million. Overall, 49.2% of Americans receive some kind of government assistance. The government has spent $3.7 trillion on 80 different welfare programs (excluding Social Security and Medicare) over the last 5 years.

The middle class is shrinking. It is taking home a smaller share of total income than ever before. Median income has fallen for five years in a row. Unsurprisingly, consumer credit has risen 22% over the last three years.

Why is all this happening ? There are a number of reasons, but if I had to name one, I'd say the problem is a lack of good-paying, full-time jobs. Even though last month's jobs report saw the unemployment rate drop a tick to 7.2%, that is still far too high, and even that number is little more than a mirage. The official unemployment rate doesn't really measure unemployment. It measures how many people are collecting unemployment benefits. The truth is, our labor workforce participation rate is at a 35-year low. We haven't even come close to fixing our jobs problem, and I'm not hearing many good ideas from our politiical elite in Washington D.C. They're too busy blaming each other to come up with any real solutions.

It doesn't take genius to figure out that the key to entering the middle class is a decent job. Unfortunately, due to factors such as globalism and outsourcing, resulting in the loss of many formerly good-paying American manufacturing jobs, our lesser qualified workers end up with the short end of the stick. They end up with low-paying service sector jobs, which I'm going to call McJobs.

Honestly, I doubt if the high-paying manufacturing jobs are ever going to come back en masse. Companies just aren't going to pay an American worker $20 per hour when they can pay an overseas worker a fraction of that labor cost. Even if the companies tried, they'd probably go broke. They wouldnt be able to compete in the global marketplace.

But I still think there's something we can do.

Liberals say we should increase the minimum wage dramatically and increase taxes on "the rich" (business), which strikes me as a pretty bad idea that would result in higher unemployment, higher prices, and even more part-time jobs than we have already.

Some conservatives say we should do away with the minimum wage, which strikes me as insane as a standalone policy. We are not aiming to become China, paying slave wages.

Other conservatives say we should reduce taxes and regulations on business to help create jobs. That makes more sense to me, but what guarantee do we have that the higher business profits generated would translate to higher worker wages ? How do we know the extra profits won't go right into the pockets of the investors and executives. I've yet to hear a conservative answer this question.

I have a third way, and I'm going to use the company that is most representative of the low-paying McJob to illustrate it - McDonalds. 

I looked up some McDonald's financial statements and discovered the following - using round numbers for the sake of simplicity, McDonalds had 2012 revenues of $27.4 billion. After expenses, it made a pre-tax profit of $8 billion. Then, McDonald's paid $2.6 billion in taxes, leaving a net profit of $5.4 billion. That same year, McDonald's labor costs were $4.7 billion.

In order to make McDonald's wages more liveable, we need to increase that $4.7 billion labor cost number to a substantially higher number. Before I get into how to best accomplish increasing the wages of McDonald's employees, I'd like to mention that McDonald's non-management workers who make near minimum wage are part of the American working poor. Those workers receive government welfare benefits. Wouldn't it be better if McDonald's could increase their own wages, instead of all the American taxpayers footing the bill ? The way we do things now, the taxpayers are in effect subsidizing the wages of McDonald's employees, which makes no sense if it can be avoided. Also, that subsidization goes through the bureaucratic maze of the government, adding additional middleman costs, when McDonald's could be paying the higher wages directly.

Here's what I would do to solve the problem. First, we stop making McDonald's pay a flat income tax rate. We zero that out. That leaves 2012 McDonald's with all of it's $8 billion in profit, but it's conditional. If McDonald's doesn't increase worker pay by the amount of taxes it saves, it would have to pay AN EVEN HIGHER tax rate to the government. We'll call it a windfall profits tax or something. This would strongly incentivize McDonald's (and every other company like it) to increase worker wages, which in turn would reduce government benefits/welfare spending. The windfall profits tax would also kick in if a large business made an excessive profit margin, which would further incentivize higher wages and hiring. Because a company like McDonald's can't just outsource all it's fast food workers, this would work. It's not like McDonald's is going to pull out of the American market and give up it's American profits because it's worker salaries are going up. The way I have described, everybody should be happier. The workers make more money. The investors still get a decent return. The prices of McDonald's food wouldn't have to rise. Fewer workers would be collecting government welfare benefits, as they'd make a more liveable wage.

If we implement this type of tax wage incentive for all the larger employers, we could help almost everyone, without harming reasonable business profits.

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