Every once and a while you see something that just makes you look at the world in a different way. Someone lifts the veil for a second and you see things in a completely different light, often a bright light that illuminates an otherwise dark picture.
What’s the U.S. fast-food pay package? Um…not so much. The average hourly wage is $8.90, with few benefits, and the base wage is closer to $8.
Now, this huge difference poses a huge problem for those who want to argue that such compensation levels are set solely by the market fundamentals of supply, demand and productivity. Surely those factors play a role, but the difference in pay is too large to be explained by market factors alone. Denmark and the United States are different countries serving different markets, but a burger is a burger — and we’re not in different universes.
In fact, it’s clear that there’s much more in play, including union power, profit-margin differences, an acceptance of higher prices in the interest of higher pay, and a cultural/social commitment to paying a living wage.
According to the OECD, unions cover 68 percent of the workforce in Denmark compared to 11 percent in the United States. As per an agreement with the country’s largest union, Burger King, McDonald’s, Starbucks and others voluntarily pay the Denmark fast-food wage in the interest of preserving labor peace.
In fact, McDonald’s learned this lesson “the hard way,” as the New York Times reported in an article this week. “When it came to Denmark in the 1980s, it refused to … adopt any collectively bargained agreements. Only after nearly a year of raucous, union-led protests did McDonald’s relent.”
This dynamic has not escaped those who represent the American fast-food industry’s bottom line. One U.S. lobbyist cited in the Times article explained the Danish situation like this: “Unions dominate, and the employment system revolves around that fact.”
Replace “unions” with “employers,” and you’ve gone a long way to explaining a key difference between them and us.
Of course, burgers cost more in Denmark. A Big Mac is $5.60 there, compared to $4.80 here. But that price difference is dwarfed by the wage difference. Not that she’d necessarily want to, but a Danish worker can buy almost twice as many Big Mac’s on her wage than her American counterpart.
This price/wage differential is worth keeping in mind in the U.S. debate over raising the minimum wage. Opponents of such increases complain that the pay raise will just lead to higher prices. But the question is one of magnitudes. Research finds that a 10 percent increase in the U.S. minimum wage leads to less than half a percent increase in the overall price level, with larger increases of 1 percent to 4 percent in low-wage sectors. In other words, here as in Denmark, even once you factor in price effects, low-wage workers’ buying power is a lot higher after the increase.
A Danish labor analyst put it this way, according to the Times article: “We Danes accept that a burger is expensive, but we also know that working conditions and wages are decent when we eat that burger.”
Here in the United States, we’re all about lower prices. What we often fail to do is connect lower prices to lower wages. In part, that’s the result of a national economic model that puts the consumer at the center of the action. And that’s not a coincidence: Consumer spending is 70 percent of the U.S. GDP; it’s 50 percent of Denmark’s GDP.
But we often seem to forget that, at least for working-age people, consumers are also workers. The American model for the low-wage sector — weak unions, low pay, few benefits, high turnover — keeps burgers relatively cheap here, but at the cost of working poverty for too many families who can’t come anywhere close to making ends meet on what they’re being paid. And this problem is growing as the American low-wage worker is becoming older and more likely to be a parent.
Meanwhile, at the other end of the pay scale, our model supports fatter American profit margins and much higher inequality.
As a result of this model, a Big Mac is actually underpriced here. Its social cost is not reflected on the menu (I’d say the same thing about a gallon of gas, but that’s a different column). In Denmark and other European countries, those external costs are “internalized” in the price.
Okay, final analysis: We’re not Denmark. I get that, and I’m not saying we should or could be. But I am saying that we should stop pretending that our wages, especially for those with the least ability to bargain for a living wage, are set at some unchangeable pristine market equilibrium. In the real world, wages are set partially with regard to markets but with a large dose of power, culture and even social connectedness, or in the U.S. case, lack thereof.
A request to McDonald’s for information for the NYT’s piece was denied, but it did provide a statement asserting that its franchise operators “support paying valued employees fair wages aligned with a competitive marketplace.”
I’m sorry but that’s just self-serving nonsense, obviously disconnected from the reality of all the factors that go into setting pay in a firm, an industry, a country. We’re not Denmark, but that country’s example points to a viable alternative that many of us believe is worth pursuing.