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Eggs $1.39/dozen!
A guy walks into the little grocer to buy some eggs. The sign on the display case says eggs are $1.39/dozen, but there aren’t any eggs there; the case is completely empty.
Frustrated, he goes out and walks across the street to the little mom-and-pop food store on the opposite corner. They’ve got eggs, but they’re asking $2.59 a dozen. He grudgingly buys a dozen, but he pauses on the way out to grumble to the owner that the eggs are only $1.39/dozen across the street.
“So why don’t you buy them across the street?” the owner asks.
“Because they’re out,” the man replies.
“Well, when we don’t have eggs, they’re $1.39/dozen here, too,” the owner says.
How do you kill the goose that lays the golden eggs — or golden arches, in this case? You increase mandated minimum wage to the point that one of the greatest engines of entry-level job formation in history, McDonald’s Corporation, finds it cost-effect to replace unskilled kids with machines.
Fortune Magazine reports that McDonald’s will add automated ordering kiosks to another 8,000+ of their U.S. locations over the next year, more than half of their U.S. stores.
I’ve read varying statistics, but all of them put the percentage of the American workforce that held an entry-level job at a McDonald’s restaurant in the double-digit percentages: it seems likely that more than one in ten young people held a McDonald’s job early in their career. (Two of my six kids did.)
Entry-level jobs are critical. The people working them rarely have the skills to do anything else. They rarely have to earn a “living” wage, because they aren’t supporting themselves. They’re making money and learning the fundamentals of work: showing up, being punctual, following instructions, dealing with customers. Some of them also learn deeper lessons about taking on responsibility and being rewarded for it; most of them learn that they aspire to do more, and move on when they can.
McDonald’s Corporation doesn’t really love us, no matter what the advertisements suggest. They’re a business, and a well-managed one. When it stops being cost-effective to hire unskilled young people and teach them how to fish, they’ll buy machines instead. And they’ll never go back.
And someday the McDonald’s manager will patiently explain that, why yes, they pay $15/hour for entry-level positions.
They just don’t have any.
Published in Economics
D*mn. You have me.
(I’m a freelance software developer who writes industrial automation and robotics software.)
I have no response.
There are eight at the Walmart near me. I prefer to use the manned likes even if it takes longer: Partly because its faster, especially if I have a lot of stuff, and partly because too often have I had difficulties requiring intervention.
Best way to get me to go elsewhere? “Zero manned checkout lines.”
Hear! Hear!
You can still get those things so long as you don’t let the Feds know.
So it’s you, more than McDonalds, that is responsible for the ruination of America through these accursed machines?
You must be a smart guy, therefore you simply must see the difference between:
A – “We are growing and can’t stay competitive if our costs increase at the same rate as our growth, so we’ll make these people more effective through various means”
and
B – “We are firing these kids because they cost too much under the new laws and replacing them with a machine that does their job.”
Right?
That sounds nice, but I think you’re assuming something inaccurate about the way employers fill positions.
McDonald’s is willing to teach workers the most fundamental aspects of employment — showing up, basic responsibility, etc. — because they can pay very little for workers who don’t know those things, and they’re pretty easy lessons for other relatively low-paid workers to communicate. (Most of it can be covered by a one page policy and procedures sheet.)
Now, if McDonald’s takes some of those no-skills-required jobs and fills them with computers, they’re going to have fewer no-skills-required jobs. It would be nice to think that they’ll keep hiring the same number of unskilled workers, and spend more than they did before to train them for higher-skill jobs. But what will really happen is that, since workers are more expensive now by law and they need to pay more anyway, they’ll hire more-skilled workers for those more-skill-required jobs. Because the alternative is to both pay more and train more, both of which are expensive.
And if they can’t find enough more-skilled workers, they’ll have an incentive to push automation further up the hierarchy, leaving un-skilled workers ever farther behind.
Automation happens. Shoot, that’s my bread and butter, so I’m glad it happens. But it seems foolish to me to push companies to automate faster by artificially increasing their cost of hiring low-skill talent — foolish because it hurts both employers and employees.
It’s good for me, ultimately — except that the ranks of the never-employed grow, and that’s bad.
I think you are are misunderstanding my point. Let me be sure I’m clear about what I am not saying. I am not saying that minimum wage hikes are good because they drive automation within the order taking process at McDonald’s. I am also not saying that automation that occurs because of minimum wage hikes is good, in spite of the nefarious activity that caused it.
I think you are arguing against points that I’m not making. Do you agree?
I guess you could kind of say that, in a sense. We’re certainly talking at cross purposes.
I’m describing what I believe will happen, based on what I believe are the motives and incentives of McDonald’s management. I think — correct me if I’m wrong — that you don’t think this is what is going to happen (the reduction in entry-level employment) because you and I disagree about why McDonald’s management is doing what they’re doing.
If I understand you correctly, you’re arguing that their real incentive is to increase overall productivity, and that they won’t actually decrease the number of employees, just get more work done with the ones they have.
If that’s what you think, then I think you’re being unrealistic: no matter how you slice it, automating low-end job opportunities out of existence ultimately decreases the number of low-end job opportunities — unless it somehow spurs demand, which seems unlikely in this case.
They are trying to be more efficient… by cutting labor costs in entry-level positions… by hiring machines instead of people.
Wait! What about the womanned checkout lines? (Seem more common….)
The kid behind the counter pushing the corresponding button reminds me of a very frustrating experience I had at a fast food outlet (I don’t remember which brand) when my children were little (so this was several years ago). We wanted 2 children’s meals, but I could not remember what that outlet called its children’s meal, and the kid behind the counter either didn’t know enough or wasn’t bright enough to connect my request for a “children’s meal” to whatever the outlet’s brand name was. Since I didn’t tell him the brand name, he couldn’t enter my request.
It’s not only minimum wage laws. Kiosks don’t sue for discrimination or threaten management with sexual harassment claims, they don’t need training don’t call out sick, don’t steal, don’t complain or sow discord, need no lunch, pee, or cigarette breaks, don’t expect early promotions, and need no weekly payroll calculations.
So the minimum wage thing is just the last straw.
However I agree, the minimum wage should be zero.
Though the last time I used an automated ordering kiosk at a McDonald’s, my order apparently never made it behind the counter. I cut them some slack before complaining when my order was not delivered because it was a brand new restaurant, so I figured everyone was on a learning curve, but the 18 minutes total time it took from my order entry to food delivery did not leave me with a good feeling about the kiosk system.
Perfect example of how the minimum wage is actually zero
A: – I don’t think there will be fewer entry-level McDonalds jobs in terms of sheer numbers. There will certainly be fewer new entry level jobs as McDonald’s continues to grow. Dollar for dollar of revenue, McDonald’s should be hiring fewer order takers as the result of implementing kiosks. That’s a long term good thing for many reasons. It means McDonald’s is more efficient, meaning their service should cost less to provide, which should mean consumers pay less for a burger. In theory those “lost” jobs are picked up somewhere else in the economy.
B: – McDonald’s “real incentive” is to grow, but to grow by changing. This has been their message to consumers and investors. That change, according to their strategy, is primarily about two things: offering higher quality food (than they are known for) and by modernizing how they interact with their customers. This last bit is where the kiosk’s come in. So, I don’t think that the kiosk’s are primarily a result of increasing minimum wages around the country. They would be implementing them anyway, I think. I would agree that they are likely targeting areas with high wage costs for accelerated rollout, for sure.
C: – They are trying to be more efficient not by “cutting labor costs in entry-level positions”, but by reducing the linear growth of those costs as their revenue grows. There is a difference there, albeit a small one. Every company I’ve worked for has been after a reduction in the cost of goods sold. Now, I work in manufacturing and have done for 25 years. The labor component of COGS is either direct or indirect. We always want to cut the cost of direct labor ( the labor used directly to make the burger).
I’ll continue in another comment…
Continued form 44 above….
…We always want to cut the cost of direct labor ( the labor used directly to make the burger). In growing companies we do this through efficiency gain, automation being one good tool for that. In companies that are in trouble, we do this through cutting heads, making people work harder and longer hours, and by hiring cheaper labor. Indirect labor always scales with growth in volume. It has to. Indirect labor (the cost of the order taker) , however, should never scale directly. I should not need to double my order takers if my sales of burgers doubles. I readily concede that this may not be correct for McDonald’s, where sometimes it seems it takes longer to take the order than to make the burger, but I think it is generally true. So the point I’m making here isn’t that McDonald’s wants to cut the number of employees they hire. But that they do not want the number of employees the hire to scale directly with their revenue growth.
Now, you, Henry, are arguing against minimum wage laws because you believe that jobs at McDonald’s are not for breadwinners, but for people just starting out. They don’t need a “living wage.” I couldn’t agree with you more. Just so we are clear.
For about a year, I shopped Walmart for my groceries to save money. I don’t anymore after waiting with about 25 other families in the only line that wasn’t self-checkout. The self-check design doesn’t work with a cart overflowing. I’ve always liked shopping at my neighborhood Tom Thumb, but I love it now in comparison. It’s clean, rarely crowded, reliably stocked, I can cover the store in less time and almost never wait to be checked out. One woman has been a checker there for maybe 30 years and she’s a model of efficiency. There must be enough people like me to support it as it’s been there for decades while competitors have come and gone. The experience is worth the extra cost, by golly.
Henry, Great post!
Besides the obvious reduction in entry level jobs, there are other onerous effects.
Try this on for size. It is only the very well capitalized corporation that can to afford to automate. They over time will get a huge competitive cost advantage over those small less well capitalized who cannot and who will be forced to pay the ever more egregious and growing even more egregious minimum wage over time, which probably will drive a great many of less capitalized, less automated firms out of business.
These over the top minimum wage increases will consequently create a less diverse, less competitive market place that will have significantly higher prices and less service. In a similar vein, since those retailers that cater to the lower end of the market often have a lesser profit margin than those that cater to the upper end which means those lesser profit margin concerns will have a lesser ability to absorb the the increased minimum wage and to stay afloat. Again wiping out the lower end of the market, limiting the ability of the marketplace to serve the total market.
The great Wretchard of the Belmont Club once opined that the hallmark of overtly socialist/marxist government more than anything else is empty shelves with nothing to buy.
Spin, I think you are overthinking this. It doesn’t seem complicated to me.
1. Low skill/no skill workers need first jobs for which the pay is low enough that their basic training can be justified by an employer.
2. As those jobs are taken over by machines, opportunities for entry-level employment will be reduced commensurately.
3. Government policies designed to help entry-level employees will, if it reduces those first-job opportunities, tend to harm them.
4. Businesses are not, in general, made more profitable when they have to adjust to deal with cost increases imposed by government fiat. If it were a good idea, they would to it without the government forcing their hand.
So, unless you’re arguing that entry-level automation is not spurred on by increasing mandated minimum wages, I guess I have to disagree with your overall argument. (And if you ARE arguing that, I disagree with that as well.)
Respectfully, of course.
Yes in any business it’s a combination of cost and service right? If you don’t/can’t try to provide the cheapest service then you have to provide quality in other ways that are worth the extra cost to the customer.
I don’t agree entirely. A manufacturer who takes on a contract for a long run of discreetly manufactured products can certainly automate without being “well capitalized.” I would say they can’t afford not to.
That is, if by well capitalized you mean “has a bunch of cash in the bank.”
I am arguing that automation, entry-level or otherwise, is spurred on by many things, not just mandated minimum wage. Theoretically speaking, automation reduces cost, but not just cost of labor.
Are you arguing that the only reason McDonald’s are installing ordering kiosks is because of increasing minimum wages?
Of course not. But the cost of labor is obviously a factor when replacing labor with machines. And I would hazard a guess that, when replacing a low level counter person with a kiosk, the cost of labor is the primary factor. Certainly a large one.
Doesn’t that make sense?
We’re talking about large numbers. When you make essentially a one for one replacement of person with machine, the relative costs of the two are likely to matter. Right?
Interesting that this post has generated so much argument. I’d think that market based conservatives would mostly agree.
When automation first came to banks (starting with ATM’s) it was expected that they would start laying off tellers. Instead they employed more. This was a couple of decades ago. (I don’t think automation means that anymore.)
But the tellers you see today do have to be more saavy, if not educated. Tellers today have to learn (overly?) complex computer systems and are expected to provide a more diverse set of set of services to someone in line.
From what I can see, they still have entry level positions, but the ability to show up on time is built in. They aren’t hiring teenagers for their entry levels (and maybe they never did as a rule) and not assuming they have to be trained in work ethic.
The entry levels at McDonalds will probably fit this pattern after awhile with people overseeing the machines and knowing how to do simple repairs before calling someone who can do complex repairs.
I myself have started using kiosks in restaurants when available, most especially when it comes time to pay. I detest standing in line to pay, especially with customers not used to using point of sale systems that have started getting complex (yeah, many restaurants, kiosk or not, don’t require you to pay at the register). But even when placing an order, the service is usually quicker. Probably because there are less waiters/waitresses to serve you.
Most upper middle class kids today don’t do entry level of the McDonalds variety. Their first job is an internship at a firm providing professional level services. They don’t get their hands dirty. Even many middle middle class kids don’t get their hands dirty.
Beyond the character building of holding a job filled with drudgery, they also don’t mix with kids who are lower class (economically speaking of course). They are isolated from a big part of society, and it shows in their politics.
Did I say the costs were not a factor? Or did I say that mandated rising minimum wages weren’t the sole factor?
Reading through McDonald’s growth strategy stuff, I’ve come to the conclusion that their primary goal is to modernize their restaurants. This isn’t just marketing fluff to cover up some nefarious purpose. People actually want this stuff. I want it! And it’s not just kiosks. It’s ordering via an app, or a website, having food delivered, etc. That’s not just because of cost. It is because the consumer is demanding it.
Me too…
Oh, I agree: there are lots of reasons to replace people with machines. The direct cost of labor is not the only one.
It is, however, an obvious one. And can we agree that the laws of economics are not suspended when it comes to entry-level workers, and artificially raising their cost through mandated wage increases is going to encourage employers to consider automation more favorably?
I never argued otherwise!
Tellers were just the most visible to the public entry level jobs in banks and, in my view, a higher entry level than proof machine operators, bookkeeping machine operators, check filers and statement stuffers who operated out of sight of the public. I’m not contesting your statement that banks employed more tellers after automation, although I doubt it, but I assure you that automation of these other backroom operations eliminated untold thousands of entry level jobs, and these were jobs that did not have public appearance and demeanor as a requirement. And automation at banks started well before the introduction of ATM’s.
Good. And I’m not saying you did. I’m just trying to be precise, so that we understand each other.
The point of my post was that high mandated minimum wages reduce opportunities for entry-level employees. It seems to me – correct me if I’m wrong – that we have reached agreement about that, and that we probably didn’t disagree all along. That’s really all I wanted to determine.
agreed! Man that was hard! ;-)