The process of making a burger in McDonald’s is not exactly filled with creative flair. For a start, two-sided grills mean that there is no flipping involved. Staff then use squirt guns to dispense the right amount of sauce on to a bun toasted for just the right number of seconds.
But what to many looks like monotony is a ripe area for economic research. A new study uses McDonald’s to shed light on the US economy.
Orley Ashenfelter of Princeton University and Stepan Jurajda of Prague’s Center for Economic Research and Graduate Education – Economics Institute have surveyed the pay in McDonald’s’ restaurants (“McWages”) every year since 2016. This is just one employer, but an important one, in a fast-food sector that in 2023 employed about four million Americans.
That year, average pay for entry-level “crew members” was a little over $13 (€11.90) an hour, compared with around $34 among all private-sector employees.
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Over the past decade or so, average wages for the low-paid have done relatively well, as shown by David Autor of MIT and Arindrajit Dube and Annie McGrew of the University of Massachusetts Amherst. They emphasise the role of people switching to better jobs as a mechanism for boosting pay. But what happened to pay for the same work?
More recently, Ernie Tedeschi of Yale Law School has found a similar trend by constructing a Low Wage Index, which tries to strip out the effects of changes in industries, occupation, sex or education on the numbers. Still, it will always be tough to be sure that the numbers are really describing pay for the same work, and not simply differences in tasks or even skills.
Ashenfelter and Jurajda argue that the standardisation of entry-level jobs at McDonald’s means they can offer clean answers, particularly when comparing wages across different parts of the country.
If Washingtonians earn higher McWages than Mississippians, it is probably because of where they live, not because they are particularly proficient at squirting sauce. As well as gathering wages, the academics collect local Big Mac prices, as a blunt proxy for local living costs.
Their measure of average “Big Macs (earned) per Hour” grew by about 1 per cent a year towards the end of the 2010s, then shot up by a supersized 14 per cent between 2020 and 2021. (This is more dramatic than anything seen by the earlier researchers.) But since then it has stagnated, and in 2023 even fell slightly as wages did not keep up with Big Mac prices.
And the gains were not equally felt. Whereas in Maine, average Big Macs per hour for entry-level employees grew by 45 per cent between 2016 and 2023, in Mississippi the measure rose by a paltry 3 per cent over the same period.
Overall, inequality between places rose a lot from 2016 to 2021, and only fell back a little over the next couple of years.
Why? One obvious explanation is changes in the minimum wage. Between 2016 and 2023, whereas Maine’s state minimum rose from $7.50 to $13.80, for example, Mississippi stayed at the federal hourly rate of $7.25. And more generally before the pandemic, McWages rose fastest in states that raised their minimum wages. (Autor, Dube and McGrew find the same thing.)
But Ashenfelter and Jurajda argue that this isn’t the whole story. The dynamics of a hot market for workers contributed too, such that between 2020 and 2021, the share of restaurants paying the locally binding minimum wage halved to just one in six. They estimate that in the absence of minimum wages, inequality across places would have still grown.
Their results also suggest that, before the pandemic, minimum wages grew fastest in places where McWages were rising anyway.
The authors observe that the growing dispersion of real wages at the bottom could be a sign that the labour market is becoming increasingly fragmented. Ashenfelter suggests that it may have become harder to chase higher wages by moving jobs, or else the distribution of shocks has been growing. (Whereas once jolts to demand for workers might have been pretty similar across places, maybe recently Mainers were hit by a much stronger increase in them than Mississippians.)
For most people, the takeaway is that the pandemic was an extraordinary period for the low paid, albeit an unequal one. And over time, minimum wages around the US have had less and less bite.
For economists, the juiciest nugget may be that they now have a squeaky clean measure of wages that supports results using much messier ones. Now that’s something to be happy about. – Copyright The Financial Times Limited 2024
