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Study on fast-food workers reveals reliance on tax dollars

Over 50% enrolled in programs such as Medicaid and food stamps

Employees of the Wendy's at 101 Broadway go on strike at noon Thursday, December 5, along with fast-food workers in 100 cities. But the strike doesn't tell the story.

A study by the University of Illinois and the University of California-Berkeley poignantly shows that fast food is not as cheap as you think. Wages are so low that your taxes pay to keep the workers from starving. More than half (52 percent) of families of front-line fast-food workers are enrolled in tax-supported programs such as Medicaid and food stamps; that's double the percent in the total workforce.

Twenty percent of people working in fast-food jobs are living at or near the poverty level. The families of more than half of the fast-food workers employed 40 or more hours a week are enrolled in public assistance programs. Almost two-thirds of public-benefits spending goes to families with a working member.

There are almost 25,000 fast-food workers in San Diego earning a median wage of $9.14 an hour. An adult with one child needs to make $22.83 an hour working full time just to afford the basics, according to the Massachusetts Institute of Technology.

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Employees of the Wendy's at 101 Broadway go on strike at noon Thursday, December 5, along with fast-food workers in 100 cities. But the strike doesn't tell the story.

A study by the University of Illinois and the University of California-Berkeley poignantly shows that fast food is not as cheap as you think. Wages are so low that your taxes pay to keep the workers from starving. More than half (52 percent) of families of front-line fast-food workers are enrolled in tax-supported programs such as Medicaid and food stamps; that's double the percent in the total workforce.

Twenty percent of people working in fast-food jobs are living at or near the poverty level. The families of more than half of the fast-food workers employed 40 or more hours a week are enrolled in public assistance programs. Almost two-thirds of public-benefits spending goes to families with a working member.

There are almost 25,000 fast-food workers in San Diego earning a median wage of $9.14 an hour. An adult with one child needs to make $22.83 an hour working full time just to afford the basics, according to the Massachusetts Institute of Technology.

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Comments
32

The picture might be easier to accept if the usual fast foodery were some small "cottage industry" sort of Mom and Pop operation that was operating on the margin. But while there are many of those around, the more prevalent type is big business, including one of the largest of all, McDonald's. McDonald's is one of the Dow 30 stocks, hardly what many of us might think of as an "industrial" stock, but it is in the average nonetheless. In recent years the proliferation of burger "joints" has been astounding, with all the old usual suspects joined here locally by Five Guys, Smashburger, and Sonic. Who is eating all those burgers? Someone must be, but the conclusion is that many of them aren't doing the volumes needed to be adequately profitable. I'm aware of two "fast food" operations that actually pride themselves on their employees and which pay accordingly. Those are In-n-Out Burgers and Chick-Fil-A. Their operations are all high volume and can afford to pay properly, or at least closer to something approximating a living wage.

We can wonder how much more we would pay for our fast food if those operations paid a living wage. Frankly I have no idea, but I do suspect that if they paid more, many would expect more in productivity, presence, attitude, and customer service. In many of them, we get what we pay for when it comes to the overall experience.

Dec. 4, 2013

Visduh: Fast food is cheap. But the point of the research is that employees' pay is so low that you wind up shoveling out more because your taxes support the government welfare programs that are necessary for the workers to survive.

What happens to the money raked in by the fast food companies? Well, the chief executive of McDonald's raked in $13.75 million last year. The head of Yum! took in $14.16 million and Domino's $9.16 million.

This is one reason why shopping at Walmart is NOT economical. That company goes to great pains to show its low-paid employees (almost all of them) how to maximize government welfare. Personally, I will not shop at Walmart. Best, Don Bauder

Dec. 5, 2013

I read a study that said increasing fast food workers wages to $15 an hour would result in a 25% increase in prices assuming the companies passed the wage increase on to consumers. I am personally in favor of a $20 per hour minimum wage. Costco gets by with 15% gross margins and is still able to pay $22 per hour. I look at Home Depot, Wal-Mart, and Target and see that there 20 or more cash register stations but only 2 or 3 are staffed at any one time. This indicates to me that there are too many stores relative to demand and not enough volume at each location. If Home Depot and the others closed stores they could use the overhead savings to pay employees a living wage with no decrease in profits.

Dec. 4, 2013

My take is pretty much the same as yours about inadequate sales volumes and overbuilding of retail stores. Lowe's actually closed a store recently, the one in San Marcos on San Marcos Blvd. That one was across the 78 freeway from a Home Depot. Personal observation was that the HD did about five times the volume of the Lowe's. But as Lowe's was closing that outlet, it was opening a new one in Carlsbad at El Camino Real and Palomar Airport Road. That may be a good location, but since there is no other significant retail within miles of the spot, could also be a flop. Yes, it is mystifying why a store with twenty check-out lanes only uses two or three. They are now moving in the direction of self check-out, which I am sure is a license to steal for some clever folks. In a similar vein, there is usually far more parking than ever gets used, with acres of land paved over to no purpose. Some of these details just don't make much sense, do they?

Dec. 5, 2013

Visduh: Remember, Wall Street keeps urging retailers to open more stores. That's one reason the chains do it. In evaluating performance of a retailer, you have to look at same-store sales, a stat that attempts to eliminate the volume from new stores. The same-store performance lags the total retail store volume, but Wall Street tends to eye the latter. Best, Don Bauder

Dec. 5, 2013

Burwell: Costco is a brilliantly managed company. The executive who built that company, Jim Sinegal, was originally from San Diego. Your other point: there may be too many stores relative to demand. It appears that is true for many of the big discounters. Best, Don Bauder

Dec. 5, 2013

Burwell--Home Depot has become the WalMart of home improvement--I know because I worked there for 25 years. Home Depot paid good wages at one time, but the beginning of the end of better wages in that company began with the hiring of Bob Nardelli as CEO. The company has continued it's tumble (in my mind) ever since. They used to have over 80% of their employees working full-time, and were never afraid to give good starting wages to new hires. That is no longer the case. I really hate what HD has become--now, part-time workers dominate their workforce, and the number continues to increase. It almost seems as if once HD was put on the Dow 30 Industrials, they forgot their 6 priorities. Numbers 1-5 were customer service, and number 6 was KICK ASS! (At least that's how we used to yell it at the store meetings years ago. HD for years has been too busy spending 10's of billions of dollars buying back their own stock, rather than spending some of that cash on the employees to the tune of higher wages and benefits. It's great for the shareholders, but it sucks for more and more of the current HD employees. Sorry about the rant--your comment hit too close to home.

Dec. 5, 2013

aardvark: Robert Nardelli was one of the all-time disastrous CEOs in American corporate history. I wrote a column about him Jan. 11, 2007 that you may want to see.

Home Depot had a great reputation for customer service. Nardelli, in his zeal to cut costs, ended that. He centralized decision-making, but didn't know a thing about retailing. Finally, he resigned under pressure and got a $210 million gift. Best, Don Bauder

Dec. 5, 2013

Don: I have spent too much time reading about that SOB in the last 10 or so years, but if you can furnish me a link to that article, I will definitely read it. I really detest that POS. I worked at two completely different companies in my 25 years at HD--the one before Nardelli and the one after he took over.

Dec. 5, 2013

Don: Replying to my own comment, but meant for you. I didn't know The Reader archived issues that far back--I read your story. Very concise, and completely spot-on. Unfortunately, it brought back memories that weren't very pleasant. The destruction of a once-great company is hard to watch, but harder to be directly involved in. What I really think about Nardelli I can't put into words, as those words would not be very politically correct. I'll just say he was, and is, an a-hole, and leave it at that.

Dec. 5, 2013

aardvark: From everything I have heard, yours is a very apt description of Nardelli. Incidentally, the Reader archives stories going far back. Best, Don Bauder

Dec. 5, 2013

aardvark: Nardelli was one of Jack Welch's boys at GE, but he didn't get the top spot, so he departed. I have known other top GE guys who flopped completely when they left the company. I consider Jack Welch a mountebank.

GE was rigging the books under Welch. He made an accretive acquisition almost every quarter. And the company pumped up earnings by diddling with the finance subsidiary's books. It's little wonder Nardelli was one of Welch's favorites. Best, Don Bauder

Dec. 5, 2013

After the Home Depot fiasco, Nardelli was hired to run the post-BK Chrysler. That told far too much about Chrysler, and if I'd had any notion to buy one of their products after that, it was gone. He's out of there now, replaced by an Italian from Fiat. Turnaround? Don't make me laugh.

Dec. 7, 2013

Visduh: Nardelli was like so many of today's top executives: for them, the name of the game is not turning around the company. It's about jacking up the earnings per share, usually through phony accounting, injudicious cost-cutting, stock buybacks, screwing employees. In short, the only constituency for these rascals is the shareholder -- particularly one shareholder. Himself. Best, Don Bauder

Dec. 7, 2013

Hey Don, I'm not a big dump-on-CEO's fan, but your last line got me. You are correct, in the excessive "gifts" stockholders give to failed leaders. I experienced this in the 90s working for a well known weight loss firm based in Del Mar. (I won't say the name, but the initials are Jenny Craig.) Sid Craig hired his first CEO - Joe LaBonte - background from Nike and Universal Pictures. Nicest guy you'd ever want to work for. Also turns out the smartest because about a year later Joe's fired, but built in a $2 Mil exit parachute into his contract, knowing full well no CEO would be able to tell Sid Craig what to do.

Dec. 7, 2013

Ken Harrison: The only thing as bad as CEO compensation is the exit payoff. In the 1960s, CEOs raked in about 60 times what was paid the average employee. Now that is around 300, depending on the size of the company. The exit parachutes -- arranged before the executive takes the job -- are almost always gifts for doing a lousy job. Best, Don Bauder

Dec. 7, 2013

About 25 years ago, I heard Sid Craig speak to a local professional group. That was a turnoff! The guy was crude, sexist, and showed no real interest in weight loss as a social good. He was in it, and I think, everything he'd ever done in life, for the bucks, and only the bucks. He'd finally hit it big. He and wifey gave some money to USD and they have some facility there named for themselves. USD will take money from anybody and debase the campus with the donors' names.

Dec. 7, 2013

Visduh: I have to agree with you about USD's taking money from anyone, and blessing the donor with putting his/her name on something. John Moores and Craig are just two examples. Best, Don Bauder

Dec. 7, 2013

No commission, but certain departments have sales goals to meet. Nothing extra should those goals be met, but if they are not met, expect to be transferred to another dept or the unemployment office.

Dec. 7, 2013

viewer: If putting up with the in-store employees is so difficult, why do you keep going back? Is there no nearby competitor? Best, Don Bauder

Dec. 10, 2013

aardvark: How does that different from the modus operandi under Nardelli? Best, Don Bauder

Dec. 10, 2013

Don--In regards to what?

Dec. 10, 2013

The elephant in this room is illegal immigration.

Before rampant illegal immigration was allowed fast-food jobs were mostly part-time jobs done by teenagers. Now fast-food is a full-time career job for many.

I think it's a difficult situation because I don't know if it's completely fair to force illegal immigrants to leave after they've been unofficially allowed to stay for so long (and particularly difficult to decide what to do about their kids who may be legal U.S. citizens). But on the other hand not enforcing the laws isn't really fair either. It's a difficult question I think - and highly political and highly influenced by the many business groups relying on illegal immigrant labor.

Dec. 7, 2013

ImJustABill: You are correct that the low pay of fast food companies and big box retailers like Walmart is tied into the immigration question. So is the subject of the minimum wage.

Overall, I believe that a big hike in the minimum wage will be good for the U.S. economy. More than 70% of GDP is consumption, and the middle class and lower wage sectors are so bereft of a decent wage that their consumption is cramped. Best, Don Bauder

Dec. 7, 2013

viewer: Many San Diego small businesses -- such as liquor stores -- are owned by immigrants. Best, Don Bauder

Dec. 7, 2013

"Overall, I believe that a big hike in the minimum wage will be good for the U.S. economy. More than 70% of GDP is consumption, and the middle class and lower wage sectors are so bereft of a decent wage that their consumption is cramped. Best, Don Bauder"

And therein lies the problem that is keeping the economy from improving. Republicans and their rich supporters will scream that any increase in the minimum wage will kill the economy, when in fact it would dramatically improve it. If 70% of the economy has more money to spend they will spend it purchasing more goods & services which will move the economy forward.
Republicans would rather have employees in a position where they will beg for any scraps from the table than see the economy improve.

Dec. 7, 2013

Dennis: So right you are. Those in the upper 1% have too much money to support the economy with their consumption. How many yachts and airplanes can you buy? But you can stash a lot of that loot in offshore tax havens. And plenty do just that. Best, Don Bauder

Dec. 7, 2013

viewer: How about giving us a definition -- and some examples -- of "special merchandise?" Best, Don Bauder

Dec. 7, 2013

viewer: I will keep that atmosphere in mind. Best, Don Bauder

Dec. 7, 2013

viewer: Too much money spent on exterior, too little on interior. Best, Don Bauder

Dec. 8, 2013

I suspect the employment market could withstand some increase in the minimum wage without major disruption - which would help the lower class workers a lot without too much impact to the overall economy.

But ultimately I think that's just a band-aid. I think we need to have more manufacturing here in the U.S. We need to revist GATT and trade policy. Our existing policies are not working.

Dec. 7, 2013

ImJustABill: No question: we need more manufacturing. Happily, the U.S. is getting manufacturing growth. So is San Diego. But the total is still woefully low. Best, Don Bauder

Dec. 7, 2013

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