It has always been my opinion that unions are the closest thing to organized crime in America, a combination protection and extortion racket gone amok …

Now we find that a Brazilian undergraduate student in the University of Kansas School of Business, Arnobio Morelix, has published the results of his financial model that appears to show that doubling the salaries and benefits of every single McDonald’s worker would result in ONLY increase the cost of a Big Mac by 68-cents. All being touted by those progressives who are willing to spend others people’s money to achieve their political aims.

Another deceptive progressive model?

Arnobio Morelix, a student at the University of Kansas School of Business, found himself asking the same question, so he did some financial modeling based on McDonald’s annual reports and data sets submitted to investors. Morelix’s take: If McDonald’s workers were paid the $15 they’re demanding, the cost of a Big Mac would go up 68 cents, from its current price of $3.99 to $4.67. A Big Mac meal would cost $6.66 rather than $5.69, and the chain’s famous Dollar Menu would go for $1.17.

“Some folks online are complaining they will not pay $2 for their Dollar Menu, but the truth is that even if McDonald’s doubled salaries the price hike would not be 100%,” Morelix said. “I will be happy to pay 17 cents more for my Dollar Menu so that fast food workers can have a living wage, and I believe people deserve to know that price hikes would not be as high as it is often portrayed.” <Source>

The devil is in the details … 

Like the progressive global warming scaremongers, models based on flawed assumptions, poor programming, and incomplete data often prove the first law of computing: garbage in = garbage out. In this case, Morelix admits that is assumptions are flawed.

Morelix said that his number crunching assumes profits and other expenses are kept at the same absolute number. His calculations are based on increases in salaries and benefits for every McDonald’s worker, from minimum wage line cooks paid $7.25 an hour to CEO Donald Thompson, who made $8.75 million in 2012. <Source>

Called out by his professor …

University of Kansas School of Business economics professor George Bittlingmayer called Morelix’s model “a little bit of a leap of faith.” “The actual effects of raising the minimum wage are up in the air,” said Dr. Bittlingmayer. “It’s a brave new world. We know less than you might think. Fifteen dollars an hour is a huge jump from $7.25. It’s outside the range of experience. If you’re an empiricist, you have to say you don’t know what the outcome will be. But it will create some problems with McDonald’s business model.”  <Source>

Whoops – a non-premium $5 burger?

Where is the footnote that explains that the information found in McDonalds’ annual report represents franchise fees and the results of McDonalds’ company owned stores. The franchised stores are separate businesses, paying their own wages, and the numbers are not included in the McDonalds’s annual report. In order to support the additional debt burden on company-owned stores, McDonalds is unlikely to increase franchise fees as the franchisees would be paying their own wage and benefit increases. So how can McDonalds maintain their profitability without increasing sales to cover the additional expenses. And we are not strictly speaking about increasing the prices of hamburgers – but enlarging the McDonalds share of an extremely completive fast foods marketplace?

If I were inclined to press down this road I would compare the $18 billion of revenue from McDonalds run stores with the payroll figure of $4.7 billion; that ratio is 26%. By that calculation, McDonalds would need to raise all its prices by 26% at its own stores in order to double all of its direct payroll expenses, which presumably includes a lot of non-hamburger flippers at headquarters. Hey, 17%, 26%, de nada - it's not my money anyway!

Or from a different tack - the McDonalds-operated stores average $2.8 million in sales per store. The franchisees average $2.5 million per store, so they are on average a bit smaller but close enough that maybe we can wave our hands and pretend they are the same. That suggests that if the franchisees cost structure looks like the parent company then they can double their payroll and recoup the additional expense by raising prices by 26%.

To see a more thorough treatment of the financial conundrum, you may wish to visit the “Just One Minute” piece: “McDonalds Math, Or, Latest Lib Talking Points Fail.”

If the price of a $3.99 Big Mac were to go up 26% ($1.04 – not 87-cents), you would have a $5.03 burger or $20.12 tab for a family of four – without the side orders. This is truly socialist wealth redistribution. From your pocket to the poor via the mechanism of a socialist union. And, there is no reason to believe that it would even stop there. Until one day, McDonalds and its franchisees start closing stores, cutting jobs … until “Welcome to Detroit!”

Just who is Morelix?

From what I can see, Morelix appears to be a little more than an undergraduate economics student pursuing academic studies. He appears to be a progressive activists, author, and headline hunter. Admirable as he builds a career for himself, but something that might give the rest of us pause to think about his motivations.

The unanswered questions … 

• Who purchases a single Big Mac? Certainly not a family of four, bringing the cost to at least $2.72 plus tax. Certainly a disparate impact on the poor and minorities that frequent McDonalds.
• Does this price increase affect other products? Of course, the student manipulated the findings to generate a headline – but needed to state that the cost of other McDonald’s offerings would increase approximately 17-cents per item to make his calculations appear correct.
• Is this price stable or will it increase over time using multipliers based on the cost of living?
• What about constant increases in wages and benefits demanded by the unions at the threat of a strike?
• Does this price increase mean a reduction in business for those unwilling to spend the extra money or turn to another, inexpensive competitor?
• Does this price increase include the costs of non-productive union representatives on site?
• Does this price increase include ceding control over firing to a union grievance committee? 

Enter the socialist tactics and class warfare … 

As the story is picked-up and amplified in the mainstream media as well as the blogosphere, we begin to see the old socialist “class warfare” tactics emerge.

“Many McDonald’s workers get paid minimum wage, which is $7.25 an hour at the federal rate. That means that many workers at the fast food corporation struggle to get by while its CEO rakes in cash. In 2012, McDonald’s CEO Donald Thompson earned nearly $9 million dollars.” <Source>

It is easy for the unions and their cohorts to target the “fat cat” executives and members of management, but there are questions that are never asked. Who among the lower-level employees has the knowledge, experience, and vision to run a complex enterprise – returning substantial value for its shareholder investors? Who among the lower-level employees can inspire confidence in investors, Wall Street, and the banks and other funding sources necessary to keep the enterprise funded? And, most importantly, who is to say what the worth of key executives are to the enterprise, to the company’s Board of Directors, and to the company’s shareholders? Certainly not economics students, union leaders, or politicians.

Bottom line …

Unions are toxic to America. They reward seniority over merit, the status quo over innovation, raise prices without a corresponding increase in productivity or profits, and introduce insane work rules designed to require more employees and keep the bad ones employed. Public employee unions and their corrupt political enablers are the proximate cause of much of the financial trouble now being experienced by municipalities and states in the nation. In the private sector, unions have crushed entire industries and have cost American taxpayers and consumers billions that were simply dissipated or misallocated by corrupt union activities.

Who is to say that the wages paid by McDonald are anything other that acceptable wages for an “entry-level” position – a temporary position – as one goes on to more gainful employment? Of course, in the cases of low-skilled or no-skilled workers, the core constituency of the progressive socialist democrats, these are the “permanent” beneficiaries of such unskilled positions.

Note that while the cost to the public is given in pennies, the real costs amount to multiple millions of dollars and unknown costs down the road. One might even ask if the unions would apply the same type of toxic, company-killing work rules that brought down other industries. Work rules that killed the automobile industry. Work rules that killed Hostess where separate truck crews and loaders needed to transport different products from the same factory to the same store. Work rules that could kill McDonalds if workers could not perform all necessary tasks or that wage-differentials were applied to different shifts and conditions.

So while the progressives tout the results of this questionable “study,” you know the truth. That the study is bogus and self-serving. If you are willing to let progressives tell you how to spend your money, just vote progressive. If not, throw the progressive socialist democrats and their toxic special interest unions out of office in the upcoming 2014 congressional election. And, support McDonalds in their efforts to avoid being taken over by organized crime.

-- steve

Reference Links …

2012McDonalds’ Annual Report 

The progressive bullshit continues ...

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