McDonald’s recently announced a 10 percent wage increase for roughly 1,500 of the corporation’s nearly 16,000 stores. The distinction between the stores that are receiving raises and those that are not is a critical detail that carries heavy implications for national debates on the minimum wage. McDonald’s’ wage shift demonstrates how a national minimum wage increase will inflame the United States’ monstrous wealth inequality problem. That inequality issue is strongly illustrated by the wealthiest 10 percent’s ownership of 75 percent of U.S. wealth as recently as of last year. Movements looking to counter this problem have largely consisted of campaigns to increase the national minimum wage. The most significant of these movements was President Barack Obama’s call for a federally mandated minimum wage of $10.10 per hour. Should this become law, the country’s inequality struggles will get worse for most.
The realities are those for small business owners and proprietors whose firms’ balance sheets closely resemble those of the roughly 14,500 McDonald’s locations that won’t be receiving raises. The reason these stores will sit in the dark on the McDonald’s wage hike is because they’re franchise-owned, while the remaining 1,500 are corporate-owned. Although the two outlets are generally identical in aesthetic, product and brand, they are radically disparate with respect to finances.
This radical disparity is somewhere in the neighborhood of $35 billion––the total business assets of the McDonald’s Corporation which are used to fund the company’s 1,500 corporate locations. McDonald’s decision not to impose wage increases at the remaining outlets reflects calculations that show that even though the McDonald’s Corporation could afford such a wage hike, most McDonald’s franchises likely could not.
When it comes down to the federal minimum wage, the unfortunate truth is that this divergence in asset pressure holds true for small businesses and corporate competitors. If small business owners were forced to dole out more dollars for employees, they would either have to take a smaller salary or become less competitive with large corporate competitors whose executives do not take pay cuts.
This means that while raising the federal minimum wage will make the poor richer, the rich won’t be poorer and wealth inequality in the U.S. will be worse. Accordingly, raising the national minimum wage to combat income inequality is—at best—lazy economic policy and—at worst—purposeless pandering. Countering this problem demands meaningful policy moves that lobbyists hate: moves toward tax loophole closure, increased capital gains taxes and more progressive income taxation.
As the U.S. moves away from recessionary woes and toward the 2016 presidential election, wage stagnation and inequality will enter the center ring of America’s political circus. When this time comes, we’ll be able decipher performer from public servant based on who advocates for the policies of those economists—that make lobbyists so uncomfortable—and those singing the praises of a meaningless minimum wage increase.