Only about 3% of All Workers at any one time make the Minimum Wage

Posted by PITHOCRATES - April 24th, 2014

Week in Review

If you’ve heard the left talk about the urgent need to raise the minimum wage you would think half the nation is languishing under pauper’s wages.  While rich business owners are lighting their cigars with twenty dollar bills.  As they rest their feet on the back of a minimum wage worker.  But it’s not quite that bad (see The Cost of the Minimum Wage: $20 for a Burger posted 4/24/2014 on E21).

McDonald’s high turnover rate shows that most of its workers are using the job as a stepping stone to other careers or as a transition position between jobs. One in every eight U.S. workers has been a member of McDonald’s 750,000 person workforce. Economics21 director Diana Furchtgott-Roth entered the workforce scooping ice cream at Baskin Robbins at about $3 an hour. She never intended to have a career in ice cream…

Ninety-seven percent of American workers make more than minimum wage, not out of the kindness of employers’ hearts but because this is the only way that employers can retain employees. Low-skill workers need jobs, wages, and work experience too, and if the minimum wage rises, these people will be priced out of a job.

So only about 3% of all workers at any one time make the minimum wage.  And the 3% from 10 years ago are most likely included in the 97% of workers today.  Because minimum wage jobs are entry-level jobs.  And what makes them so valuable is their low pay.  For these workers gain some skills and work experience.  And then get the hell out and join the 97%.  And go on to do great things.  Even become CEOs and directors.  Which they never would have done had they stayed at those minimum wage jobs.  Which they might have had if the minimum wage was a more comfortable living wage.

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Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - February 25th, 2014

 History 101

(Originally published May 8th, 2012)

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.

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FT207: “Raising the minimum wage only discourages upward mobility.” -Old Pithy

Posted by PITHOCRATES - January 31st, 2014

Fundamental Truth

McDonald’s is one of the Few Places that will hire an Unskilled and Inexperienced Person

Teenagers want a lot of things.  A car.  A smartphone.  Nice clothes.  Popularity.  Fame.  But one thing you’ve never heard a teenager says is this.  “I love working at McDonald’s.  I wish I could work here forever.  If only they would raise the minimum wage so I could.”

A lot of teenagers work at McDonald’s.  Why?  Because it’s one of the few places that will hire an unskilled and inexperienced person.  Because a job at McDonald’s is an entry-level job for a teenager new to the workforce.  A place they can earn a paycheck without having the ability to do anything.  Where they are taught everything they need to know on the job.  While McDonald’s pays them to learn.

Some teens will work enthusiastically at McDonald’s.  Enjoying their first job.  And earning their first paycheck.  So they don’t have to depend on Mom and Dad to buy them what they want anymore.  While others hate these jobs.  And refer to them derisively as ‘hamburger flipper jobs’.  They don’t want them.  And those who do work there do so reluctantly as they are a lot like that teenager.  They are unskilled and inexperienced in doing anything else but an entry-level job.

There is a Direct Correlation between Paycheck Size and Skills & Experience

Some teens work while in high school.  Some go on to college and work at another McDonald’s on campus.  Or at some other entry-level job that requires no skills or experience.  So they can learn workplace skills.  Gain working experience.  And learn the responsibilities that come with having a job.  Others get bored or want more money.  And use their newly acquired skills and experience to get another job.  After graduating from high school.  Perhaps entering an apprentice program in the skilled trades.  Or becoming a line-cook somewhere.  Gaining more experience.  And earning more money.  To become an electrician.  Or go to culinary school and become a chef.  Even open his or her own business.

These people are moving up.  Which is why we call this upward mobility.  They go from an entry-level job to one requiring more skills and experience that pays better.  They may go to night school or college to gain skills that will help them get a job requiring greater skill and/or experience.  Which pays even more.  Allowing them to look to and plan for their future.  Acquiring education, skills and experience along the way that opens the door to bigger paychecks.  Which you need to raise a family.  Have a nice house.  A new car.  Nice vacations.  To save for your children’s college education.  And your retirement.

You can’t have many of these things, though, if you never leave that entry-level job.  If you stay in that entry-level job you’ll never be an engineer, a doctor, a pilot, a millwright, a pipefitter, an accountant, a hotelier, an architect, etc.  And you’ll never get the larger paycheck that comes with these professions.  For there is a direct correlation between paycheck size and skills & experience.  The more you have the more you’re worth.  It’s just that simple.  Which is why it is a good thing that entry-level jobs pay the lowest wages.  For it encourages upward mobility.  Mastering the skills at one level.  And then moving on to master new skills at a higher level.  For we want people to move on so there are pharmacists to fill our prescriptions.  Dentists to fix our cavities.  Engineers to build and maintain our cellular networks.  Aircraft mechanics to keep our planes safe.  Etc.  None of which we would have if no one left their entry-level job.

Staying in an Entry-Level Job for 5 Years could put you 5 Years behind your Earning Potential

The Democrats always want to raise the minimum wage.  To get votes by giving people more stuff.  In the case of a higher minimum wage it’s a bigger paycheck.  They’ll cite the single mother of 3 struggling while working 2 jobs to support her children.  And say it’s just not teenagers working these entry-level jobs.  These are single mothers and single fathers who are barely making it.  And we need to give them a living wage.  But paying people more for these entry-level jobs is the worst thing you can do for them.  For it removes the incentive to leave these jobs.  Jobs that these employees don’t love to begin with.

President Obama wants to raise the minimum wage to $10.10 per hour.  Others want to raise it higher.  Some would even like to make it $40,000 or $50,000 a year.  But imagine the affect of that on kids graduating high school who want a lot of things that Mom and Dad won’t buy for them.  If you can have a lot of money now instead of working hard to earn that same amount of money later what do you think these kids and young adults will do?  A lot of them will take that bigger paycheck now.  And maybe work there 3-5 years enjoying life.  Flipping those burgers.  While some of their former classmates from high school will have started a career.

Raising the minimum wage only discourages upward mobility.  Life is short.  Time passes fast.  Staying in an entry-level job for 5 years could put you 5 years behind your earning potential.  It could change where you live.  And what school your kids go to. Because that smaller paycheck will limit your options in life.  A higher minimum wage may sound nice.  But it would be the death knell of any hope or aspiration you ever had.  People stay in jobs they hate because they don’t like leaving their comfort zone.  If they have decent pay and benefits they will endure some of the worst jobs ever (bad boss, office politics, a coworker they can’t stand, dealing with unruly customers, etc.) because it is easier and less scary than finding a new job.  These people are never happy.  They never truly enjoy life.  And they just dread Mondays.  Raising the minimum wage will only condemn more people to this fate.

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The McDonald’s Franchise Fee keeps People returning to McDonald’s

Posted by PITHOCRATES - January 26th, 2014

Week in Review

Minimum wage workers are trying to raise the wage in fast-food restaurants.  Like McDonald’s.  They say it’s only fair as the company makes billions a year.  And can afford higher wages for their workers.  But most McDonald’s are independent franchises.  Operated by a small business owner on very thin margins.  For a large portion of their earnings go to the corporate office in franchise fees.  Which does all the work that allows a franchise owner to open for business and have a thriving business from day one.  Because of all they do with those franchise fees (see McDonald’s Says Its Restaurants Got Too Complicated by Julie Jargon posted 1/24/2014 on Yahoo! Finance).

McDonald’s executives say they have learned from their mistakes of the past year and are moving to correct them. The company rolled out numerous menu items in quick succession, creating a bottleneck in the kitchens. They also rolled out products that were too expensive for many consumers, including chicken wings that were priced far above competitors’ offerings, leaving the chain with approximately 10 million pounds of unsold wings, according to a person familiar with the matter…

The chain is revamping its kitchens to include expanded prep tables to give employees more space to assemble food. It also plans to add more employees at peak hours and during weekends.

Mr. Thompson said the marketing needs to reflect efforts to improve its menu. McDonald’s on Wednesday announced the appointment of Deborah Wahl, formerly chief marketing officer of home builder PulteGroup Inc., to be its new chief marketing officer for McDonald’s USA…

For 2014, McDonald’s is budgeting for $3 billion in capital expenditures, which will cover up to 1,600 new restaurant openings and the refurbishing of more than 1,000 existing locations.

A small business owner doesn’t have the time or resources to develop new menu items to attract more customers to their stores.  Pay for costly mistakes.  Or spend billions each year to build new stores and renovate existing ones.  So that wherever you are in the world when you walk into a McDonald’s you are home.  In familiar territory.  With the same delicious food you enjoyed back at home.  When you weren’t homesick in a strange world.  This is what corporate does with that franchise fee.  It makes the McDonald’s experience what it is.  Not the minimum wage workers.  They help.  As does the franchise owner.  But it’s those franchise fees pouring into corporate that get reinvested into McDonald’s that keeps us wanting to return for the comfiest of comfort foods.  The food of our childhood.

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The Democrats win Elections because they are Good at Lying and Manipulating People

Posted by PITHOCRATES - December 5th, 2013

Politics 101

The Southern Democrats fought to Maintain Slavery, Formed the KKK and Implemented Jim Crowe Laws

Children love candy.  And sweet treats.  They will gorge themselves on them.  And ruin their dinner.  Or sicken themselves so much from these sweet treats that they will vomit.  If parents let them.  But parents don’t.  Sometimes making for some unhappy children.  But parents don’t do this because they are mean.  They do this because it’s best for the children.

Politicians are a lot like parents.  Bad parents.  Because their ‘children’ can vote.  And because they can they will feed them all the sweet treats they so desired.  No matter how bad they are for them.  No matter how bad they are for the country.  Why?  Parents will do what’s best for their children.  While politicians do what’s best for them.

The Southern Democrats fought to maintain slavery.  They formed the KKK following the Civil War and the emancipation of their slaves.  They then implemented Jim Crowe laws to segregate the South.  That were in effect until 1965.  Then the Southern Democrats opposed the Civil Rights Act (1964).  One of the longest serving and most revered Southern Democrats, Robert Byrd, was an Exalted Cyclops in the KKK.  And he filibustered the Civil Rights Act.  Yet at his death the Democrats eulogized him with great awe and reverence.  Despite all of this Democrats say Republicans are the racists.  And blacks overwhelmingly vote Democrat.  Why?

The Democrats destroyed the Black Family with AFDC and Public Housing

Abraham Lincoln was a Republican.  The Republicans won the Civil War.  They maintained martial law in the South following the war to protect the emancipated slaves.  They did not form the KKK.  Nor did any of them serve as the Exalted Cyclops.  They opposed Jim Crowe laws.  And fought for the Civil Rights Act.  So why is it that the general perception is that Republicans are racists while those with a racist past, Democrats, are not?  Because the Democrats are real good at lying and manipulating people.  That’s why.  And they’re bad parents.

One of the greatest political feats in the history of the United States was the turning of blacks against their emancipators and defenders.  And changing their allegiance to the people who once enslaved and oppressed them.  And how did they do this?  With the Great Society.  Full of tasty treats.  Especially for blacks in the poor inner cities.  The candy?  Aid to Families with Dependent Children (AFDC).  And public housing.  Which just destroyed the black family.  As the nanny state replaced the black father.  And gathered these single mothers and their fatherless children in crime ridden public housing of the inner cities.

Without a strong male role model in a child’s life they tend to get in trouble.  Because a single mother cannot discipline children as much as two parents can.  So a fatherless child strays.  They run with others who pull them further into trouble.  And when the state gathered large groups of fatherless children in public housing they ran in gangs.  Creating the crime that made public housing crime ridden.  And because all these kids went to the same schools they took their trouble into the schools.  Leading to lower graduation rates.  Fewer college enrollments.  Higher unemployment.  And lower median incomes.  This is what the Democrats gave blacks with their nanny state.  And they got them dependent on the nanny state.  So they continued to vote Democrat.  Even though voting Democrat was the worst thing blacks could have done.  Based on what Democrats have done to the black family.

If You raise the Price of the McDonald’s Burger there is no Cost Savings by eating the McDonald’s Burger

Today minimum wage workers across the country were demanding that the government raise the minimum wage to about twice what it is.  To $15/hour.  For these entry level jobs.  The Democrats support this.  For it’s more candy for their children.  Even though it’s not good for them.  For these are not careers.  Nor should they be.  These are entry-level jobs for people with no skills.  So they can gain some rudimentary skills to help them with their next step up their career ladder.  People don’t go to medical school and then work at McDonald’s.  No, they go to medical school explicitly so they don’t have to work a minimum wage job.  And those who don’t have to work a minimum wage job all of their life have a better life.  Both monetarily.  And personally.  With the satisfaction of doing something that gives their life greater meaning.

Of course if they raise the minimum wage to $15/hour minimum wage workers will lose their jobs.  For if you raise the labor rate prices will rise.  And sales will fall.  And with fewer sales businesses will lay off some of their minimum wage workers.  And the Democrats know this.  They’ve worked hard to get tariff protection to protect their union brethren in the automotive industry.  Because those higher wages raised the price of cars.  And reduced sales.  Hence the tariff protect6ion.  To force people to pay more for their cars.  By forcing the price of the competition higher.  So they can continue to sell cars built with their more costly union labor.  So Democrats know higher labor costs raise prices and reduce sales.  So why do they want a higher minimum wage?

People buy fast food because of the value.  They get a decent bang for the buck.  But if you reduce that bang people will buy less.  For if McDonald’s costs as much as a delicious burger at, say, Red Robin, which burger do you think the people will buy?  They’re going to buy the Red Robin burger.  For if you raise the price of the McDonald’s burger there is no cost savings by eating the McDonald’s burger.  So they won’t.  The Democrats know this, too.  But they also know by giving their children this candy they can get their vote.  It will make their children’s lives worse in the long run but that’s okay.  As long as they can get their vote now.  For that’s all that is important.  Not the lives they destroy by being bad parents.

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McDonald’s 2012 Annual Report

Posted by PITHOCRATES - August 6th, 2013

History 101

The Benefit of a McDonald’s Franchise is getting the Benefit of their Years of Building their Brand

Recently a late-night comedy show attacked McDonald’s for being greedy.  Because they don’t pay their minimum wage workers a living wage.  Because what were once entry level jobs are now the primary support for some families.  And why have entry level jobs come to support families?  Because the anti-business policies of the current administration have destroyed better-paying jobs.  But they don’t attack that on late-night television.  They attack a company actually providing jobs in a jobless economy.

Today McDonald’s is huge.  You can find them pretty much anywhere in the world.  Which can be a welcome site for a weary traveler.  For they know they can walk into a McDonald’s wherever they are and have the comfort of a meal exactly like that at home.  Which is pretty amazing if you think about it.  And why McDonald’s is so successful.  The sight of those Golden Arches can attract a foreigner in a strange land or a construction worker on a new project in a distant city.  They know exactly what they can get at that McDonald’s.  What it will taste like.  And what it will cost.  Even if they’ve never been in that McDonald’s before.

This is because McDonald’s has very successfully built their brand.  Which is one of those intangible things.  It has great value.  But you can’t physically touch it.  Those who own a McDonald’s franchise can enjoy a thriving business.  From day one.  Without doing any marketing to get people to walk into their restaurant.  They don’t have to.  Because McDonald’s has already done it.  And continues to do it.  This is the benefit of the franchise.  You get the benefit of all those years of hard work McDonald’s did to build their brand by simply paying a franchise fee (see Restaurants and Franchises posted 8/5/2013 on Pithocrates).  It’s not cheap.   But it’s such a fair deal for both franchiser and franchisee that McDonald’s had 27,882 franchised stores in 2012 (see McDonald’s 2012 Annual Report, page 11).

Owning a McDonald’s Franchise allows you to own a Restaurant that has been Successfully in Business for 72 Years

In addition to the intangible value of the brand the franchise fee also includes rent.  For McDonald’s “owns the land and building or secures long-term leases” for the franchisee’s store (see McDonald’s 2012 Annual Report, page 11).  While the franchise needs to foot the bill for the “equipment, signs, seating and décor.”  This makes sure all stores are modern and up to date and uniform.  Helping to maintain that comfortable familiarity for the customers.  While splitting the capital costs between the franchisee and franchiser.  So both parties have a major investment in the business.  And each shares in the profits of the business.  Perhaps the best of the deal for the franchisee is getting a mentor.  And a detailed operating manual telling them everything they need to know and do.

Owning a McDonald’s franchise is costly.  But you get to step into a restaurant that has been successfully in business for 72 years.  Give or take.  Considering that half of all restaurants fail within the first five years of business this is a HUGE benefit for the franchisee.  And something well worth the franchise fee.  As evidenced by 27,882 franchised stores in 2012.  So what is that franchise fee?  And how much money does the franchisee get to keep after paying the franchise fee?

Well, if you do a little number crunching with the financials included in the 2012 annual report you can get an approximate number.  McDonald’s also has stores they own and operate.  In 2012 they had 6,598 company-owned stores.  The average per store revenue was $1,358,594 (calculated by dividing the total revenue from the company-owned stores by the number of company-owned stores).  A similar calculation gives an approximate $667,205 franchise fee per franchised store.  Subtracting the typical franchisee fee from the typical store revenue (assuming all stores have the same average revenue as the company-owned stores) gives the franchisee an annual income of $691,389.  From this income the franchisee has to pay for food, labor and overhead.  And whatever is left over is profit.

High School Kids and College Students work at McDonald’s because they need no prior Restaurant Experience

The rule of thumb in restaurants is that costs are broken down into thirds.  One third is food cost.  One third is labor cost.  And one third is overhead and profit.  So if we divide that $691,389 by 3 we get an annual food cost per franchised store of $230,463.  Ditto for labor.  And overhead (gas, electric, water, insurances, taxes, licenses, fees, waste disposal, light bulbs, toilet paper, soap, garbage bags, etc.) and profit.  Let’s look at the labor cost more closely.  To see if McDonald’s is greedy when it comes to paying their employees.

The benefit of owning a franchise is that it comes with very explicit instructions.  A McDonald’s distributor delivers prepared food ready for the grill and fryer.  As delicious as it is, though, it doesn’t take a highly skilled chef to prepare it.  As the franchisee operating manual has it down to a science.  Which is why high school kids and college students work at McDonald’s.  They need no prior restaurant experience as it is an entry level job.  Typically their first job.  Where they learn what it’s like entering the workforce.  The importance of being on time.  Following instructions.  Being responsible.  Skills that they will use in later jobs.  Which most do.  As there is a high turnover of employees at McDonald’s as there is for all fast food.  Because these are entry level jobs for unskilled workers.  Who learn the skills they need on the job.  So let’s assume a restaurant that is open 24 hours a day, 7 days a week.  Assuming an hourly rate of $8.50 and an overhead of 40% for direct labor costs (workers’ compensation insurance, unemployment taxes, health insurance, uniforms, training, etc.) the average hourly labor cost comes to $11.90.  Dividing the labor cost of $230,463 by this hourly cost gives us 15,758 annual labor hours.  Or about 53.06 hours per day.  Or 17.69 hours per 8-hour shift.  Giving us an average of 2.21 workers per 8-hour shift.

During the breakfast and lunch rush a typical McDonald’s may have between 5-8 people working.  With fewer working in the evening.  And a skeleton crew over night working the drive-thru.  So the labor fluctuates during the day to correspond to the amount of business.  Which is why there are a lot of part-time workers at McDonald’s.  Ideal for high school and college kids.  In addition the owner typically works during those busy periods to help with the rush.  And works on paperwork during the slower times.  Putting in about 12 hours a day.  If you assume an overhead rate of 18% and multiply that to the franchisee annual income of $691,389 we get an overhead expense of $124,450.  Subtracting that from the $230,463 (overhead & profit) leaves an annual owner income of $106,013.  Or, based on a work week of 84 hours (12 hours a day X 7 days a week), the owner earns about $24.27 an hour.  A rate a lot of people can earn working for someone else without the headaches of owning a business.

That late-night comedy show attacked McDonald’s for being greedy.  Saying they should increase their pay rate to a living rate.  Like picketers were asking for.  $15/hour.  A labor cost increase of 82.6%.  Or an additional $190,382 each year.  Which would bring the franchisee’s annual income from $106,013 to an annual loss of $84,369.  So are these McDonald’s franchisees greedy because they refuse to pay a living wage?  No.  They simply can’t afford to pay more than the minimum wage for these minimum wage jobs.  Unless they can get people to spend $6-$7 for a Big Mac.  They are delicious.  But are they $6-$7 delicious?  And can a low-income family afford to take the family to McDonald’s when they are charging $6-$7 per burger?  Probably not.  No.  McDonald’s is just fine.  What we need to do is to un-do the anti-business policies of this administration that is killing those higher-paying jobs.  And forcing the primary earner in some families to work a minimum wage job.  Because that’s all that is available in this jobless economy.

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The Current Economic Recovery is so Bad that Fast Food Restaurants have to Increase their Dollar Menu Offerings

Posted by PITHOCRATES - January 5th, 2013

Week in Review

While the Obama administration, their economists and those in the mainstream media celebrate job creation month after month the official unemployment rate (U-3) remains at 7.8%.  Worse, the better gauge of how awful the economy is, the U-6 unemployment rate, is holding steady at 14.4%.  Which says a lot about the horrible economic policies of the Obama administration.  But these numbers still seem a little abstract to most.  So here is a summary of the current economic climate most people will be able to understand.  At least, if they eat at fast food restaurants (see Wendy’s Doubles Down on Dollar Menu by Martha C. White posted 1/3/2013 on Time).

Although it bumped Burger King out of second place by positioning itself as a more upscale fast-food burger chain, now Wendy’s is supersizing its value menu by adding a second tier of under-$2 items in addition to a core group of 99¢ offerings.

The company missed analysts’ earnings expectations last quarter, while rival McDonald’s recovered from an October dip in sales by heavily promoting its dollar menu. (The thousands of McDonald’s stores that stayed open on Thanksgiving helped lift sales too…)

In a conference call last month, president and CEO Emil Brolick told investors, “We have lost some share in the value-menu area,” and said  the new menu would help the company reverse that slide…

According to research firm Technomic, Wendy’s took the No. 2 spot from Burger King among fast-food burger brands last year. Helped along by Burger King’s sluggish response to changing tastes among fast-food diners, Wendy’s stole the King’s crown by focusing on higher-end (and higher-priced) items like bigger, more natural-looking patties and specialty sandwiches like an asiago ranch chicken club.

The problem was, it got almost too good at aligning itself with the higher end of the market. “The new menu is intended to better balance Wendy’s overall menu, which had gotten top-heavy through [the addition] of higher-priced sandwiches,” Burger Business observed.

“We do believe that the number of price-value-sensitive customers out there is not insignificant,” Brolick told analysts. He’s right. Bonnie Riggs, a restaurant-industry analyst at research company NPD Group, says fast-food diners, especially those under 35, are abandoning combo meals in favor of the dollar menu to save a few bucks.

Fast food is not only fast it is also inexpensive.  So if fast food has to offer lower-priced items to entice people into their restaurants you know the economy is bad.  Which it is.  Bad.  However you want to measure it.  This economic recovery is so bad it is as if we’re still in the Great Recession.  Why?  Because this administration’s policies are not business-friendly.  So businesses are not hiring.  Or only hiring people part-time to escape some of their expensive anti-business policies.  Like Obamacare.

And there is worse to come.  Without having to worry about reelection President Obama has no reason to compromise with Republicans.  Which means only one thing.  Americans will be buying ever more off of these dollar menus.  As it is the most they can afford thanks to the horrible economic policies of the Obama administration.

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Henry Ford, Bill Hewlett & Dave Packard, Steve Jobs & Steve Wozniak, Howard Schultz, Ray Kroc and Richard Branson

Posted by PITHOCRATES - May 8th, 2012

History 101

Capitalism allows Entrepreneurs to bring their Great Ideas to Life

Entrepreneurs start with an idea.  Of how to do something better.  Or to create something we must have that we don’t yet know about.  They think.  They create.  They have boundless creative energies.  And the economic system that best taps that energy is capitalism.  The efficient use of capital.  Using capital to make profits.  And then using those profits to make capital.  So these ideas of genius that flicker in someone’s head can take root.  And grow.  Creating jobs.  And taxable economic activity.  Creating wealth for investors and workers.  Improving the general economy.  Pulling us out of recessions.  Improving our standard of living.  And making the world a better place.  Because of an idea.  That capitalism brought to life.

Entrepreneurs Risked Capital to bring Great Things to Market and to Create Jobs

Henry Ford established the Detroit Automobile Company in 1899.  Which failed.  He reorganized it into the Henry Ford Company in 1901.  Ford had a fight with his financial backers.  And quit.  Taking the Ford name with him.  And $900.  The Henry Ford Company was renamed Cadillac and went on to great success.  Ford tried again and partnered with Alexander Malcomson.  After running short of funds they reorganized and incorporated Ford Motor Company in 1903 with 12 investors.  The company was successful.  Some internal friction and an unexpected death of the president put Ford in charge.  Ford Motor built the Model A, the Model K and the Model S.  Then came the Model T.  And the moving assembly line.  Mass production greatly increased the number of cars he could build.  But it was monotonous work for the assembly line worker.  Turnover was high.  So to keep good workers he doubled pay in 1914 and reduced the 9-hour shift to 8 hours.  This increased productivity and lowered the cost per Model T.  Allowing those who built the cars to buy what they built.  In 2011 the Ford Motor Company employed approximately 164,000 people worldwide.

Bill Hewlett and Dave Packard established Hewlett-Packard (HP) in 1939.  In a garage.  They raised $538 in start-up capital.  In that garage they created their first successful commercial product.  A precision audio oscillator.  Used in electronic testing.  It was better and cheaper than the competition.  Walt Disney Productions bought this oscillator to certify Fantasound surround sound systems in theaters playing the Disney movie Fantasia.  From this garage HP grew and gave us calculators, desktop and laptop computers, inkjet and laser printers, all-in-one multifunction printer/scanner/faxes, digital cameras, etc.  In 2010 HP employed approximately 324,600 employees worldwide.  (Steve Wozniak was working for HP when he designed the Apple I.  Which he helped fund by selling his HP calculator.  Wozniak offered his design to HP.  They passed.)

Steve Jobs had an idea to sell a computer.  He convinced his friend since high school, Steve Wozniak, to join him.  They sold some of their things to raise some capital.  Jobs sold his Volkswagen van.  Wozniak sold his HP scientific calculator.  They raised about $1,300.  And formed Apple.  They created the Apple I home computer in 1976 in Steve Jobs’ garage.  From these humble beginnings Apple gave us the iPad, iPhone, iPod, iMac, MacBook, Mac Pro and iTunes.  In 2011 Apple had approximately 60,400 full time employees.

Jerry Baldwin, Zev Siegl, and Gordon Bowker opened the first Starbucks in 1971 in Seattle, Washington.  About 10 years later Howard Schultz drank his first cup of Starbucks coffee.  And he liked it.  Within a year he joined Starbucks.  Within another year while traveling in Italy he experienced the Italian coffeehouse.  He loved it.  And had an idea.  Bring the Italian coffeehouse to America.  A place to meet people in the community and converse.  Sort of like a bar.  Only where the people stayed sober.  Soon millions of people were enjoying these tasty and expensive coffee beverages at Starbucks throughout the world.  In 2011 Starbucks employed approximately 149,000 people.

Ray Kroc sold Prince Castle Multi-Mixer milk shakes mixers to a couple of brothers who owned a restaurant.  Who made hamburgers fast.  Richard and Maurice McDonald had implemented the Speedee Service System.  It was the dawn of fast food.  Kroc was impressed.  Facing tough competition in the mixer business he opened a McDonald’s franchise in 1955.  Bringing the grand total of McDonald’s restaurants to 9.  He would go on to buy out the McDonald brothers (some would say unscrupulously).  Today there are over 30,000 stores worldwide.  In 2010 McDonald’s employed approximately 400,000 people.

Richard Branson started a magazine at 16.  He then sold records out of a church crypt at discount prices.  The beginning of Virgin Records.  In 1971 he opened a record store.  He launched a record label in 1972.  And a recording studio.  Signing the Sex Pistols.  And Culture Club.  In 1984 he formed an airline.  Virgin Atlantic Airways.  In 1999 he went into the cellular phone business.  Virgin Mobile.  In 2004 he founded Virgin Galactic.  To enter the space tourism business.  His Virgin Group now totals some 400 companies.  And employs about 50,000 people.

The Decline of Capitalism and the Rise of the Welfare State caused the European Sovereign Debt Crisis

And we could go on.  For every big corporation out there will have a similar beginning.  Corporations that use capital efficiently.  Bringing great things to market.  Introducing us to new things.  Always making our lives better.  And more comfortable.  One thing you will not find is a great success story like this starting in the Soviet Union.  The People’s Republic of China (back in the days of Mao Zedong).  East Germany (before the Berlin Wall fell).  North Korea.  Or Cuba.  No.  The command economies of communist countries basically froze in time.  Where there was no innovation.  No ideas brought to life.  Because the government kind of frowned on that sort of thing.

There is a reason why the West won the Cold War.  And why we won that war without the Warsaw Pack and NATO forces fighting World War III.  And why was this?  Because we didn’t need to.  For the communist world simply could not withstand the forces of living well in the West.  Whenever they could their people escaped to the West.  To escape their nasty, short and brutish lives.  In the command economies of their communist states.  Where the state planners failed to provide for their people.  Even failing to feed their people.  The Soviet Union, the People’s Republic of China and North Korea all suffered population reducing famines.  But not in the West.  Where we are not only well fed.  But our poor suffer from obesity.  Which is not a good thing.  But it sure beats dying in a famine.

Sadly, though, the West is moving towards the state planning of their one time communist foes.  Social democracies are pushing nations in the European Union to bankruptcy.  Japan’s generous welfare state is about to implode as an aging population begins to retire.  Even in the United States there has been a growth of government into the private sector economy like never before.  Which is causing the Great Recession to linger on.  As it caused Japan’s lost decade to become two decades.  And counting.  As it is prolonging the European sovereign debt crisis.  With no end in sight.  The cause of all their problems?  The decline of capitalism.  And the rise of the welfare state.  Which just kills the entrepreneurial spirit.  And the creation of jobs.  Which is one cure for all that ails these countries.  And the only one.  For only robust economic activity can pull a country out of recession.  And for that you need new jobs.  And the entrepreneurial spirit.  In short, you need capitalism.

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The Government makes our Kids eat Dog Food in our Schools

Posted by PITHOCRATES - March 10th, 2012

Week in Review

The Obama administration has declared war on unhealthy foods.  Because we’re too fat.  And are in general poor health.  Because our mothers aren’t packing healthy enough lunches for their kids.  And McDonald’s and Taco Bell are killing us with unhealthy ground beef (see Seven Million Pounds of “Pink Slime” Beef Destined for National School Lunch Program by Sarah B. Weir posted 3/8/2012 on Shine from Yahoo).

McDonald’s and Taco Bell have banned it, but now the United States Department of Agriculture (USDA) is buying 7 million pounds of beef containing ammonium hydroxide-treated ground connective tissue and meat scraps and serving it up to America’s school kids…

According to TheDaily.com, the term “pink slime” was coined by microbiologist Gerald Zirnstein, formerly of the USDA Food Safety Inspection Service. He first saw it being mixed into burger meat when he was touring a Beef Products Inc (BPI) facility in 2002 after an outbreak of salmonella. “Scientists in D.C. were pressured to approve this stuff with minimal safety approval,” Zirnstein told The Daily.

“Pink slime,” which is officially called “Lean Beef Trimmings,” is banned for human consumption in the United Kingdom. It is commonly used in dog and chicken food…

Another issue is the ammonium hydroxide, a chemical that is used to kill pathogens such as E. coli. The FDA considers it safe for human consumption but a 2009 expose by the New York Times questioned its safety and efficacy.

Well if that ain’t the pot calling the kettle black.  It turns out that McDonald’s and Taco Bell hold themselves to a higher standard than our government.  For our government will feed dog food to our children in school.  McDonald’s and Taco Bell won’t.  Even though the government will.  But they heard public opinion.  And they’re going to give the public what they want.  Unlike our government.  Who takes a high moralizing tone when it comes to healthy eating.  But then tells our kids ‘dog food is good enough for you’.  At least, when they’re paying for it.

This is an important lesson here.  The private sector wants to please us and gives us a higher quality food.  The government wants to change us and make us take what they give us.  A lower quality food.  And their snarky criticism about our poor eating habits.  Now just imagine the level of quality we’ll get under Obamacare.

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FT88: “Liberals say live and let live when it comes to sex and drugs but don’t you dare eat at McDonald’s or light a cigarette in front of them.” -Old Pithy

Posted by PITHOCRATES - October 21st, 2011

Fundamental Truth

Liberals want us to Treat Kids as Adults when it comes to Sex and Drugs

Liberals want to hand out condoms in school.  And they want to teach school kids how to use them.   They want to give them access to birth control.  And abortions.  Because kids are going to have sex.  No matter what we say.  So live and let live they say.  Let these kids have their fun.  And we’ll deal with the consequences later.  Such as an unwanted pregnancy.  A venereal disease.  Or rape.  Should a young girl get scared and change her mind.  Should a boy not understand that ‘no’ really means ‘no’.  Or believes consent is nonrefundable.  Especially after getting all riled up in school learning about sex.  In an academic setting.  Where it seems like just good clean fun.  Rather than learning it the old fashioned way.  From a parent.  Who tells you to wait until you’re a responsible adult.  Because it’s not just good clean fun.  It’s serious.  And can have some serious consequences.

Liberals would like to decriminalize drugs.  At least marijuana.  Because kids are going to experiment.  No matter what we say.  Marijuana is harmless, they say.  And they poo poo the naysayers who say it can be a gateway drug.  Marijuana won’t make people tire of it.  And look for a higher high.  Because heroin, coke and meth addictions just happen.  Spontaneously.  Just like alcohol addiction.  Some people have a predisposition for addiction.  And the drugs themselves are in no way to blame.  It’s a person’s DNA.  So live and let live they say.  Because drugs don’t addict people.  People do.  Those with a predisposition to addiction.  But it’s not their fault.  They’re just hardwired that way.  So we shouldn’t blame them.  Or drugs.  It just happens.

You see, people are adults.  Even kids.  That’s why we need to treat them as adults.  And if we do they’ll make adult decisions.  Partake in sex and drugs responsibly.  Like adults.  And there will be no consequences we can’t manage after the fact.  Like adults.

Liberals aren’t all that Concerned about Unwanted Pregnancies, Venereal Disease or Drug Addiction

So kids may be adults.  But their parents aren’t.  Liberals don’t want them making ‘adult’ decisions.  Such as what to eat, drink or smoke.  Like kids can about sex and drugs.  No.  Liberals want to use the power of government to make these decisions for adults.  Because they can’t be trusted to make the right decisions.

They want to tax fast food.  And soda pop.  Like they tax cigarettes.  To make them very expensive.  So they can make people choose correctly.  To choose what liberals want them to choose.  And not what these adults want.

You see, liberals aren’t all that concerned about unwanted pregnancies, venereal disease or drug addiction.  But they are very concerned about trans-fat and sugar.  They don’t want you enjoying the occasional McDonald’s meal.  A bag of chips.  A Mountain Dew.  Or a cigarette.  And if they catch you lighting up a cigarette after a meal in a McDonald’s, look out.  You will get a look of contempt and pure hate like you’ve never seen before.  Because you’ve dared to expose children to second-hand smoke.  For kids smoking pot first-hand is one thing.  But breathing second-hand smoke is just unhealthy.  Wrong.  And could scar them for life.  Unlike an unwanted pregnancy, a venereal disease or a drug addiction.

Liberals want Kids to Think Sex, Drugs and Vote Democrat

Why do they want to help kids have sex and do drugs?  Because they want kids to like them.  And they will if they make high school and college as much fun as possible.  They want these kids to think sex, drugs and vote Democrat.  Because liberal Democrats need the youth vote.  For they can’t win elections without it.  And they don’t care if these kids get scarred for life from an unwanted pregnancy, a venereal disease or a drug addiction.

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