Editing Blog/2025-11-22/Wage Compression

[[File:FRB Dallas - Income Increases to 2022.png|thumb]]
The incomes of the poor have increased faster since COVID-19 than any other group. This frequently leads to laments that everything has changed and gotten more expensive since COVID-19. If one were to listen to what most people like to say about poverty, this income increase should be accompanied by celebration. It's hard to pin down why it's not, but one can guess that it is because most people thought they were in a poorer group than they were and they anchor their income not against a representative American but against the richest ones.

{{HackerNews
 | url      = https://news.ycombinator.com/item?id=46012295
 | author   = silisili
 | title    = McDonald's is losing its low-income customers
 | text     = At least from my perspective, COVID broke everything. People are more awful, quality is more awful, and prices are way up. I dread even eating out anymore as I fully expect to overpay for bad food and service.
There's an argument to be made that inflation is ultimately the driver of all three complaints, but boy did that all happen seemingly overnight.
 | date     = 2025-11-21
 | comment = true
}}
A common expression is that everything has gone to shit since COVID-19 but the thing that made me think the most about this was the fact that someone would say this about McDonald's. McDonald's is a cheap fast-food franchise. Its margins are fairly low at 10%-15%<ref name=mcd-margin/> and labor is 36% of expenses<ref name=mcd-labor/>. The majority of their employees are at minimum wage or command a small premium, which you can tell from the fact that McDonald's wages have an elasticity of 0.7 vs minimum wage<ref name=mcd-elasticity/>. McDonald's is not the kind of franchise where you can just raise your prices to arbitrary amounts and still expect people to come since historical price elasticity vs minimum wage is 0.14<ref name=mcd-elasticity/>.

In fact, if you were given these facts, and you were told that you intended to increase minimum wage 20% what you would expect to happen is that McDonald's franchisees would try to move to reduce headcount through greater automation and by redistributing the lower headcount to essential tasks: you'd see less busing of tables, less cleaning, and more attention at check-out and food preparation. So the observation that McDonald's customers have is what you'd expect if you encountered this hypothetical scenario before McDonald's did what they did.

And this isn't the only occasion that people observe this.
{{HackerNews
 | url      = https://news.ycombinator.com/item?id=46064095
 | author   = Spooky23
 | title    = Bring bathroom doors back to hotels
 | text     = The hotel industry is bizarre. I feel like we hit this maxima circa 2005 where prefabrication made for the shockingly cheap/nice Hampton Inn style hotels in the US.
Now those places anre on the wrong side of the depreciation curve, and every chain hotel is a little worse every day. They bill upfront since COVID, don’t clean the room, shrink the towels and deliver a shittier level of service. I was at a Marriott recently where the room had no linens - no towels, sheets, pillows, nothing.

I called and was instructed to do everything myself, and the hotel GM’s attitude was that “shit happens”.
 | date     = 2025-11-21
 | comment = true
}}

== Politics Is The Real World ==

This decoupling of outcomes from rhetoric is fairly common in Internet conversation. Arguments that "jobs that can't pay better shouldn't exist" abound, but things do change when wages shift. For many people, political statements seem to be entirely decoupled from the real world. 


I've recently stopped using Twitter very much, but my friend Ben posts interesting things there often and I don't yet have an effective means of mirroring them elsewhere to read. On one such occasion, I came across the following tweet and an associated reply to it that illustrated these things.

{{Tweet
| name = PoIiMath
| username = politicalmath
| text = Can't we just...
(rubs temples) 
Can't we just divide the number of unemployed workers by the work force population? Isn't that the unemployment rate?
BREAKING: The White House announces that the October jobs report will be released WITHOUT an unemployment rate.
| date = Nov 13, 2025
| ID = 1989115197148262687
| ref-name = Tweet_1989115197148262687
| block = true
}}

{{Tweet
| name = Matt Darling 
| username = besttrousers
| replyto = politicalmath
| text = That is what they do!

But you need to COUNT IT.

every month they sample a random selection of the population and survey them - this is the Current Population Survey.
| date = Nov 14, 2025
| ID = 1989418011548385421
| ref-name = Tweet_1989418011548385421
| block = true
}}

This seems to me to betray a belief that there is the "political sphere" and the "real sphere" and that the things that happen in the former are sort of like what happens in a WWE ring, and the things that happen in the latter are what we experience. The truth is, of course, not quite like that. Matt here is right: when we stop funding the BLS, the things the BLS did don't get done. And you need to collect data to do things with data.

And when you raise the cost of doing jobs, some jobs won't get done and others will be moved to robots. Some jobs just aren't productive enough, and people can go do other things instead. This means that some things you came to expect will no longer be present. The McDonald's table will no longer be as clean, even if you find yourself paying more. There Ain't No Such Thing As A Free Lunch.

== Notes ==

<references>
<ref name=mcd-labor>
{{cite web
 |url=https://marketrealist.com/2019/11/how-mcdonalds-wages-major-costs-stack-up/
 |title=How McDonald’s Wages and Major Costs Stack Up
 |website=Market Realist
 |last=Khandelwal
 |first=Rekha
 |date=2020-11-20
 |access-date=2025-11-21
}}
</ref>
<ref name=mcd-margin>
{{cite web
 |url=https://en.as.com/latest_news/heres-what-a-mcdonalds-franchisee-earns-per-month-and-what-the-franchise-takes-in-n/
 |title=Here’s what a McDonald’s franchisee earns per month and what the franchise takes in
 |website=AS USA
 |last=Hall
 |first=Andy
 |author2=Izquierdo, Raúl
 |date=2025-02-22
 |access-date=2025-11-21
}}
</ref>
<ref name=mcd-elasticity>
{{cite report
 |title=Wages, Minimum Wages, and Price Pass-Through: The Case of McDonald’s Restaurants
 |publisher=Griswold Center for Economic Policy Studies
 |series=Working Paper No. 281
 |date=January 2021
 |last=Ashenfelter
 |first=Orley
 |author2=Jurajda, Štěpán
 |url=https://gceps.princeton.edu/wp-content/uploads/2021/07/281_Ashenfelter.pdf
 |access-date=2025-11-21
}}
</ref>

</references>


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