Thread by @ritholtz

LONG OVERDUE: McDonalds is raising wages 10% to find & retain new hires. Low end wages have lagged for decades.

ritholtz.com/2021/05/findin…

Recall $MCD was a giant Welfare Queen whose McResource line helped employees enroll in various state/local assistance programs.

Backlash began when a recording was released with them advocating full-time employees sign up for food stamps + welfare.

ritholtz.com/2013/11/americ…

My solution to getting $MCD + $WMT + others off the public dole was to raise minimum wages. That raised howls from the usual suspects.

5 years ago, we began a real world experiment that would once +for all tell us if min wage increases were job killers

ritholtz.com/2016/03/157921/

We have had data going back to the 1960s, and the conclusion is very clear: gradual increases in minimum wage does not hurt jobs.

Mainstream economists agree and there is only fringe opposition to this conclusion

ritholtz.com/2016/03/perspe…

The marketplace is forcing stores like Walmart + McDonalds to compete for workers by raising their wages.

Companies that pay a decent wage CostCo, Trader Joe’s, Target + Starbucks demonstrated you didn’t need to impoverish your staff to be profitable.

ritholtz.com/2021/04/shifti…

Note this is not "woke capitalism" but rather, smart business:

Recruitment is a cost, Turnover is expensive, understocked shelves sell fewer goods.

If the Demand for workers is there, why hasn’t the supply caught up yet?

The short answer is Price. Employers have been reluctant to raise wages. This is classic problem where buyers and sellers get anchored on some past level, failing to keep up with the realities of markets.

$7 an hour is so yesterday; $10 hour seems cheap but its actually expensive once you factor in poor candidates and high turnover rates.

ritholtz.com/2021/05/findin…

Employers are not competing against unemployment insurance, they are COMPETING AGAINST EACH OTHER FOR TALENT.

This is how the market operates; prices rise when demand goes up.

ritholtz.com/2021/05/about-…

That I need to even remind some of this is proof how badly damaging ideological blinders are to fundamental economic analysis.

CAPITALISM CREATES AN AUCTION MECHANISM FOR GOODS AND SERVICES.

EMPLOYERS THAT FAIL TO BID AT MARKET RATES WILL MISS PURCHASING NECESSARY LABOR.

The proof of this? Wage increases at the low end of the scale are belatedly rising.

This has historically been a government function but the minimum wage has lagged productivity, profits, executive pay + inflation by so much that the marketplace is now forcing a correction.

Will this cause:

Increase in inflation? Yes
Reduction in poverty? Yes
Rising economic activity? Yes
Increase in living standards? Yes
Competition for unskilled workers? Yes
Anguished handwringing among ideologues? Yes

A greater understanding of wage mechanisms? No

A solution from people like @Claudia_Sahm is to build in automatic stabilizers when unemployment increases.

I also like the idea of building in a COLA to minimum wages to avoid these spasmodic + disruptive labor market corrections

ritholtz.com/2021/02/minwag…

A large part of this traces back to the GFC. That was a huge disruptive event, and it created a class of workers who were UNDERemployed. The mostly monetary response deserves at least some of the blame for this.

This persisted all the way to 2020 pandemic recession.

Not a coincidence economic reopening + $5 Trillion CARES Acts fiscal response created a giant boom across the economy.

Obvious lessons:

-Monetary stimulus unfreezes credit but inflates asset prices;

-Fiscal stimulus creates hiring, sales + growth but causes some inflation;

I have been writing about Employment and Wages for a long time. If you are curious as to what drives hourly wages see this collection

ritholtz.com/wages-in-ameri…

An ideology of severe cost cutting as a path to profitability has become passé. Savvy employers figured this out a while ago.

Markets are kinda sorta mostly efficient. They eventually get it right.

Current wage increases today is the market manifestation of this truism.