TIME Economy

Warren Buffett: $15 Minimum Wage Will Crush the Working Class

Warren Buffett And BofA CEO Brian Moynihan Speak At Georgetown University
Drew Angerer/Getty Images

The billionaire has a surprising position on beloved issue for the left

Warren Buffett is a favorite of the American left for his support of such policies as higher taxes on the rich and healthcare reform.

But advocates for workers rights may be a little less pleased with the billionaire investor after he published an op-ed in The Wall Street Journal Friday, decrying the efforts in many cities across the United States to raise the minimum wage to as much as $15 per hour.

Buffett admitted that the middle class has increasingly hurt by an economy that rewards people with “specialized talents,” but not the vast majority of Americans who hold “more commonplace skills.” However, Buffett argues that trying to solve the problem of stagnant wages for working Americans by raising the minimum wage is misguided. Writes Buffett:

In my mind, the country’s economic policies should have two main objectives. First, we should wish, in our rich society, for every person who is willing to work to receive income that will provide him or her a decent lifestyle. Second, any plan to do that should not distort our market system, the key element required for growth and prosperity.

That second goal crumbles in the face of any plan to sizably increase the minimum wage. I may wish to have all jobs pay at least $15 an hour. But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.

Instead, Buffett says, we should expand the earned income tax credit, also known as a “negative income tax,” in which the government subsidizes the wages of workers making under a certain amount. “The EITC rewards work and provides an incentive for workers to improve their skills,” Buffett writes. “Equally important, it does not distort market forces, thereby maximizing employment.”

MONEY Fast Food

McDonald’s Wage Protests Continue as Shareholders Meet

Protesters marched on McDonald's corporate headquarters while the company looks to Washington to address minimum wage issues nationally.

MONEY Wages

Los Angeles Just Raised Its Minimum Wage to $15

May Day Rally Held in Los Angeles
Sandy Huffaker—Getty Images Protesters chant during a May Day rally in downtown Los Angeles, California.

The increase will kick in by 2020

The Los Angeles City Council has voted to ramp up the city’s minimum wage to $15 an hour from $9 over the next five years.

The urban center is the largest among several cities—including Seattle, San Francisco, and Oakland, California—that have moved to increase pay for their lowest-earning workers. Once signed by the mayor, the L.A. law could affect as many as 800,000 workers, reports the Los Angeles Times.

Other cities, including New York and Washington, D.C., are still considering laws that would also set the local minimum wage at $15. (See this map of places where local minimum wage increases have been enacted or proposed.)

The first pay bump would occur in July 2016, increasing wages in Los Angeles to $10.50 per hour.

Read next: These Are the 25 Best U.S. Cities for Jobs

TIME

There’s 1 Huge Downside to the Fastest Growing Jobs

TIME.com stock photos Money Dollar Bills
Elizabeth Renstrom for TIME

The economy is getting better, but there's a catch

Employment news is a mixed bag these days. First, the good news: There’s work. The unemployment rate is dropping, and a growing number of surveys indicate that companies plan to hire and even pay more.

But—and this is a big caveat—the jobs aren’t necessarily the ones you’d like to take, especially if you’re looking for a decent salary or prefer more sedentary employment. This is work work, where you’ll probably be on your feet and dealing with things that are hot, dirty or dangerous (or all three).

Credit.com analyzed a report put out by the National Employment Law Project, an advocacy group for low-wage workers, that breaks down how many people earn $15 an hour or less in a variety of low-wage jobs, then compared it to government projections for job growth through 2022. Unfortunately, a lot of the fastest-growing jobs are the ones that pay the least.

There’s plenty of opportunity — if not money — in the quote-unquote McJobs category. The NELP report finds that more than 400,000 people will join the nearly 2 million Americans with jobs in food preparation (including fast food), but the median hourly wage is only $9. Fewer than 12% of these workers see more than $15 an hour in their paychecks for jobs that often involve long hours on your feet over a hot stove or fryer. “As a result, many workers rely on public assistance to make ends meet,” NELP says.

But the plentiful-but-poor jobs go way beyond just flipping burgers. Right now, about 1.2 million people work as personal care aides, providing crucial assistance to elderly or disabled people. As baby boomers age, the number of people working these jobs will increase by almost 50%. It’s hard work dressing, bathing, making meals for and cleaning up after others, but that isn’t reflected in the pay. NELP finds that the median wage is only $10 an hour, and about 78% make less than $15 an hour. In a similar vein, the number of nursing assistants is expected to go up by more than 20%, but these workers make around $12 an hour at the median, even though they also do a lot of literal and figurative heavy lifting taking care of people.

In another recent study, WalletHub.com analyzed 109 entry-level jobs, most of which require at least some, if not extensive, post high-school education or certification, to pick out the best and the worst. The top 10 list is dominated by tech jobs, with a few number-crunching gigs (financial analyst, engineer) thrown in. In other words, even though these are entry-level jobs, applicants need both skills and degrees to break into this market.

On the flip side, there’s a much lower bar to entry for what WalletHub labels the worst jobs. Some are equally skilled, but you need to have a healthy respect for manual labor and a willingness to play with fire (literally — the bottom 10 list includes boilermaker and welder). Some of these wind up on the bottom not because of poor pay but because of the potentially dangerous working conditions. Others — like electronics assembler, sheet-metal mechanic and consumer loan servicing clerk — make the “worst” list because there are so few of these jobs out there. If you land one, great, but it’s not the type of thing you’d tell your kids to make their career path.

And finally, there are the worst jobs that wind up there because the pay is horrible or the potential for income growth is lousy, like certified nursing assistants, which fall in the bottom five on both counts of the WalletHub survey.

“A low wage can make it difficult for people to pay bills on time, keeping their credit reports free of collection accounts or other negatives… [and] managing day-to-day expenses in addition to paying down outstanding balances can be even more challenging,” Credit.com says.

TIME Companies

Burger King Founder Says Higher Wages Could Kill Off ‘Dollar Menus’

“I see a lot of $10 hamburgers arriving on the scene,” David Edgerton says

Burger King co-founder David Edgerton says fast food workers pushing for higher wages could spell the end of the “dollar menu,” and usher in an era of higher-quality, more expensive convenience restaurants.

Edgerton, 87, spoke to TIME on Wednesday as fast-food workers around the world staged protests and strikes—some at Burger King locations—as a part of the “Fight for $15” campaign, which calls for a $15 per hour minimum wage and the right to unionize.

“What’s going to happen, really, is you’re going to see less and less of the quick and dirty kind of places,” said Edgerton, who founded the fast food giant with James McLamore in 1954 and now serves on the board of Avantcare, a company that makes nutritional products to help treat addiction. “You’re not going to be able to run these places [paying workers] $15 an hour or whatever it will be.”

The push for higher wages will be reflected in menus, Edgerton said. A few companies will stick to making “a small cheap hamburger,” he said, but most fast food chains will experience “a slow and gradual” shift toward pricier menu options.

“You’re not going to get these dollar hamburgers anymore that both Burger King and McDonald’s had,” he said. “I see a lot of $10 hamburgers arriving on the scene.”

Wednesday’s demonstrations, which organizers say are taking place in 200 cities and 30 countries, are the biggest since fast-food workers began campaigning in 2012. Some companies have already promised to pay their workers more: Walmart has said it will raise wages to $9 per hour this year and to $10 in 2016; T.J. Maxx, Target and McDonald’s have also said they would raise wages to $9 per hour, but for McDonald’s, the hike will only directly affect 12% of workers.

Burger King operates slightly differently than its rivals. The chain was purchased by private equity firm 3G Capital in 2010 and now, all but 52 of its restaurants are owned and run by franchisees, according to Bloomberg, meaning it has little say in what its workers are paid.

Edgerton believes fast food workers will see increased wages as a result of their demonstrations, but he doesn’t think they’ll achieve the $15-an-hour rate they’re asking for. “They’re not really going to get $15, but they’ll set [the goal] high enough that there won’t be any doubt about $13 or $12,” Edgerton said. “That’s a wild figure, whoever got that thing going.”

Organizers chose to demonstrate on Tax Day because many fast-food employees say they can’t make ends meet without public aid. When asked how he would handle the protests if he were still in charge of Burger King, Edgerton said he would try and “educate” the workers.

“I’d certainly try to get them into a situation where they can be educated about the total picture,” he said. “They’re in there thinking we’re just screwing them on the price and blah blah blah and making all kinds of money.”

TIME Economy

Low Wage Workers Are Storming the Barricades

Activists Hold Protest In Favor Of Raising Minimum Wage
Alex Wong—Getty Images Activists hold protest In favor of raising minimum wage on April 29, 2014 in Washington, DC.

A few weeks back, when Walmart announced plans to raise its starting pay to $9 per hour, I wrote a column saying this was just the beginning of what would be a growing movement around raising wages in America. Today marks a new high point in this struggle, with tens of thousands of workers set to join walkouts and protests in dozens of cities including New York, Chicago, LA, Oakland, Raleigh, Atlanta, Tampa and Boston, as part of the “Fight for $15” movement to raise the federal minimum wage.

This is big shakes in a country where people don’t take to the streets easily, even when they are toiling full-time for pay so low it forces them to take government subsidies to make ends meet, as is the case with many of the employees from fast food retail outlets like McDonalds and Walmart, as well as the home care aids, child caregivers, launderers, car washers and others who’ll be joining the protests.

It’s always been amazing to me that in a country where 42% of the population makes roughly $15 per hour, that more people weren’t already holding bullhorns, and I don’t mean just low-income workers. There’s something fundamentally off about the fact that corporate profits are at record highs in large part because labor’s share is so low, yet when low-income workers have to then apply for federal benefits, the true cost of those profits gets pushed back not to companies, but onto taxpayers, at a time when state debt levels are at record highs. Talk about an imbalanced economic model.

A higher federal minimum wage is inevitable, given that numerous states have already raised theirs and most economists and even many Right Wing politicos are increasingly in agreement that potential job destruction from a moderate increase in minimum wages is negligible. (See a good New York Times summary of that here.) Indeed, the pressure is now on presidential hopeful Hillary Clinton to come out in favor of a higher wage, given her pronouncement that she wants to be a “champion” for the average Joe.

But how will all this influence the inequality debate that will be front and center in the 2016 elections? And what will any of it really do for overall economic growth?

As much as wage hikes are needed to help people avoid working in poverty, the truth is that they won’t do much to move the needle on inequality, since most of the wealth divide has happened at the top end of the labor spectrum. There’s been a $9 trillion increase in household stock market wealth since 2008, most of which has accrued to the top quarter or so of the population that owns the majority of stocks. C-suite America in particular has benefitted, since executives take home the majority of their pay in stock (and thus have reason to do whatever it takes to manipulate stock price.)

Higher federal minimum wages are a good start, but it’s only one piece of the inequality puzzle. Boosting wages in a bigger way will also requiring changing the corporate model to reflect the fact that companies don’t exist only to enrich shareholders, but also workers and society at large, which is the way capitalism works in many other countries. German style worker councils would help balance things, as would a sliding capital gains tax for long versus short-term stock holdings, limits on corporate share buybacks and fiscal stimulus that boosted demand, and hopefully, wages. (For a fascinating back and forth on that topic between Larry Summers and Ben Bernanke, see Brookings’ website.)

Politicians are going to have to grapple with this in the election cycle, because as the latest round of wage protests makes clear, the issue isn’t going away anytime soon.

Read next: Target, Gap and Other Major Retailers Face Staffing Probe

Listen to the most important stories of the day.

MONEY income

CEOs’ Hourly Pay Is Staggering

Minimum wage may have jumped slightly for some workers, but CEOs' salaries, measured by the hour, leave low-wage workers' pay in the dust.

TIME Labor

Why McDonald’s Wage Hike Won’t Help Most Of Its Employees (Yet)

A sign stands outside of a McDonald's restaurant in San Francisco on Feb. 9, 2009.
Justin Sullivan—Getty Images A sign stands outside of a McDonald's restaurant in San Francisco on Feb. 9, 2009.

Just 12% of McDonald's employees could see a bigger paycheck

Facing declining sales and a growing protest movement against its labor practices, McDonald’s announced Wednesday it’s boosting hourly wages for hundreds of thousands of workers. But the change won’t actually affect most of the men and women who wear a McDonald’s uniform.

McDonald’s employees affected by the pay raise will see their hourly earnings rise to at least $1 above the local minimum wage, a rate that will work out to an average pay of at least $10 per hour by the end of 2016. However, the raise only applies to U.S. locations that are owned and operated by McDonald’s itself.

Most of the world’s Big Macs are made at franchised restaurants, properties that McDonald’s owns or leases but hands over to independent businesspeople to operate in exchange for rent and a 4% cut of the restaurant’s sales. Franchised restaurants make independent hiring choices and set their own wages. Because of this business model, just 12% of the 750,000 workers at U.S. McDonald’s locations will qualify for the wage boosts — or the paid vacation time the fast food chain is also implementing.

The announcement, which new McDonald’s CEO Steve Easterbrook called an “initial step,” drew the immediate ire of Fast Food Forward, a union-backed group that’s been organizing a series of one-day fast food worker strikes that started in 2012. The group is planning fresh protests for Thursday, decrying McDonald’s pay increase as a “PR stunt.”

“McDonald’s needs to step up to the plate,” Fast Food Forward director Kendall Fells said on a conference call with reporters Wednesday, noting that the vast majority of workers weren’t receiving raises. “We’re going to show McDonald’s that this movement won’t stop until we get what we deserve.”

That McDonald’s chose to make a public statement about its new wage policy illustrates how quickly discussions about low-paying jobs have shifted recently, says Dave Sherwyn, a law professor at Cornell University’s School of Hotel Administration. That change in the public conversation has been largely driven by those pro-union groups, who, as much as they accuse McDonald’s pay raise of being little more than a savvy public relations move, have themselves done more to raise publicity than actually threaten the daily operations of the country’s fast food chains.

“This is a pretty unique situation,” says Sherwyn. “I can’t imagine if McDonald’s, Burger King or anyone had done this five years ago, they would have made a big announcement about it. It just wasn’t in the public conversation.”

MORE Fast-Food Strike Progress Measured in Pennies, Not Dollars

The spotlight will now be thrown on the franchise owners, who will be watched closely to see if they follow the lead of McDonald’s corporate office. That’s partially because the strikes have helped more consumers learn how McDonald’s franchise structure works, something that might not have been clear to your everyday customer just looking for a Big Mac with fries.

“The franchise arrangement, not obvious to everyone, will now be more obvious,” says Jefferson Cowie, a professor of labor history at Cornell University. “Pressure will boil up from below, putting pressure on the franchises to follow suit with the corporate policy on wages.”

McDonald’s wage increase comes just as the company’s legal obligations to its franchisees are coming under intense scrutiny. The National Labor Relations Board began hearings this week to determine whether McDonald’s should be considered a “joint employer” along with franchise owners. Such a designation could make McDonald’s responsible for hiring practices, wage levels and labor violations at individual restaurants, fundamentally upsetting its lucrative franchise-based business model — a model shared by many of its rivals, too. About 60% of all U.S. fast food restaurants are franchise establishments, according to a 2007 study the U.S. Census Bureau. If the labor board rules McDonald’s is a joint employer, it could spell the end of the franchise system as we know it.

 

TIME Innovation

Five Best Ideas of the Day: April 2

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

1. McDonald’s is raising wages for 90,000 employees. That’s a good start, and a strong message to other fast food outlets.

By Shan Li and Tiffany Hsu in the Los Angeles Times

2. “It must be right:” The human instinct to trust the authority of machines can be dangerous when life is on the line.

By Bob Wachter in Backchannel

3. As college acceptance letters roll in, women should ask about sexual assault prevention on campus.

By Veena Trehan at Nation of Change

4. When corporate values clash with policy in conservative states, big business has a powerful veto tool.

By Eric Garland in Medium

5. Amazon’s Dash button isn’t a hoax. It’s a step toward a true “Internet of Things.”

By Nathan Olivarez-Giles in the Wall Street Journal

The Aspen Institute is an educational and policy studies organization based in Washington, D.C.

TIME Ideas hosts the world's leading voices, providing commentary and expertise on the most compelling events in news, society, and culture. We welcome outside contributions. To submit a piece, email ideas@time.com.

MONEY Fast Food

Most McDonald’s Workers Still Won’t Get a Pay Raise

The fast-food chain announced a raise for some of its workers, joining other large retailers in raising pay without a federal push.

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