“I was an overnight success all right, but 30 years is a long, long night.” — Ray Kroc
If Ray Kroc were alive today, he would undoubtedly campaign against the recent proposal to lift the American minimum wage by more than $2.85 to $10.10 per hour. Eric Pace noted in Kroc’s New York Times’ 1984 obituary that “Mr. Kroc … made extensive, innovative use of part-time teenage help; he struggled to keep operating costs down to make McDonald’s perennially low prices possible.”
Kroc took criticism for his hiring and pay scale practices. But when he died at age 81, he was the senior CEO of a company worth $8 billion boasting 7,500 locations in 31 countries. Kroc’s personal net worth was thought to be about $500 million.
Everyone deserves fair pay, and there’s no question that our middle class is being decimated by a lack of good-paying jobs. Forget pensions and benefits, the salaries alone are just not there anymore. This hurts our domestic economy, which is driven by consumer spending. If consumers don’t have the discretionary dollars to spend, the economy suffers and businesses fail. We’ve got to pay workers a decent salary to encourage spending and power our GDP.
But in raising the minimum wage, we may hurt profits for entrepreneurs and small business owners. And how much does raising minimum wage actually increase consumer spending? Ask any start-up entrepreneur, and he’ll quickly tell you that “low overhead” is a mantra. If Kroc, who opened his first restaurant in a Chicago suburb in 1955, had been forced to raise his workers’ hourly wage by almost $3, McDonald’s might not be the household name it is today.
Not only did Kroc run a successful franchise, but investors liked his offerings. “McDonald’s shares were a Wall Street favorite in the early 70’s, before the bear market took hold,” Pace wrote. “They reached a peak in January 1973 of around 77; investors who bought them when first offered in the mid-1960’s had seen their wealth multiply more than sixtyfold.”
If Kroc had been forced to raise wages significantly, would the company stock have risen steadily and produced increased dividends to shareholders over the years? Doubtful. Workers need better wages to live on and spend; entrepreneurs need to maintain low wages to stay in business. Chicken vs. egg.
We’ve all been underpaid at times. And many of us have been entrepreneurs, sometimes struggling to make payroll even at a low hourly rate. Kroc himself toiled in the “multi-mixer” business for years, supplying spindled malt mixers to restaurants, and was looking for a new career because his sales were trending downward when he discovered the bustling McDonald Brothers Drive-In in San Bernardino, Calif.
Next week: Should we raise the minimum wage?
Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, chartered financial consultant and accredited investment fiduciary, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” and fiduciary registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.