McDonald's Earnings Report and the Need for Dialogue
As we covered in our inaugural Fast Food News, the Wall Street Journal editorial page focuses today on McDonald’s new earnings report. That report shows a 30% decline in quarterly profits and a 5% drop in revenue. And while the declines seem attributable largely to rising beef, cheese, and pork prices, Businessweek includes minimum-wage increases in states like Minnesota, California and Michigan as part of the cause for the earnings drop. The Journal, for its part, takes the weak earnings as a clear indication that further wage increases will only lead to further earnings losses, and, ultimately, to job losses.
An earnings report like this one provides more clear evidence – if we needed any – that McDonald’s and the fast food campaign need to begin talking to each other. Businessweek stories and WSJ editorials are not a substitute for actual dialogue between workers who are demanding significant wage increases and employers who would have to pay for them. Part of the benefit of such dialogue would be an honest exchange of information. What is the actual cause of the earnings decline? What forced McDonald’s to raise its food prices by 3%? Could the workers credibly offer increased productivity in exchange for wage increases, as efficiency-wage theory predicts? If wages went up across the fast food industry, might demand increase enough to keep pace with price increases?
As outsiders, workers and their campaign are compromised in their ability to assess the causes of McDonald’s price hikes and earnings losses. It is difficult for them to assess the likelihood of mechanization and job cuts. And, with all due respect, the workers are not likely to take the Wall Street Journal at its word.
But, if brought to the table and presented with McDonald’s own data, the workers would be able to responsibly adjust – if necessary – their demands. If $15/hour would – as the Journal speculates – lead to mechanization, McDonald’s should be able to demonstrate that with data. And, if presented with such data, the workers would presumably change course. At the same time, dialogue over wages and mechanization might enable the parties to come up with ways to enhance worker productivity and allow wage gains without concomitant price increases.
This kind of dialogue is impossible today because there’s no mechanism for it: the workers have no representative and there’s no table at which workers and management can talk. That’s why McDonalds’ – and the other chains – need to establish a workers council. Doing so would involve workers electing representatives to speak for them, and then sitting down and talking about wages, prices, productivity, and jobs with management. There’s hope for real progress in this direction, and I’m not alone in thinking so: Labor Secretary Tom Perez has been praising works councils recently and is about to head to Germany to learn about the Volkswagen system.
On Monday, in remarks at the National Press Club, Perez said that “[t]he works-council model is a wonderful model that we should consider . . . because a works council is all about co-determination.” It’s also a way forward for fast food.