1.8.13

THE CASE FOR PEER REVIEW.

I pulled out the heavy artillery of elasticities (specifically, the price elasticity of demand and the elasticities of substitution) to mock a silly Huffington Post article about McDonald's being able to double everybody's pay.  A Columbia Journalism Review audit of the article suggests the algebra is wrong too.
The only way to get the 17 percent-of-revenue labor figure is to divide payroll and benefits at company-operated restaurants by total revenues. But here’s the thing: More than 80 percent of McDonald’s restaurants are franchises, and the company makes scads of money from them in no small part because it has no direct labor expense at those stores. The HuffPost explicitly includes executive compensation in its 17 percent figure, but executive comp and the pay of folks in Chicago who run marketing and the like are housed in “selling, general & administrative expenses,” not under payroll & employee benefits at company-operated stores.

You have to divide company-operated payroll & employee benefits by company-operated sales to get an apples-to-apples measure. That gets you 25 percent. So a Big Mac would, in fact, have to go up by a full dollar, not 68 cents, in order to double wages at McDonald’s. And the Dollar Menu would have to become the Dollar Twenty-Five menu.
No doubt, there are people who will seriously argue that paying a quarter more on the dollar is still a small price to pay to ensure a living wage for the counter help.  But there's still the little problem of those elasticities.

But why might a dubious research project get such prominent play in a major political website?
Unfortunately, what it originally claimed was a study by a University of Kansas researcher turns out to be something—a term paper, maybe?—given to Huffington Post by a KU undergrad. And there are serious problems with it.
Might it be because the policy sensibilities of the self-styled progressives are simply the aesthetic sensibilities of sophomores?

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