June 26, 2019

A Nation Of Burger Flippers? You Better Believe It

Many recent articles related to the growth of jobs or lack thereof in the United States have pointed out the fact that the majority of the jobs that are being created in our current economy are low-paying service industry positions. At the same time we also read about fast-food workers wanting to make a wage of $15.00 per hour. Somehow, we can’t have both.

In a recent article, a Mark Riddix was quoted as saying,

One of the biggest challenges facing the American economy is that we lack a domestic manufacturing base. Simply put we do not produce anything anymore. We buy tons of foreign goods and then wonder why we are lacking jobs. We import most of our goods which has resulted in a huge trade deficit and industrial job losses. Our economy has transitioned from an agricultural society to an industrial society to a service economy.

Now to be fair not all the employment decline in manufacturing was due to increased employment overseas. Employment declined significantly because of productivity improvements as more and more automation replaced manual labor. Looking back, 1978 was the peak year for jobs in manufacturing in the United States. Widespread use of just-in-time production is another reason for manufacturing’s reduced employment. Firms can carefully time their production schedules to the needs of their retail outlets or end users, avoiding costly inventory holding and increased efficiency.

One force driving the growth of service jobs has been a shift from work done in the home by family members to work done in the market. Families are “contracting out” work they used to do themselves. Meals eaten at home rely increasingly on the purchase of prepared or partially prepared foods. Food stores have hired staff to respond to the need for convenience with features such as delis and salad bars. Fast-food and carryout restaurants have both diversified and multiplied.

Unless we re-establish a manufacturing base, the trend to service industry jobs will continue. Textiles seem to have been predominately moved off shore. A recent examination of my own personal clothes revealed that not one was manufactured in the United States. I found that China, Pakistan, Korea, and Egypt were the new centers of clothing production.

The fast-food industry will be facing many challenges as they struggle to maintain their profit margins. Fast food was once thought to be recession proof. Many, such as Burger King, have seen their sales fall. In a severe recession, many people will trade down to fast food. Many others will eat home to save money. Some fast food companies have cannibalized their own profits by trying to give customers better value. The $1 menu is becoming a standard offering in many fast food restaurants. Growth opportunities in some parts of the United States are limited because the fast food market is considered to be “saturated.” Many fast food restaurants are hoping to avoid legislation by providing more healthy options such as salads and low calorie sandwiches.

To add to the issues facing fast food restaurants, there is push to increase the wages of workers. A spokesperson for the National Restaurant Association was quick to point out that “restaurants operate on very thin profit margins. Significant added labor costs can negatively impact a restaurant’s ability to hire or maintain jobs.” Organizers of the demonstrations in the City of Milwaukee say the loss of manufacturing jobs has forced people seeking work to take low wage jobs in fast food and retail. The average age now of a fast food worker is 28 and two thirds of all fast food workers are women with a median age of 32. To maintain these thin margins, many fast food restaurants may have to increase prices, which is risky. Fast food restaurants could find themselves in direct competition with established “sit down” restaurants where the serving staff makes less per hour but whose wages are supplemented by tips. It would appear that a Big Mac can justify a range of prices but when it reaches $7 or $8 dollars, it may lose its appeal. While I would like to see the fast food workers make a decent wage, one has to consider what they do and if the learning curve can justify an hourly wage of $15.00. I can’t imagine that it is all that difficult to learn to cook a hamburger especially when it comes pre-packaged and requires literally seconds to prepare. I suspect that we will see the fast food industry change over the coming years. Expansion like everything else may occur in China while the U.S. market may shrink.

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Written by
Donald Wittmer

DONALD WITTMER is a retired business executive who held key roles in the automotive and banking sectors. For a time, he also served as a Fiscal Agency Manager for the Detroit branch of the Federal Reserve Bank of Chicago. He received his undergraduate degree from Cincinnati's Xavier University, an M.A. in business management from Central Michigan University, and earned certification in bank operations from the School of Banking at the University of Wisconsin-Madison. A husband, father, and grandfather, he teaches part-time at the Kent Place School for Girls in Summit, New Jersey.

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Written by Donald Wittmer