Over the past two years, Chick-fil-A's prices have risen more than 20%. McDonald's dollar menu is basically broken. And Subway's 5-foot dockets are a thing of the past. The days of cheap fast food seem to be over.
But while fast food prices are rising, something else is happening in society: economic inequality is decreasing.
Between 2020 and 2022, workers at the bottom of the American income distribution saw their real wages increase by more than 5%, while workers at the top saw their real wages decrease by an average of 5%.
Eric Levitz, a senior correspondent at Vox, joined Marketplace's Kai Ryssdal to explain why he thinks these two things might be related. An edited transcript of their conversation is below.
Kai Ryssdal: How did you come to write this piece?
Eric Levitz: I was surfing social media over the holidays, taking a break from really spending much time with my family, and saw this argument come up about a socialist commentator named Doug Henwood. He tweeted: “I can’t imagine why people think this isn’t a great economy. Lunch for three at McDonald's: $44!! And that got me thinking about this really bigger question. Over the last three years, we have seen a historic decline in income inequality, the largest since Ronald Reagan [1980] Choice. At the same time, we have experienced a very strong rejection of the economy among the population. And so the question becomes: Are there tensions that emerge as inequality falls? That was a question that interested me.
Ryssdal: So for me, connect the dots with the premise that $44 for a family of three at McDonald's actually works to reduce economic inequality.
Levitz: So it's certainly not entirely about that, but what we've seen since the pandemic is a really big increase in real wages for those in the bottom 10% of the income distribution who have seen their real wages, even taking inflation into account. increase by 5.7% between 2020 and 2022. And then wages in the fast food sector, particularly where many of these workers work, have increased by about 30%. At the same time, the wages of people at the top of the income distribution have not increased nearly as quickly, and inflation has actually reduced some of their real wages, so their real wages have actually fallen by about 5%. When you put these two things together, you find that in the last few years alone, about 40% of the inequality that has increased since Reagan's rule has been reversed.
Ryssdal: The upper middle class has to pay more for McDonald's, and the rich in this country have to pay more for McDonald's, you can't get too upset about that, #1, right? No. 2: People at the lower end of the income spectrum have seen these wage increases, as you mentioned. What you didn't talk about was this group and the middle. So this is where the burden lies?
Levitz: Yes, there are real pressures from rising labor costs. Because there is a tight labor market with many job opportunities for workers and with companies bidding against each other, competition for workers for these jobs is heightened. That leads to higher wages, which leads to higher prices, which, as you say, doesn't just affect those at the top of the income distribution. There are many working and middle class families who rely on fast food for some of their meals. And there is a real burden there.
Ryssdal: Right. Let me go back to what you mentioned: 40% of Reagan-era income inequality basically disappeared during and because of the events of the pandemic. Was it really that easy to just pay people at the bottom more and we just didn't do that all the time?
Levitz: Yes, I think the most important thing really is that during the COVID-19 recession, the amount of stimulus that we put into the economy was greater than the demand deficit created by the COVID-19 recession. And so we found ourselves in a situation where the demand for labor was very high. And that leads to greater bargaining power for workers, which leads to rising wages in these sectors that previously had very, very poor wages for a long time.
Ryssdal: Let me go back to our starting point: $44 for a family of three at McDonald's. If I may drastically simplify, can we have high working class wages in this economy and still have cheap hamburgers?
Levitz: Yes I think so. While I focus on the role of labor costs, fast food prices are determined by much more. You have the other variable of consumer demand. Not only will these companies charge what they need to cover their costs and then a tiny bit of profit, they will try to charge as much as they can without losing customers. And that number increases when consumer demand is high. And I think that if we had not seen, so to speak, an independent increase in commodity prices in the international food markets, the price increases for fast food would have been significantly lower.
A lot is happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down what's happening in the world and tell you how it impacts you in a fact-based, understandable way. In order to continue to make this possible, we rely on your financial support.
Your donation today supports the independent journalism you rely on. For as little as $5 a month, you can help sustain Marketplace so we can continue reporting on the things that matter to you.
Comments are closed.