America's hourly wage battle heats up

July 29, 2013: 12:00 PM ET

Thousands of low-wage workers in several cities are planning a walkout this week to demand bigger paychecks.

By Elizabeth G. Olson

A McDonald's worker protest in March

A McDonald's worker protest in March

FORTUNE -- By skewering McDonald's over the gaping disparity between hourly worker pay and CEO compensation -- it's $8.25 per hour versus $8.75 million yearly (more than $4,200 per hour) -- comedian Stephen Colbert last week threw the spotlight on one of the most divisive issues in today's American working world.

That debate is over the minimum wage paid to hourly workers. Currently, the federal minimum, set four years ago, is $7.25, but it is higher in 18 states and the District of Columbia. Businesses resist increases, complaining they operate on narrow margins and paying workers more will dig into their profits and lead them to raise prices or close their doors.

Colbert's advice -- tongue-in-cheek -- to McDonald's (MCD) workers is to stop complaining and "accept a fair wage and all the grease you can breathe."

And that's what most of the country's 4 million fast-food workers have done for years. But now, some are starting to push back. Thousands of such workers are planning a walkout this week, temporarily exiting their jobs at outlets like McDonald's in seven or more cities, including New York, to demand a bigger paycheck.

MORE: Wal-Mart's D.C. wage battle: A shortsighted skirmish

It's unclear if this will prompt better pay for cashiers, cooks, prep staff, and delivery workers or end up as a fleeting moment in the national conversation. The White House wants to take measures to shore up middle class job prospects, but it is facing concerns that more spending will damage the country over the long term.

The hourly wage battle is already underway in the District of Columbia -- not in Congress -- but in the local community over Wal-Mart's (WMT) entry into the nation's capital. When D.C.'s city council adopted a rule requiring big-box retailers to pay their workers a "living wage" of at least $12.50 per hour, the discount retailer threatened to stop construction on three stores it had planned to open.

The standoff gets to the heart of the changes that have reshaped the national economy, where middle-wage jobs have disappeared, especially since the recession began five years ago, and have been increasingly replaced by lower-paid hourly jobs with few, if any, benefits.

"Employers have been adding low-wage jobs, but inflation adjusted wages for lower-wage and middle-wage jobs are falling," says Christine Owens, executive director of the National Employment Law Project (NELP), which tracks workforce trends.

The wage decline was 2.8% between 2009 and 2010, she says, and was largest at the lower end of the pay scale, where half of all low-paid occupations -- cooks, food preparation workers, home health aides, personal care aides, maids and housekeepers -- lost 5% of their buying power.

"We have an increasingly productive work force," she says, "but while corporations are reaping the financial benefits from that, these gains are not being shared with the people actually doing the work."

More companies are hiring part-time workers at wages that average several dollars less than their full-time counterparts, according to the Economic Policy Institute, an economic research group. Its recent report found that low-wage worker income fell as much as 5% between 2006 and last year.

Protesting workers this week will demand $15 an hour on grounds that cutbacks in hours, constantly changing schedules, and lack of benefits like health care, paid sick leave, and vacation make it impossible to have a decent standard of living. They are also battling the perception that such entry-level jobs are the preserve of teenagers and the poorly educated. Workers' average age, according to federal labor figures, is 29, and 25% of this group has completed some college courses.

The drive to raise wages began last November with a scattered protest by Wal-Mart employees who were required to work during Thanksgiving Day blockbuster sales. Soon after that, 200 workers at some 30 New York fast-food outlets staged a walkout, supported by unions, civic groups, and clergy.

Meanwhile, retailers and restaurant chains are standing firm on wages. McDonald's set up a personal budget website for employees. Colbert skewered the site for listing only $20 a month for health insurance and, initially, no amount for heating costs. (It has since budgeted $50 a month for heat.)

McDonald's CEO Don Thompson publicly reiterated the bootstrap argument, noting in an interview with Bloomberg Television last week that the company provides "opportunities so that a person can rise through the system and gain greater and greater wealth."

That may be the case for restaurant industry executives, who earn an average of $11.9 million yearly, 788 times the average worker, according to figures from the Economic Policy Institute.

But only 2% of fast-food jobs are executive positions, a NELP study found. Instead, the vast majority, or 89%, are the lowest-level, non-managerial jobs, according to the study. The study also found that only a tiny number of workers move on to own a franchise, which typically requires at least $1 million in owner net worth.

Costco's (COST) chief executive Craig Jelinek is one of the few executives who have sided with workers on this issue. Jelinek has endorsed the Fair Minimum Wage Act of 2013, which, if passed, would raise the federal wage floor to $10.10 an hour. "We pay a starting hourly wage of $11.50 in all states where we do business, and we are still able to keep our overhead costs low," Jelinek said in a statement. He noted that good pay minimizes employee turnover and shores up productivity, commitment, and loyalty.

MORE: A bright spot in Detroit's bankruptcy

Jelinek is backed by a group of some 100 economists from across the country that issued a petition this month called "Economists in Support of a $10.50 U.S. Minimum Wage." McDonald's, the economists concluded, could offset half the cost of a $3.25 hourly wage hike by raising the price of each Big Mac by .05 cents.

Paul Osterman of MIT, who signed the petition, notes that the U.S. is a "low wage country compared to four or five other developed economies. We need to increase the minimum wage, have stronger unions, and have the business community think more about its long-term than just its short-term needs."

As middle-level jobs dwindle, the U.S. Bureau of Labor Statistics says that seven of the 10 fastest growing positions in the coming decade will be low-wage jobs such as store clerks and home health aides.

"They will pay less and have fewer benefits," says NELP's Owens, "but more people who have education and skills will be filling those jobs."

A 2013 study by the Center for College Affordability and Productivity found that a rising percentage of college-credentialed workers are in occupations that do not require a higher degree.

For example, in 1970 only 2% of taxi or limo drivers had college educations. That increased to more than 15% in 2010. The percentage of firefighters with college backgrounds rose from 2% to 18% in the same period, and salesmen from 5% to 24%, according to the study.

"This was a stunning set of data," says Owens, "to show the difference between the skills and the quality of jobs this country is offering."

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