SAN FRANCISCO, CA - APRIL 19: A McDonald's employee prepares an order during a one-day hiring event at a McDonald's restaurant on April 19, 2011 in San Francisco, California. Hundreds of job seekers filled out applications and were interviewed at a San Francisco McDonald's restaurant during a one-day nationwide event at the chain as they look to fill 50,000 positions at stores nationwide. (Photo by Justin Sullivan/Getty Images)

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Those of us who grew up in the sixties have a perspective that the younger generation has a hard time understanding. I know I’m sounding like an old foggy but that’s what us old people do.

What we do remember is when a McDonald’s hamburger, shake and fries were all .15¢ each. So what happened? How did we go from .45¢ to almost $6.00 or more for the same three items?

It’s Not The Value of The Dollar

Many people use “the value of the dollar” as a justification of higher prices. “A dollar just doesn’t buy what it used to,” they opine. But is that really true?

I can buy a much better cell phone for less than I paid two or three years ago. I can buy a 50” 3-D TV for about the same price I paid for a 32” tube set fifteen years ago.

So does the dollar buy more or less? Or is that even the question we should be asking ourselves?

Let’s Backtrack

In 1961, the average income was $5,315 dollars per year ($3.00/hr.), a new car was $2,275, a gallon of gas was $.25¢, and a loaf of bread was $.21¢. The minimum wage was $1.15/hr. (The 1961 Amendment extended coverage primarily to employees in large retail and service enterprises as well as to local transit, construction, and gasoline service station employees.)

Fast-forward to 1989, just 28 years later, household income $51,681 almost ten times more. Twenty-four years later the household income is $51,017 in 2012.

Looking at these figures one would think that a middle class American family was making more in 1989 than they did just two years ago. Would that thinking be accurate?

What Can You Buy For Fifty Grand?

In 1989 people still had car payments, house payments, heat, lights, water. All the things that we still pay for today.

What do we have today that we didn’t have in 1989? And how much would these things add to your monthly bills?

In 1989 you didn’t have:

  • Cell phones
  • Laptops – In fact almost no one had a home computer.
  • Debit Cards
  • Caller ID
  • DVD’s – There were laser discs but they never really caught on.
  • Rechargeable batteries
  • iPods, iPhones, iPads
  • Paying For Gas At The Pump With Credit of Debit Cards
  • Lettuce in a Bag – Along with carrots and other foods
  • Digital Cameras
  • Flat Panel TV’s
  • Microwave Popcorn
  • High Tech Footwear
  • Online Stock Trading – In fact online didn’t exist for the average homeowner
  • Disposable Contact Lenses
  • StairMaster
  • TIVo
  • Purell hand sanitizer
  • Satellite Home TV or Cable

Not to mention heated cup holders, and heated seats in your car. Charges for Internet didn’t exist either.

All the items I’ve listed about have some charge tied to them yet we seem to be able to purchase all or most of those items without increasing our income at all.

It sure seems like we can have a lot more “stuff” for the same dollars we were making in 1989.

Labor Costs Determine Price

The common denominator in all this is the value of labor. When the price of labor increases the forces that pay labor are forced to increase to absorb the increase. Unless that payroll increase creates more profit.

Henry Ford paid people $5.00 a day to make cars at the turn of the century when everyone else was paying $2.25 per day. Why did he do that?

Most people buy into the story that he wanted workers to be able to buy his cars. The real reason, not normally reported, is that it was very hard work, nine hours a day, six days a week and employee turnover was high. Many workers would get fed up and just walk off the job slowing or halting production.

Ford needed a workforce of 14,000 workers to make his cars but had to hire nearly 52,000 to maintain that 14,000 level.

Ford realized that paying more would reduce the high turnover rate and keep his assembly line running smoothly. Lower turnover and more production without interruption offset the higher labor cost and cars could be sold at the low price point Ford was aiming at.

Some Final Thoughts

Today Ford doesn’t need anywhere near 14,000 workers to make even more cars. Labor priced itself out of the market and forced business owners to look for ways to reduce breathing bodies while still making the same or more income.

When the price of labor increases then hamburgers can no longer be sold for $.15¢. As the cost of labor increases so does the cost of meat and potatoes because everyone handling those products either wants or is making more money.

So enjoy your Big Mac. You are paying dearly for it.

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