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How Yum! Brands' Low-Wage Model Costs the Rest of Us

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The fast food conglomerate Yum! Brands is the second-largest private employer in the United States, with nearly 900,000 workers, most of whom make near poverty-level wages. Which is why some workers at Yum! restaurants -- which include Taco Bell, KFC, and Pizza Hut -- joined a strike this week in Chicago. Fast-food workers in New York City staged a similar strike late last year, and also staged walkouts earlier this month.

Employers like Yum! Brands like to pretend that what they pay their workers is strictly a private matter determined by supply and demand. If workers don't like their wages, they can look elsewhere.

If fact, though, the wages paid by Yum! Brands are everyone's business. When the second-largest private employer in the country underpays its workers, all taxpayers end up picking up the tab as those workers file for the EITC, get on Medicaid, apply for foodstamps, and use other forms of public assistance.

For instance, the Ohio Department of Job and Family Services did a recent analysis which found that Wal-Mart was the "state's top employer for workers and family members who receive Medicaid (16,098), food stamps (14,799) and cash assistance (803)."

We're talking millions of dollars annually in subsidies for Wal-Mart in Ohio alone.

As I have written before, low-wage employers are subsidized by federal and state taxpayers every bit as much as oil companies, farmers, or other more well-known beneficiaries of corporate welfare.

And the profits of these low-wage employers are huge. Yum! Brands has seen its profit and stock soar in the past few years, and its CEO, David Novak, has been lavishly rewarded. According to a USA Today report earlier this month:

Novak received compensation valued at about $11.3 million last year, including nearly $400,000 in perks. He also realized some tasty gains from vested shares and exercising previously awarded stock options, valued at $44.3 million, according to the company's annual proxy, filed Friday.

That's over $25,000 an hour in compensation, in case you're wondering. Meanwhile, one of the New York workers who walked off her job earlier this month, Naquasia LeGrand, says she makes $7.70 an hour at a KFC in Brooklyn.

Naquasia would literally have to work full-time, 40 hours a week, for a year and a half to make the same money that David Novak made in a single average hour last year. And she'd have to work for 3571 years to make what Novak made in 2012.

What's wrong with this math?

One last point, which is that Yum! Brands' low-wage business model doesn't just impose big costs on tax payers, it also hurts businesses and the overall economy. Why? Because Yum! workers don't have much extra spending money when they're making poverty wages, and that makes them lousy consumers. Instead of Yum! Brands' soaring profits filtering out into the broader economy through parallel rising wages -- which is how capitalism is supposed to work, by the way -- all that money is piling up in the hands of shareholders or is being used for stock buybacks or is being shovelled into David Novak's bank account.

None of those destinations for Yum! profits is all that stimulative to the economy. For instance, there is only so much money that Novak can spend in consumption. The rest just gets stashed away and, yes, while Novak's piggy bank is surely being invested somehow, that's no big benefit either. There's already plenty of capital sloshing around for investment. The big economic problem today is inadequate demand.

Yum! Brands makes a big deal out of corporate responsibility on its website. Yet when it comes to the most fundamental moral issue facing any company -- which is how it shares the wealth produced by all stakeholders in the company -- Yum! is a textbook example of corporate irresponsibility. And all of us are paying the price.