Denmark, McDonald’s, and AOC: The US Is Not Other Countries, Part 55 Billion

A McDonald’s in Copenhaven, Denmark. User:TriBeCa, CC BY-SA 3.0 , via Wikimedia Commons

So, this morning, the Twitter went alight on this bit of wisdom from Alexandria Ocasio-Cortez:

It is utterly embarrassing that “pay people enough to live” is a stance that’s even up for debate.

Override the parliamentarian and raise the wage. McD’s workers in Denmark are paid $22/hr + 6 wks paid vacation. $15/hr is a deep compromise – a big one, considering the phase in.

— Alexandria Ocasio-Cortez (@AOC) March 3, 2021

Other have piled on by citing a statistic that a Big Mac in Denmark only cost $0.34 more than in the US. I’m not sure where this number is coming from since the Big Mac Index itself indicates a Big Mac is more expensive in the US. And, in any case, the Big Mac Index is more of a fun way of gauging currency inefficiencies than prices.

In general, I am leery of making comparisons between the United States and other countries because, and I don’t want to get too technical here, other countries are not the United States. The US is vast, both in size and population, with 50 different state and hundreds of localities. Economic and social conditions vary quite a bit. So, comparing what’s going on here to what’s going on in countries that are a 50th of our size is like comparing raising a hamster to running a daycare center. Yeah, there are certain facts you can transfer from one to the other (feeding your charges is good). But don’t go out and buy a bunch of exercise wheels until you’ve really though it through.

Even absent the size comparisons, however, policy options are very path dependent. We can’t wave a magic wand and turn the United States into Denmark. We have to build on existing policies and traditions, as well as a very different Constitutional system. Denmark’s current system is the result of decades of irrevocable choices, just as ours is. Our paths diverged a long time ago. You don’t get to go back to, say, 1950, and start over again.

As to this specific comparison, the numbers AOC cites are, in fact, correct. But they come with boatloads of context that are a good illustration of why you can’t just pull these numbers out of the sky like this.

• Denmark does not have a statutory minimum wage. What it does have is a heavily unionized labor sector (about 70% of Danish workers are in unions), each of which negotiates its own minimum wage. The typical minimum wage is about $16.
• However, that’s not necessarily full time nor are all these benefits paid by McDonald’s. The 4000 McDonald’s employees in Denmark, according to the link above, work the equivalent of 2,040 full-time workers. And that data is from 2014. It may be worse now, since McDonald’s has cut its work force by about 50% worldwide. In addition, some of those benefits are paid, depending on union contract, by government or other agencies. So very few Danish McDonald’s workers are actually walking home with $46k plus benefits at the expense of the corporation.
• Even beyond that, the $16 an hour is not take-home pay. Denmark, like most countries that have a welfare state, has a much more regressive tax system than we do. That is, in fact, the only way you can pay for a welfare state — by taxing the middle class. The numbers are tricky here because you’re talking about two different tax systems. However, let’s ballpark the take-home pay. A person working full time at $16 an hour in Denmark will make about 300,000 kroner. That will be taxed at about 20% after the first 50,000 just by the national government. Local government, through which healthcare is funded, will also take a large share. There’s even a Church Tax for members of the dominant faith. This site, which I cannot vouch for but matches figures I’ve found elsewhere, estimates a Copenhagen resident earning 300,000 DKK will take home about 200,000 DKK. Or about $21,000 a year.
• By contrast, a person working full time in the US for $9/hour will make $18,000 a year. The standard deduction eliminates most of that from any income tax; the remainder is taxed at 10%. Social Security and Medicare taxes apply to it all, but the Earned Income Credit does as well. For those in the lowest quintile in the US, the effective tax rate is negative. When all is said and done, I roughly calculate that the minimum wage earner will take home between $19,000 and $23,000 depending on their family status. So, for all their $16-an-hour, the Danes probably aren’t actually taking home more money, at least as far as money goes.
• The flip side of the above, however, is that the Danish taxes go to … the welfare state. Denmark has universal healthcare and paid family leave and so on.¹
• On the other hand however, Denmark has a 25% VAT. It also has a 1% tax on “imputed rent” for homeowners. This tends to drive the price of things upward. However, PPP calculations don’t seem to indicate a massive difference in cost of living. And the few comparisons I found online — apartment, groceries, Big Macs, tended to be a wash.
• A final factor here is that Denmark has a much more business-friendly system than the US. That may seem strange after four years of Trump, but it’s true. The Heritage Foundation ranks Denmark 8th in the world in economic freedom, as opposed to 17th for the US. The main reasons? Denmark’s regulatory system is more centralized and more streamlined, with fewer overlapping regimes to drive business owners crazy. There is also less corruption and more security in property rights. Denmark also has a better corporate tax system than we do. Although the nominal rate is lower, it has fewer complications, does not double-tax overseas income and refunds R&D costs. Nor does it have the state corporate income taxes we do, which tend to be onerous. The OECD estimates that the effective tax rate in Denmark is five points lower than the US. And I think that undersells it a bit. Add all these up and the result that Danish businesses have more money for wages than American ones do. The depressive effect that over-regulation and a byzantine tax system have on worker wages are one of those things very few Democrats appreciate.

In the end, I don’t feel comfortable definitively claiming that one system is better than the other. And I think it’s misguided to even try. Denmark is a small Scandinavian country of 6 million people. They have a system that works for … a small Scandinavian country of 6 million people. The lessons we can draw from comparisons are limited at best and possibly non-existent. At best, they tell us that small government with high union membership and a friendly business environment can deliver about the same take-home pay with a stronger safety net. But we already knew that.²

Of course, no discussion of Denmark is complete without a reminder that the socialist wing’s fixation on Scandinavia as their example par excellence is now a few decades out of date. All of the Scandinavian countries rank well on the economic freedom index because all of them have spent the last few decades moving away from controlled economies toward free market economies. They have done so without giving up their welfare system, which is an argument that a stronger welfare state need not sacrifice a free economy. But it’s not conclusive, no matter how glib these comparisons sound. Because as Andrew said this morning, in eight words that summarize my thousands plus: things that are different are not the same. And it is, of course, a concluding irony that one of the people most vociferous on not using the Scandinavian countries a model of “socialism” is … the Prime Minister of Denmark.

1. The healthcare system is mostly organized on the regional and local level, with copayments equal to about a sixth of expenditures made by private insurers.
2. As far as the Fight for Fifteen goes, I’m open to raising it but think that establishing a universal minimum wage for this country is a bit silly. As others have pointed out, a $15 minimum wage would be too little in Manhattan and bankrupt an employer in Dothan. If you’re going to continue with a national minimum wage, it should be set by local conditions, to some percentage of the prevailing wage on a county or municipal level. I think — and our veterans can correct me if I’m wrong — the military sets wages in this fashion.