It’s Time for McDonald’s to Super Size the Minimum Wage

Commentary about business and finance.
July 31 2013 1:32 PM

Super Size the Minimum Wage

Fast food workers are striking for better pay. Will the industry start listening?

(Continued from Page 1)

Numerous studies have demonstrated that increasing wages decreases employee turnover and increases customer service and productivity. This could be an important finding for McDonald’s, which has seen an uptick in customer complaints about rude and unprofessional employee conduct. In a March webcast, one exec told franchisees that “service is broken.”

The tide among economists, meanwhile, is starting to turn more generally in favor of minimum wage increases. Earlier this month, 100 economists signed a letter in support of a federal proposal to raise the minimum wage to $10.50 per hour. The letter said that the fast food industry would see business costs rise by just 2.7 percent under such an increase. McDonald’s could cover half of the cost increase by raising the price of a Big Mac, on average, from $4.00 to $4.05, and the other half through productivity gains and a “slightly more equal distribution of revenues.”

That more equitable distribution of revenues could be the catch, though. McDonald’s reported $1.4 billion in profits last quarter. That sounds good, but it was actually below expectations, and the company’s stock price growth has lagged behind competitors for most of the year. Industry representatives describe fast food profit margins as pennies on the dollar, but McDonald’s net profit margin consistently hovers around 20 percent and profit margins for its biggest competitors are around 10 percent. The idea that a five-cent increase in the Big Mac price would cover half of the company’s wage increases makes such a plan sound not so burdensome.

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Without any such pay increase, the benefits of working minimum wage fast food jobs seem to barely outweigh the downsides. Though industry reps often argue that low-paying fast food jobs provide a good entry to the middle class, this is largely a myth, according to a research out this month by the National Employment Law Project. The study found that only 2.2 percent of the jobs in the fast food industry are managerial, professional, or technical, compared to 31.1 percent of jobs throughout the U.S. economy. Front-line employees make up 89.1 percent of fast food industry jobs and make an average of $8.94 per hour, while supervisors make up 8.7 percent of jobs and make $13.06 per hour on average. Wage stagnation can force even long-term employees on to food stamps. On top of that, job conditions can also be atrocious. Earlier this summer, New York City McDonald’s workers were forced to work in record heat without air conditioning.

Worse still, minimum wage employees are often not even paid the minimum wage. “The industry has a system-wide practice of not only paying workers the most minimum wage you could possibly pay, but also bilking as much as they can in terms of stealing wages,” said Westin. A survey by Fast Food Forward found that 84 percent of fast food employees had reported some kind of “wage theft” in the previous month, be it in the form of bounced checks, hours worked off the clock, or having to pay for your own gas or uniform. The New York attorney general is investigating the charges.

The point is that once you get past the question of threats to existing or future jobs, the question of basic fairness seems like a no-brainer. If you’re buying a Big Mac, you can probably afford to pay five cents more to ensure the person serving it can afford to pay her rent. And if you’re employing that person, the hit to your bottom line probably won’t be so bad that you have to replace her with this guy.

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