Fast food CEO: Minimum wage hikes closing locations

[Smokepole]

It boils down to the boss will pay you an amount that it equal to or less than the value that you return to the company. Anything more, and he is losing money to keep you around.
If the value that you bring to the company is $10 an hour on average than he pays you $8.50 an hour and pockets the 1.50 as profit. (I know, there's overhead, taxes, insurance etc. but we're keeping it simple.) So while you the employee makes a profit of $8.50 the boss only makes a profit of $1.50 an hour and he or she has taken all the risks. I know one could argue he doesn't do any of that $10 an hour labor, but he or she has done a lot create the opportunity for you to work and as mentioned has taken all the risks.
When you demand to make $11 an hour for the same work the boss realizes that even after doing the work to create your job opportunity he is actually going to lose $1 an hour it quickly adds up. Why would the boss do this?
At the end of the day, it's a "for profit business" not a feel good charity.
I will add one further note. If you really believe that the value that you bring to your boss is worth more than he's paying then leave and go work for another boss that values your work more. In general there are no restriction to your seeking employment else where.

Let's also not forget that minimum wage jobs also have a higher turnover rate than non-minimum wage jobs and every time an employer has to hire a new employee, it takes at least 3 to 6 months or more (depending on the job) before that new employee is actually up to speed and able to provide service to meet or exceed what he is paid. Not forgetting the loss to the floor of the time that a manager or trainer employee must spend training that new hire. Every new hire is a net loss in profit for the time it takes them to become an efficient at their job. And if an employer experiences 50% turnover as many minimum wage jobs do (especially fast food), the business is experiencing significantly reduced productivity and a very low cost vs. benefit factor. Take the same workforce and increase the wage by 40% and you have a net loser for that segment of your workforce. Because we all know that even with the increased wage, that workforce today will not become any more stable. It will stay the same.

 

[MisterChester]

I'd pay extra for my goods if they were made by an American, but sadly most Americans wouldn't.

 

[jamil]

The math is out there. McDonald's is a publicly traded company, you can see their books for yourself and see what portion of their expenses stem from labor. If McDonald's raised their hourly workers to $15 an hour, a value meal goes up an average of 29 cents if profits aren't to be touched. Eat there once a week, and you're looking at $15 over the course of a year. Hardly Earth shattering to the consumer, potentially life changing for the employee.

The math isn't as simple as you say. How many people making below minimum wage are payed from McDonald's income? McDonald's does own some of its stores, but most of its income comes not from them selling burgers, but from franchises selling burgers and paying them a franchise fee. The franchise owners make money by selling burgers, and they pay for just about all the expenses of running their restaurant, including labor.

The impact of a minimum wage hike on on McDonald's Corporation would likely not be nearly as high as on franchise owners.

But for the sake of argument, let's say that you're right, and both franchise owners and the corporation would be able to recoup the expense of having to pay burger flippers $15 per hour by charging just $.29 cents more for a happy meal or whatever. That's a business decision and should be up to the company to decide how much it should pay its employees according to the market conditions.

I think it's sound practice for business owners to be good to their employees. If I'm satisfied with my pay and working conditions, if my employer is loyal to me, I'm going to do the best job I can and be loyal to my employer. But that's a business decision and not the government's role to put its nose into it.

I'd pay extra for my goods if they were made by an American, but sadly most Americans wouldn't.

I would pay more to buy American--heck, I would pay more to buy Hoosier--if the quality is there. But I'm not going to pay more for a piece of **** just because its made in here. Learned that lesson from buying ****ty 1980s American cars. Now there's not much difference in quality. Then there definitely was.

But labor or energy costs aren't the main reason why companies move opertations to China. We live in a "not-in-my-backyard" nation. Well, building **** in an environmentally friendly way is expensive. The US has mountains of regulations that cost a lot of money. If you want to see more companies move their manufacturing operations back here, drop the regs. If you want cleaner air and less polluted rivers, you'll have to leave it in China--at least until they figure out they don't want it in their back yard either, which I think they're starting to do.

 

[BehindBlueI's]

Once a produce is produced in America, it does not get cheaper once it gets made somewhere else, the company just gets more money from it. But take a product made in another country already and start making in America, and it does get more expensive. Source, some of the Gerber family of knives that are coming back to American production, they are going to cost more, says the Gerber rep. That is just the way things go.

So, I ask again, why aren't the products I mentioned 4 or 5 times more expensive than their foreign sourced counterparts? If you're going to throw out numbers, back them up.

The math isn't as simple as you say. How many people making below minimum wage are payed from McDonald's income? McDonald's does own some of its stores, but most of its income comes not from them selling burgers, but from franchises selling burgers and paying them a franchise fee. The franchise owners make money by selling burgers, and they pay for just about all the expenses of running their restaurant, including labor.

The math is correct for what it is. A range that prices would need to increase for McD's to change nothing and maintain their same profit level. Is that how it would play out in reality? No, of course not, because everything wouldn't stay the same. A properly ran franchise can be extrapolated as well, because McD's provides guidelines of how many employees are to be retained based on sales. In short, if the franchisee is following the rules, you can easily determine wages vs sales as a ballpark (ballpark because you don't know how senior their staff is, how much turn over they have, etc).

The reality is the price of a sandwich likely wouldn't go up at all short term. Why? The same reason that the statement about bringing production back to the us would quadruple the cost of items. Because production cost is not what sets price in a capitalist economy. If it was, no one would ever go out of business. What you pay to make something is irrelevant to the price it will sell for in the marketplace. Hilfiger jeans don't cost 5 times as much to make as Levi's jeans do. Or let's stick to food. For that matter, let's stick with McDonald's. A hashbrown does not cost the restaurant the same as a sausage biscuit, yet you can buy both for 99 cents. Why? Because the experts at McDonald's have determined that's the most profitable price for that item. 99 cent items are psychologically satisfying and drive traffic, and that makes money, and that's how the price is set. Franchisees will remain profitable, because McD's isn't stupid (quite the opposite) and isn't going to slit the throat that feeds them.

 

[jamil]

The math is correct for what it is. A range that prices would need to increase for McD's to change nothing and maintain their same profit level. Is that how it would play out in reality? No, of course not, because everything wouldn't stay the same. A properly ran franchise can be extrapolated as well, because McD's provides guidelines of how many employees are to be retained based on sales. In short, if the franchisee is following the rules, you can easily determine wages vs sales as a ballpark (ballpark because you don't know how senior their staff is, how much turn over they have, etc).

The reality is the price of a sandwich likely wouldn't go up at all short term. Why? The same reason that the statement about bringing production back to the us would quadruple the cost of items. Because production cost is not what sets price in a capitalist economy. If it was, no one would ever go out of business. What you pay to make something is irrelevant to the price it will sell for in the marketplace. Hilfiger jeans don't cost 5 times as much to make as Levi's jeans do. Or let's stick to food. For that matter, let's stick with McDonald's. A hashbrown does not cost the restaurant the same as a sausage biscuit, yet you can buy both for 99 cents. Why? Because the experts at McDonald's have determined that's the most profitable price for that item. 99 cent items are psychologically satisfying and drive traffic, and that makes money, and that's how the price is set. Franchisees will remain profitable, because McD's isn't stupid (quite the opposite) and isn't going to slit the throat that feeds them.

No. You oversimplified the math. You can't aggregate the cost over the corporate system like that because the franchises are separate entities with separate costs. McD's makes its money from franchise fees and rent. The franchises are responsible for a big chunk of the labor costs and that number isn't included in your calculation. Also it does not consider that some marginal locations may not be able to charge what it would take to recoup their costs.

The bottom line is still, if a business decides to raise its wages as a business decision, I applaud them. Good for them. I hope it works out for them. But the government should not have the power to force them to make that decision.

The crux of our disagreement is world view. People who think business should just give everyone a raise without a bottom line reason tend to think that the government allows business for the purpose of employing people.

Those of us who think businesses should pay market wages believe that the government shouldn't get to "allow" or disallow business in the first place, and that the purpose of business is profit, a societal benefit of which is that people are employed, but at market rates.

It's been said before and bears saying again, that if you want a living wage job, train for or develop skills that are worth a living wage. If you're incapable of doing that, we do have safety nets, but those safety nets should not provide a better living than those jobs that are worth a living wage. If they do, why wouldn't people just opt to live off the safety net rather than work?

 

[poptab]

Guys free trade is good for everyone in the long run.

Ask any economist anywhere.

Maybe read something. Here's an article:
Protectionism: The Concise Encyclopedia of Economics | Library of Economics and Liberty

 

[MisterChester]

I would pay more to buy American--heck, I would pay more to buy Hoosier--if the quality is there. But I'm not going to pay more for a piece of **** just because its made in here. Learned that lesson from buying ****ty 1980s American cars. Now there's not much difference in quality. Then there definitely was.

But labor or energy costs aren't the main reason why companies move opertations to China. We live in a "not-in-my-backyard" nation. Well, building **** in an environmentally friendly way is expensive. The US has mountains of regulations that cost a lot of money. If you want to see more companies move their manufacturing operations back here, drop the regs. If you want cleaner air and less polluted rivers, you'll have to leave it in China--at least until they figure out they don't want it in their back yard either, which I think they're starting to do.

China has been dragging their feet to reduce pollution, but it is a huge problem over there. I think their government knows it, but they don't want to do much about it because they don't want to be seen as not business friendly. It'll get worse and worse until they pass their own laws, then all the manufacturing eventually moves to some other country with lax laws. Rinse and repeat.

 

[Hookeye]

Considering how many times FF places mess up my order, IMHO most don't even deserve to be paid current minimum wage.

 

[actaeon277]

Guys free trade is good for everyone in the long run.

Ask any economist anywhere.

Maybe read something. Here's an article:
Protectionism: The Concise Encyclopedia of Economics | Library of Economics and Liberty

Is it free trade when we have rules to follow that other countries don't?

 

[Smokepole]

It's still free trade if our companies are able to trade "freely" with companies in other countries. The rules you mention only determine the level of local regulation. Unless you are talking trade restrictions. Then the answer is kind of and skewed in favor of the other guy.

 

[BehindBlueI's]

Seattle raises minimum wage to $15 an hour

I guess we'll get to see the results.

 

[BehindBlueI's]

No. You oversimplified the math. You can't aggregate the cost over the corporate system like that because the franchises are separate entities with separate costs. McD's makes its money from franchise fees and rent. The franchises are responsible for a big chunk of the labor costs and that number isn't included in your calculation. Also it does not consider that some marginal locations may not be able to charge what it would take to recoup their costs.

Its doubtlessly oversimplified, if not for the reasons you think. Individual store averages are available, as are corporate data. The average cost of labor for a franchise is 20% (low for the industry). The average cost sent back to McD's is 14.5% (high for the industry).

There are two big problems, though. The first is learning what percentage of profit comes from each individual menu item, and that's not publicly available. I mean, you can find out how much they make per double cheeseburger, Big Mac, and per small coffee, but you can't find out how many Big Macs they sell each year vs how many small coffees vs how many double cheeseburgers. That makes a huge difference. A store makes about 6 cents to sell a double cheeseburger, but makes about $1.55 to sell a large coffee. That's a huge swing. The best I can do is apply industry averages and figure that's close (like beverages make up about 33-35% of the profit of a fast food restaurant).

The second is finding out how many employees actually make current federal minimum wage. Some states have higher minimum wages. Some workers have enough seniority to have gotten raises of various amounts. You get a 'worst case' assuming every current franchise employee making $7.25 and is going to $15.00. That's not really the case, either, and is another simplification.

There is definitely a margin of error, however the ranges I presented are realistic based on the information I could find. I'd love to know how much of their profit comes from McCafe beverages vs sandwiches and the like and get a more accurate picture, but I can't find the data and I'm sure its probably protected by the company.

 

[Hotdoger]

Yes the Obamafile depression will continue.....in Michigan!

They went there: Seattle just enacted a $15/hour minimum wage « Hot Air

 

[steveh_131]

Its doubtlessly oversimplified, if not for the reasons you think. Individual store averages are available, as are corporate data. The average cost of labor for a franchise is 20% (low for the industry). The average cost sent back to McD's is 14.5% (high for the industry).

There are two big problems, though. The first is learning what percentage of profit comes from each individual menu item, and that's not publicly available. I mean, you can find out how much they make per double cheeseburger, Big Mac, and per small coffee, but you can't find out how many Big Macs they sell each year vs how many small coffees vs how many double cheeseburgers. That makes a huge difference. A store makes about 6 cents to sell a double cheeseburger, but makes about $1.55 to sell a large coffee. That's a huge swing. The best I can do is apply industry averages and figure that's close (like beverages make up about 33-35% of the profit of a fast food restaurant).

The second is finding out how many employees actually make current federal minimum wage. Some states have higher minimum wages. Some workers have enough seniority to have gotten raises of various amounts. You get a 'worst case' assuming every current franchise employee making $7.25 and is going to $15.00. That's not really the case, either, and is another simplification.

There is definitely a margin of error, however the ranges I presented are realistic based on the information I could find. I'd love to know how much of their profit comes from McCafe beverages vs sandwiches and the like and get a more accurate picture, but I can't find the data and I'm sure its probably protected by the company.

Do you have a source for any of your numbers? Especially the increase in the price per happy meal.

Secondly, how are you factoring in the necessary decrease in gross sales that will result from a price increase?

Thirdly, how are you calculating the prices of the ingredients that will necessarily inflate when the cost of labor skyrockets?

And finally, how will such a high minimum wage impact industries that have a higher labor percentage? Why are you focusing on an industry with a low labor percentage?

 

[steveh_131]

Yes the Obamafile depression will continue.....in Michigan!

They went there: Seattle just enacted a $15/hour minimum wage « Hot Air

That 7-year "phase-in" plan is genius. It is a truly effective way to disconnect the legislation from its detrimental effects that will be seen down the road (at least in the minds of most voters).

 

[downlinx]

"Fast food is bad for you anyway.'


There are healthy options at all fast food places.

buying a salad from McDonalds is like buying vitamins from a drug dealer, neither of the two should ever go together.

 

[LP1]

Something that frequently gets overlooked in these situations (sorry if it was mentioned in one of the preceding 130+ posts)...

When someone tries to support a family on a minimum wage job, they frequently receive other kinds of government aid - food stamps, Medicaid, section 8 housing, etc. These programs essentially hide the true cost from taxpayers and subsidize the business that pays the low wages (corporate welfare).

I'd rather pay a higher price for a product if the higher wage reduced or eliminated the need for the employee to rely on government assistance. It would reflect the corporation's true cost of labor.

Or maybe we should just let the poor starve and freeze to death.

 

[LP1]

That 7-year "phase-in" plan is genius. It is a truly effective way to disconnect the legislation from its detrimental effects that will be seen down the road (at least in the minds of most voters).

Just like the un- or under-funded pension obligations for teachers, police, fire, and other government employees...

 

[Vigilant]

Something that frequently gets overlooked in these situations (sorry if it was mentioned in one of the preceding 130+ posts)...

When someone tries to support a family on a minimum wage job, they frequently receive other kinds of government aid - food stamps, Medicaid, section 8 housing, etc. These programs essentially hide the true cost from taxpayers and subsidize the business that pays the low wages (corporate welfare).

I'd rather pay a higher price for a product if the higher wage reduced or eliminated the need for the employee to rely on government assistance. It would reflect the corporation's true cost of labor.

Or maybe we should just let the poor starve and freeze to death.

BS! Minimum wage jobs are not meant to "support a family" if all you have is a minimum wage job, take some freakin personal responsibility, and DO NOT start a family! When you move on from that min. wage position, and are better prepared to support a family, THEN start your family. A few months back, everyone was up in arms about the McD's employee of 8 years that was still making $8.25 an hour, I submit that if you have worked ANYWHERE for 8 years and only make $8.25, that it's probably YOU and not the company holding you back. When I was a teen, my girlfriend pushed burgers for McD's for minimum wage, by the end of high school she was an Asst. Manager, by the time she finished college, she had her own store, last I heard, she OWNS a franchise.

 

[steveh_131]

Something that frequently gets overlooked in these situations (sorry if it was mentioned in one of the preceding 130+ posts)...

When someone tries to support a family on a minimum wage job, they frequently receive other kinds of government aid - food stamps, Medicaid, section 8 housing, etc. These programs essentially hide the true cost from taxpayers and subsidize the business that pays the low wages (corporate welfare).

I'd rather pay a higher price for a product if the higher wage reduced or eliminated the need for the employee to rely on government assistance. It would reflect the corporation's true cost of labor.

Or maybe we should just let the poor starve and freeze to death.

If you're concerned about the poor starving and freezing then open up your wallet and take care of them.

Drop this 'we' nonsense.