Private profits, social cost

Posted: 29 April 2016 in Uncategorized
Tags: , , , , , , ,

Fast Food Workers Protest For Increased Wages Ahead Of McDonald's Annual Shareholder Meeting

One week ago, the McDonald’s Corporation reported a 35-percent increase in profits (from $811.5 million in the period last year to $1.1 billion) in the quarter that ended 31 March. A few days later, former McDonald’s President and CEO Ed Rensi published an opinion piece in Forbes to explain why raising the minimum wage would be a huge mistake.

Let’s do the math: A typical franchisee sells about $2.6 million worth of burgers, fries, shakes and Happy Meals each year, leaving them with $156,000 in profit. If that franchisee has 15 part-time employees on staff earning minimum wage, a $15 hourly pay requirement eats up three-quarters of their profitability. (In reality, the costs will be much higher, as the company will have to fund raises further up the pay scale.) For some locations, a $15 minimum wage wipes out their entire profit.

Recouping those costs isn’t as simple as raising prices. If it were easy to add big price increases to a meal, it would have already been done without a wage hike to trigger it. In the real world, our industry customers are notoriously sensitive to price increases. (If you’re a McDonald’s regular, there’s a reason you gravitate towards an extra-value meal or the dollar menu.) Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a a full-service employee.

What Rensi doesn’t mention is that U.S. taxpayers are subsidizing McDonald’s profits.

As Ken Jacobs reports,

Workers like Terrence Wise, a 35-year-old father who works part-time at McDonald’s and Burger King in Kansas City, Mo., and his fiancée Myosha Johnson, a home care worker, are among millions of families in the U.S. who work an average of 38 hours per week but still rely on public assistance. Wise is paid $8.50 an hour at his McDonald’s job and $9 an hour at Burger King. Johnson is paid just above $10 an hour, even after a decade in her field. Wise and Johnson together rely on $240 a month in food stamps to feed their three kids, a cost borne by taxpayers.

low-wage

In fact, according to a study by Jacobs, Ian Perry, and Jenifer MacGillvary (pdf) for the UC Berkeley Labor Center, 52 percent of fast-food workers make so little that they’re are on some form of public assistance.*

That’s the social cost of McDonald’s (and other fast-food corporations’) private profits.

 

*Note also in the chart above the following observation about nominally non-profit higher education in the United States: “high reliance on public assistance programs among workers isn’t found only in service occupations. Fully one-quarter of part-time college faculty and their families are enrolled in at least one of the public assistance programs analyzed in this report.”

Comments
  1. Allen says:

    Thanks for this post David. I did some simple math on the numbers presented in the Forbes article. I based this on raising 15 part-time employees from $7.25 to $15.00 per hour. This would mean each part-time worker averages ~20 hours per week and the raise would cost ~$117,000. If consumers bear the cost it would mean a 4.5% price increase. My $6 meal would now cost $6.27. But don’t forget about those franchisee fees that make McD execs like Mr. Rensi so wealthy — see this link: http://www.businessinsider.com/what-it-costs-to-open-a-mcdonalds-2014-11. If the McD corporation and consumers share equally then I have to pay slightly more than 10 cents more for my $6.00 meal! Not a problem!

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s