The website championing this movement, Fast Food Forward, lists four reasons why this new minimum wage is needed. They are all misleading or irrelevant. Stay with me for just a few lines while I deconstruct these assertions. It is important to understand how weak their arguments are, and then I’ll tell you what they are leaving out.
#1—“200 billion is grossed by the fast food industry annually”
This fact is misleading. They use the amount of money that flows into the industry without telling you how much flows back out, leaving a profit. It is the profit that is important. You can gross a billion dollars, but if you spend two billion in the process, you won’t survive. Their profit margin is in the 10% range. Labor costs are about 25-30% of the business expenses of a fast food restaurant. Let’s put this on the back burner for a just a bit.
#2—“$25,000 is the average daily salary of most fast food CEOs, over 2x what the average worker makes in 1 year”
This is likely not even a fact and it’s irrelevant. The website doesn’t quote its source, but these types of “facts” often include the stock options and bonuses paid that are based on the performance of a company. The company does well; the CEO gets a nice slice. The company tanks; the CEO gets canned.
It is irrelevant because most fast food restaurants are franchised. That means the real CEO of that company is making nowhere near the amount quoted, and is often the guy running the day to day operation. It’s just a way to pit people against people.
#3—“Workers make only 25% of the money they need to survive in NYC while working at fast food companies.”
#4--$11,000 is average yearly salary of fast food workers in NYC”
These fast food jobs are entry level positions. These jobs were never supposed to be used to support a family. These are jobs you take to start a working career. They are equivalent to babysitting the neighborhood children on weekends. These are jobs traditionally filed by high school kids first starting out and working part time, (A reason why #4 is misleading) and still living at home. These are jobs that teach basic employment practices (show up each day, on time, and do what is asked of you and do it very well) and give kids a source of income.
With those facts in mind, you might still ask; “So why not just do it anyway? What’s the harm?”
Well, to hear the labor unions tell it, nothing. The guy making the burger would now be paid $31,200 per year and everyone is happy. Not even close.
Labor costs are at least 25% of the business costs. Increasing it by nearly double puts your labor cost at 40%. With a profit margin of only 10%, you are now losing 12 cents on every dollar you take in. Something has to change to remain in business
A combination to two things would have to happen. First, labor costs would have to be mitigated in every way possible. With the actual cost per hour fixed at a price of at least $15 per hour, the restaurant owner would be forced to reduce the number of man-hours he pays that against. That means cutting hours of operation and almost certainly hours per employee. Instead of being open 24 hrs per day; they would likely only be open for the most profitable parts; lunch, dinner, and maybe breakfast rushes.
Overtime would be non existent. A full time person would never, ever, ever, get over 40 hrs and would likely get 35 or just a few more. Paying at the overtime rate of $22.50 per hour would be suicide.
With the restaurant open fewer hours, they need fewer people to staff it. So instead of making $15 per hour like the unions are promising, about 1/3 to 1/2 of them would now be unemployed, and nothing.
Full time employees would be the exception. Each restaurant would only have a handful, with most being part time. Those full timers that remain could expect to be asked to work split shifts.
The owners would likely begin to invest in technology that has patrons touch screen their order in, to further reduce labor costs. Or they might begin to eliminate the lobby dining all together. They might keep one cashier for drive-thru. That would mean fewer cashiers, but longer lines.
And then, without a doubt, prices would go up. The dollar menu would be a thing of the past. McDonald’s $1 any drink/any size would disappear. Restaurants make a large part of their profit on soft drinks. It cost pennies for a serving. Free refills might go away, or at least be limited. Premium items like specialty coffee drinks and high end burgers would see their costs go up immediately.
Prices on almost all items would rise to off set as much of labor costs as they can. A Big Mac currently costs, on average, $4.33. My guess is that it would go up by 25%-33%, making a Big Mac cost about $5.75. Don’t forget to order your fries and a drink. Disneyland prices at a burger joint near you.
With the prices going up, foot traffic will go down. It becomes easier for the cost conscious shopper to go to a grocery story deli, take out from a restaurant, or just cooking at home. Foot traffic going down means restaurants will close. Whole stores of people will be unemployed. My home town supports two Wendys, two McDonalds, and at least three Subways, among others. They could not all survive. With less people deciding to eat at a fast food place because of the cost, two or more of the same restaurant brand would compete for fewer guests deciding on Taco Bell for dinner.
Think you are exempt? These restaurants purchase equipment from manufacturers. They purchase their food products from food producers or distributors. There are forklift operators, truck drivers, order selectors, bakers, machine operators, administration people, and on and on. Those jobs are reliant on the fast food restaurants not only doing well, but growing. Jobs in those places would be eliminated. These jobs pay well above minimum wage, because these workers have much more specialized skills. But, their workforce would be reduced, too.
The net result? There would be more money for some people, who will now be paying union dues, while many others will be completely unemployed.
Remember, these are entry level jobs. Jobs where people with no skills go to earn cash and develop skills they can use to get a better job somewhere else. It is hard enough for a teen to get a job, where do they go now? Maybe a gang?
How about those adults now out of work that were at least gaining and sharpening skills to market elsewhere? Obama and his minions have that covered. The new unemployed can just sign up for food stamps, unemployment (which he is trying to extend for additional year), and the myriad of other hand outs that are paid for by those of us who are employed, and are driving our trillion dollar deficit.
All he, the labor unions, and the rest of the Democrats ask for is that you vote for them. You can put down your $5.75 Big Mac long enough to do that, right?