Consumers Shouldn't Pay For Worker Raises

At the Boston Globe this past week, Thomas Fuchs wrote a pretty great editorial regarding the ongoing plight of the fast food worker, trying to dispel the idea that the folks behind the counter are all kids looking for some extra cash. (Here's one shock stat from the piece: 70% of fast food workers are over 20 years old, and a third of them have college degrees.) It's really well worth the click over to give it a read.

But towards the end, Fuchs throws out a way to solve the problem of lower wages: By raising the prices on select foods, managers can afford to pay their workers the requested $15 an hour. (The example used is of raising the price of a Big Mac by $1.) This is not the first instance of this solution being bandied about; it's become quite fashionable over the past few months as the strikes have brought awareness to the issue.

The problem is, it's a terrible solution.

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First, a bit of explanation: The $1 number comes from the fact that payroll and employee benefits at McDonald's account for roughly 25 percent of where a location's sales go towards. (And before we go on, McDonald's is being used here simply because it's the biggest chain; the general concept applies to any fast food chain not named In-N-Out.) So, raising the price of a Big Mac -- which generally costs around $4 -- by 25 percent gets us to that magic dollar amount that will double the current wages of the workers to $15 an hour.

(It's worth pointing out, economists over at UC Berkeley determined that a wage raise to $15 an hour would have to be accompanied by a 10 percent raise in food costs, or only 40 cents more on each Big Mac. Also, an undergrad at the University of Kansas School of Business got some press last July by suggesting a 68 cent Big Mac price hike is the magic number to get to $15 an hour. So, the proposed $1 extra is certainly on the high end of cost adjustment estimates.)

But where things get tricky is the worry that if Big Macs cost more, people will stop buying them. No need to worry, says Fuchs. A dollar won't make much of a difference to the average fast food consumer:

[M]ost fast-food customers are less price-sensitive; those motivated mostly by convenience wouldn't cross state lines or turn to the Internet to save $1 on a fast-food lunch. Meanwhile, restaurants could count on lower training and recruitment costs as turnover -- now close to 100 percent per year for fast-food chains -- is reduced.

Which, sure. That makes sense. I know that my own occasional dalliances into fast food have a whole lot to do with rushing around. But where things get dicey is when you realize just why all those people are rushing around in the first place: To get to their jobs, most of which aren't high-paying.

In fact, how about instead of worrying whether or not consumers will pony up the extra scratch for the Big Mac, first we attempt to solve the living wage problem by having someone else pay. Oh, just for the heck of it, here's a few numbers:

- Wendy's brought in $333.3 million in profits in 2013.

- Burger King took in $665.6 million worldwide in the calendar year of 2013.

- Dunkin' Brands, which owns Dunkin' Donuts and Baskin Robbins, reported revenue of $186.3 million in the third quarter of last year which, if they kept up that same level throughout the rest of the year, would mean $745.2 million total in 2013.

- Yum! Brands, which owns the dreaded trifecta of Taco Bell, KFC and Pizza Hut, reported $13.6 billion in gross revenue in 2012.

- McDonald's earned $4.9 billion in worldwide profits in 2013.

The point is: Expecting consumers to break into their own wallet so that these multi-million dollar companies can finally provide their employees with a living wage is backwards. That's simply paying for the poor with money from the little less poor. Instead, perhaps CEOs should trim their salaries down from the nearly $10,000 an hour they're currently making. That's a start in the right direction.

But the fact that a $10,000 an hour pay rate exists in the first place brings up another important question: If fast food franchises raise their prices by 10 percent, or 25 percent, or whatever the number's ultimately determined to be ... who's to say they just won't keep the extra money for themselves?

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About the Author

Rick Paulas has written plenty of things, some of them serious, many of them not, scattered over the vast expanses of the Internet. He lives in Los Angeles and is a White Sox fan.
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