Let’s say McDonalds (or WalMart) comes out today and says that starting Jan 1, the minimum wage at McD’s will be 1.5 (or 2) times the local minimum wage?
Will food prices rise? Will other fast food companies follow suit? Will other non-minimum wage jobs follow with raising their wages? Will inflation kick in?
What I think I’m getting at is that if one huge company stood up and paid a more livable wage, then I think that everyone would get a pay raise with a minimum of price increase. Maybe I’m an idealist, but all it takes is one company.
Is there any downside if a company came out and made this announcement??
Why do you say it only takes one? Do you have some notion that all other companies would follow suit?
First, the majority of McDonalds are franchised, and the franchise owners set the wages at their individual stores. But for the sake of your argument let’s assume that they are controlled by McDonalds corporate office. A significant cost for McDonalds just increased by 50%. Unless the Company is happy to just make less money now, they are going to attempt to raise prices on its products sold at its restaurants to maintain their level of profitability.
When this happens Burger King, Hardees, Chik-Fil-A, et al are now less expensive relative to McDonalds and more people are likely to buy from them as opposed to McDonalds because McDonalds will no longer be considered a value.
Now, not only is McDonalds costs higher, but it is losing market share, so they probably have more stores than they need, and they will likely close some stores.
Now that they have raised wages, they will have to fire more employees. This is more likely than their competitors raising the wages for their employees.
According to an article posted yesterday on The Huffington Post:
On the one hand, I’d like to see them do this.
On the other hand, the companies that do already pay higher wages than McDonald’s does: are they more succcessful than McDonald’s? What’s the incentive to McDonald’s to raise their wages?
It hasn’t really been an issue with the labor market lately, but one of the many ways Wal-Mart was really squeezing out local businesses was by paying somewhat better (and sometimes significantly better) wages than other local retailers, making it difficult for them to retain employees at wages they could afford. Wal-Mart even actually occasionally supports minimum wage hikes because they put more money into the pockets of their generally poor customer base while they themselves are usually paying above minimum wage anyways.
I’m not a marketing guru, but that’s probably a big psychological difference. Moving up from 3.99 to well into the $4 range is a big difference. No more dollar menu? “Well yeah, but it’s only $1.17 now!” you might say. Ehh…think I’ll go somewhere that has a dollar menu.
How many of their employees are at minimum wage (or below 1.5x minimum wage)?
There’s also the off chance that by paying the employees more they might end up attracting a better class of employee. No, probably not people that want to make 60K a year, but maybe people that want to take home more then $100 a week. The prices might go up a bit, but would you pay a little bit more if it looked like the guy that made your food took a shower be for he left for work this morning?
If they started offering starting wages of $11 (minimum in WI is 7.25, 1.5x7.25 is $10.88) and guaranteeing 29 hours (just enough to not have to offer insurance) this starts to become a livable wage. Enough to get an apartment and an education.
OTOH, McDonald’s seems to be doing just fine with their current employees and probably doesn’t really need my opinion.
I’m certain they could easily make up that 17 cents. Shave a little meat off the burgers, have the cheese sliced a little thinner and cut off the corners, use thinner patties and less mayo on the McChickens, etc.
The difference between a “McDouble” and a “Double Cheeseburger” is one slice of cheese and 29 cents (your local prices may vary). That one slice of cheese does not cost McDonald’s 29 cents; that’s just an extra 20 cents profit (at least).
Don’t a lot of places sell things as so-called “loss leaders” though? So, maybe they keep it at a dollar but limit the menu a bit farther, hoping folks spring for the other, less cheap items?
The OP is assuming that the company would maintain the same employees, but I’m not sure that that’s valid. Higher wages would attract a slightly better class of applicants, and the company might then let its least-qualified workers go.
Then why aren’t they doing it, already? There must be a minimum they can pare down to before folks don’t consider it a proper cheeseburger, anymore. They’re smaller than they used to be, as it is.
Sure they do. And probably, even at $1.00 they wouldn’t actually be taking a loss on a cheeseburger. But your tradeoff still requires them to take actions that could limit their appeal, e.g. removing items or limiting the menu.
They could also not double the CEO’s salary or other top execs. Just raising the bottom rung wouldn’t have as much impact, but it is probably the biggest piece.
They company attracts a far higher calibre of employee who (a) works more efficently and (b) with far less direct managing, allowing the company to employ fewer managers of fewer staff.
Seen it a hundred times on Undercover boss type shows.
As for driving customers away, I wonder what the balance would turn out to be – they lose some who think Wal-Mart is now too expensive. They gain some who will now spend money there because they’re no longer treating their workers like shit.
I’m not the only one I know who refuses to shop at Wal-Mart, and it’s certainly in the news often enough, so I’d wager there’s a significant cohort who currently refuse to shop there who might be convinced otherwise if Wal-Mart shaped up.
Also, there’s the example of CostCo, who doesn’t treat their workers like shit and is still raking in the profits.
Costco products are much higher quality thatn Walmart. If they carried the same product line at the same cost as Walmart, I assure you they couldn’t pay their workers as well.
If you have ever been on the West Coast, you have heard about In 'n Out Burgers - a great chain that never lacks for customers and is very, very popular out here!
If you look at their average salaries, you will note the employees earn more than most in similar positions at other fast food restaurants. Their prices are still cheap!
So I guess the myth of high food prices and lack of business, due to higher salaries, goes out the window if you look at In 'n Out - and see they have done a nice job at blending both. I might add that most employees at In 'n Out are very happy where they work, and when you go there, it shows!
Then maybe Wal-Mart needs a new business model, since their profits are so anemic even with paying their workers crap.
The point is, people are still shopping at Costco, in spite of the “added cost” of reasonable wages. Enough people shop there that Costco is doing better than Wal-Mart. If Wal-Mart tanks because their products are too shitty to be worth an extra few pennies, good riddance.
Also, you could counter-balance by paying the CEO a reasonable salary, too. Not the outrageous inflated sum that they’re throwing at him now.
Don’t you think that pretty much any fast food place, or Walmart for that matter, would get great press for voluntarily upping their worker’s salaries by 150%?
Not much will happen. Some price adjustments, dropping loss leaders like the double cheeseburger (a low cost and nutricious meal for those who have the least to spend), cutting back on hours, and a small number of marginal stores will close, and fewer new ones will open for a while. Franchise owner’s profits will drop, indirectly stock holders returns will drop a tiny bit, then maybe more as the franchise owners complain about the situation. Other businesses and the economy will benefit as a result of the additional wages redistribute through the economy, and social costs will drop as the poverty rate decreases. All in all the effect will be too small to clearly distinquish.