Updated: Aug 20, 2019
The B.S. tweet that inspired the article
Here’s the problem- McDonalds doesn't actually profit enough money to pay their employees $15 an hour. One thing people never take into account when discussing McDonald’s is that they are franchised restaurants. Blaming “McDonalds Corporate“ is an absolute non-starter, since the average wage at corporate is $53,310 per year.
The story of a McDonald’s franchise is very different.
As you can see from the figure above, the average McDonald’s franchise ends the year with around $153,000 in profit.
This is where the deceptive showman U.S. Senator Bernie Sanders starts to lose his footing.
The average employee expenses ring in around $648,000 per year at each franchise. How then, can Bernie Sanders speak so confidently about making McDonald’s pay $15 per hour?
The most recent data show that $10 per hour is a good enough average hourly pay figure for the purposes of this article.
Raising the minimum to $15 isn’t just a $5 pay bump on average, though. In that $10/hour figure from above, there are people making <$8/hour, and people making >$14/hour. If your lowest paid employees are now going to be making $15 an hour, the higher end will have to keep close to the same spread. Think that’s a stretch?
Ask yourself: If you worked your butt off at McDonald for 5 years to get bumped up to $14/hour, and then a new law makes your pay close the starting pay for that lazy guy that just started last weekend- What do you think you’d do? You’d assume that you’ll get the same % raise that the other guy did. So now he’s gone from 8 to 15, and you’re expecting to go from 14 to ??? We could say $25/hour just to be conservative.
Since right now, the average pay at a franchise is about 25% above the minimum paid by McDonald’s- we can easily assume the new average pay will sit around $19 an hour (25% above the minimum). That’s going to be around a 100% jump in the average pay.
Now we’ve ended up with an average pay that’s roughly double the current average pay. Remember, the franchise was already paying around $648,000 for its crew, and ending with $150,000 in profit on the year.
This figure has us about $500,000 short for employee wages on average per franchise.
The stores will be left with only a few options.
The first and most obvious option is one we're already seeing on a daily basis.
Stores around the country are moving towards automation. Those touch screens you've seen popping up all have two things in common: They don't mess up your order, and they don't ask to be paid more than the value brought in by the product they're helping to sell.
The other obvious option is to raise prices.
What would that look like? Assuming the owner still wants to make the $150k for their risk, we need to be making up at least $650,000 in revenue to cover the new expenses.
With net sales sitting at $2,700,000 per year, we have to find a way to get the stores sales up to $3,350,000 per year. That requires a minimum 25% increase in prices to rake in the new income.
This brings in a Laffer Curve-style issue. With the increase in price comes a potential decrease in customers. You can't assume the public will make the same decision to eat at McDonald's after they raise their prices by 25%. If we assumed a 10% decrease in customers due to higher prices, we'd have to take $270,000 off that original net sales number. So now we have to make up that $270,000 + the additional $650,000 in new salary expenses. That's $920,000 that's needed to make the original profit from your McDonald's franchise! Which by the way, now requires an increase in prices of 34%.
Congratulations for making it this far into the article. The problem we face is that these are very complex issues, and most people don't have the attention span to dive deep like you do.
It's never as simple as saying "When I'm President, I'm going to do "X" to fix this situation."