The minimum wage should not be raised to $15/hr for fast food workers

The main effects of requiring a $15 per hour minimum at McDonald's will be to eliminate about half the low-skilled jobs through automation, replace low-skilled workers with higher-skilled workers, and raise food prices to McDonald's customers. Many McDonald's customers cannot well afford the price increases. 1. Labor is now 25% to 35% of fast food costs 80% of McDonald's restaurants are owned by franchisees, not the Corporation. [2. http://tinyurl.com... The parent company makes most of its money through rents and royalties, not by selling food directly. Franchise owners are independent entrepreneurs. The best published detailed estimate is that currently labor costs are 25.3 % of the cost of running a McDonald's franchise. Huffington Post retracted their published estimate that only 17.1% of McDonald's cost were in labor and benefits. [3. http://tinyurl.com... ] Their cited study confused McDonald's Corporation labor with franchise labor, so they used the wrong numbers. [4. http://www.cnbc.com... The current minimum wage is $7.25 per hour, with McDonald’s average about $9. Raising the minimum to $15 per hour would increase operating costs by about 17%.[5. http://tinyurl.com...] Forbes noted that the McDonald's franchising arrangement makes that calculation approximate, so it's probably more. For the fast food industry as a whole, labor costs are about a third of operating costs. [3. op cit] McDonald's is more automated, so their labor costs are a lower percentage. A 20% increase for the industry is a reasonable estimate. The average McDonald's franchised restaurant costs the investor about $2 million and has $2.4 million in yearly sales. [6. http://tinyurl.com...] The net profit margin is about 10%. [7. http://tinyurl.com...] Restaurant sales vary from under $400K to nearly $10 million among restaurant in the chain. Some restaurants are much more profitable than others. 2. Increased costs cannot come out of profits A 17% to 20% increase in costs cannot come out of a 10% profit margin. If profit's drop more than a few points, investors will move capital into alternative ventures. To maintain a 10% return, franchise holders must continually pour in capital to stay competitive. They must buy equipment to make new menu items. They also face strategic risks as the parent company attempts to adapt to long term changes in consumer tastes. [8. http://tinyurl.com...] McDonald's represents 19% of the fast food industry, so there is plenty of competition. Individual owners also risk changes in the fortunes of their location, such as having a competitor open nearby or having the character of the neighborhood change in a way that affects consumer preferences. At much less than 10%, the investment becomes unattractive. 3. A $15 minimum would eliminate about half the jobs If McDonald's could raise prices without hurting sales, they would have already done so. Forbes pointed this out. If everyone's labor costs rise, the chain that uses the least amount of labor will benefit. Customers will also move to lower-margin budget items on the menu, hurting profit margins. [9. http://tinyurl.com...] Customers can also choose to bring their lunch more often, eat out less often, occasionally eat at slightly more upscale restaurants now more of a relative bargain, or purchase machine-made food from a vending machine [10. http://tinyurl.com...]. If the loss of business is too great at a particular location, the unprofitable location is closed. Higher labor costs puts pressure to substitute capital for labor my automating more tasks. That's the main way jobs will be lost. McDonald's took a step towards automating some time ago by installing drink machines that automatically shut off when the cup is full. That automation eliminates one staff position in twelve. They now have machines that automate dispensing the cup and filling it. [11. http://tinyurl.com...] Fast food restaurants have moved drive-through order taking off shore. The drive-through customer speaks to an employee in India or elsewhere, who keys the order into a computer. More than a decade ago, McDonald's built a prototype completely automated restaurant. [12. http://tinyurl.com... (2003)] Customers key in their orders directly into a terminal. Machines then build the order and deliver it by conveyer belt. The Japanese fast food chain Yoshinoya has a completely automated (one-employee) fast food restaurant operating in Tokyo, where labor costs are high. The level of automation suitable for McDonald's depends upon the labor costs imposed. The bottom line is that jobs are lost. Raising the minimum wage produces no loss only when prevailing wages are already higher than new minimum – not the case for McDonald’s. In general, when the minimum wage increases by 10%, unemployment rises by +2% to +6% [13.Richard Burkhauser, Kenneth Couch et David Wittenberg, “Who Minimum Wage Increases Bite: An Analysis Using Monthly Data from the SIPP and CPS”, Southern Economic Journal, 2000)] Using that rule of thumb, we can expect about half of fast food worker jobs to be lost. The available data on costs and available automated machines confirms the reasonableness of that estimate. Fast food restaurants can immediately replace entry-level employees with more productive employees. Productivity varies considerably. Efficiency varies in taking orders rapidly, performing multiple tasks concurrently, dealing with customers who are hard to understand, and refilling or cleaning the machinery used in the restaurant. At $15, McDonald's can attract more experienced workers. Currently, fast food work is one of the opportunities to learn basic jobs skills. The most basic skill is showing up for work reliably. Other basic skills are dealing with customers, cooperating with co-workers, and taking direction from management. There are work-related skills in preparing the food. Eliminating these jobs harms people just entering the labor force. Youth unemployment, already high, will be made even worse. Fast food work is for entry-level and part-time workers like students or for people who want supplementary income. A spouse might be the primary breadwinner in a household, or an older person might be supplementing retirement income. There are plenty of those people in the work force looking for jobs. 4. Welfare should be done by government insofar as it's done at all If society decides that each person should have a certain minimum income, the government should raise taxes pay for it. That way everyone can see the cost, and the a progressive tax puts more burden on the more wealthy. Artificially increased restaurant prices act in the same way as a tax. Employees are paid more than needed to produce the product, and the extra pay comes from the pockets of the fast food consumers. The “tax” of higher prices is not paid by Donald Trump and Warren Buffett. Rather, the wealth transfer is from the lower part of the wealth spectrum that comprise McDonald customers to the food workers. It is heavily regressive. A welfare state is not a good idea to start with, but a welfare state financed by lower-income consumers is ridiculous. 5. Debate issues Con pleads that Republicans dominate the debate.org site, so he deserves special sympathy. The actual demographics show Democrats outnumber Republicans by 21% to 16%. Minority parties tend to the Left, so it's worse overall. Ideologically, Conservatives plus Libertarians are 27% of members, while Liberals, Progressives, and other leftist ideologies combine to make 33% of the site. [14. http://www.debate.org... ] So no sad violin music for Con. To accurately compare cost numbers from foreign countries, the analysis must include food costs, real estate costs, the nature of the competition, and hidden government subsidies. In making a comparison, the first question is what percentage of the bottom line is in labor costs.