While a Huffington Post article understates the cost of labor in the low-wage fast food industry, Ryan Chittum points out that labor accounts for about 25 percent of fast food prices:
Worldwide, those franchisees took in $70 billion in revenue last year, and US stores took in $31 billion of that. McDonald’s Corporation doesn’t break out similar expense numbers for its franchisees, so the best I can do is research from Janney Capital Markets. It puts labor costs for US franchises at 24 percent of sales, which gibes with McDonald’s company-owned stores. Janney estimates franchisee operating income at just 5 percent.
If Janney is right (and I’m a bit skeptical. Five percent margins seem awfully low), McDonald’s franchisees in the US pay out, very roughly, $7.4 billion in labor costs a year and make about $1.6 billion in operating profit. Doubling pay without dipping into profit would mean menu prices would have to rise 24 percent—and that’s assuming such price increases wouldn’t hurt sales, which they would.
I’ve never like the phrase working poor–they should be called impoverished workers. When people who work full time and are still poor (or nearly so), this is something the rest of us have done to them. Would we be willing to pay 25 percent more for a pizza or a hamburger? Or even fifteen percent? (After all, some low wage workers do make more than the minimum, so it might not be a full 25 percent increase). And I have no idea how wages contribute to supermarket prices, but would people put up with, let’s say, a ten percent increase in prices?
For me, I live in a place where the cost of housing swamps everything else, so while I wouldn’t want to pay higher prices (like my Uncle Harry used to say, rich or poor, it’s always good to have money), it wouldn’t be that big a deal.
On the other hand, I hate to write this, but I think many people when confronted with this choice would choose the lower wages. There are many people who think low wage workers have brought their crappy wages on themselves. It really comes down to whether one thinks all labor has worth.
Though if the Great Pizza Crisis of 2008 (brought on by higher flour prices) is any indication, fast food chains might just start cutting back on food portions. Not sure that’s a bad thing.
I guess one could say there’s no free lunch here….