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Can Fast Food Pay Any Better?

Companies offer cheap fare by keeping costs low

September 2, 2013
By CANDICE CHOI AP Business Writer , The Intelligencer / Wheeling News-Register

NEW YORK - American fast-food workers often earn about $7.25 an hour to make the $3 chicken sandwiches and 99-cent tacos that generate billions of dollars in profit each year for McDonald's and other chains.

Thousands of the nation's many millions of fast-food workers and their supporters have been staging protests across the country in the past year to call attention to the struggles of living on or close to the federal minimum wage. The push raises the question of whether the economics of the fast-food industry allow room for a boost in pay for its workers.

The industry is built on a business model that keeps costs - including those for labor - low so companies can make money while satisfying America's love of cheap, fast food. And no group along the food chain, from the customers to the companies, wants to foot the bill for higher wages for workers.

Article Photos

AP Photo
Becky Rafter, left, Courtney Hanson and Emilia Kaiser protest in front of a McDonald’s on Moreland Avenue in Atlanta, calling for $15 an hour and the right to unionize.

Customers want a deal when they order burgers and fries. But those cheap eats squeeze franchise store owners who say they already survive on slim margins. And the corporations have to grow profits to keep shareholders happy.

"There's no room in the fast-food business model for substantially higher pay levels without raising prices for food," says Richard Adams, a former McDonald's franchisee who now runs a fast-food consulting business.

Caught in that triangle are the workers. The median hourly wage for a fast-food cook last year was $9, up from about $7 a decade ago, according to the Bureau of Labor Statistics. But many workers make the federal minimum wage, which was last raised in 2009. At $7.25 an hour, that's about $15,000 a year, assuming a 40-hour workweek.

The protests come as President Obama has called for an increase of the federal minimum wage to $9 an hour, with some members of Congress and economists calling for a hike as well.

Workers protesting in cities including New York, Chicago and Detroit, are pushing for $15 an hour, which would mean wages of $31,000 a year. But the figure is seen as more of a rallying point and many say they'd be happy with even a few bucks more.

"Anything to make it more reasonable," says Jamal Harris, 21, who earns $7.40 an hour working at three different fast-food restaurants around Detroit - a Burger King, a Long John Silver's and a Checkers - because he's never sure how many hours he'll get at any one job.

The same is true for Robert Wilson, a 25-year-old McDonald's employee in Chicago. "It was never a consistent check," said Wilson, who lives with his mother and brother who also work at the restaurant.

Wilson says he was given one 10-cent raise in the past four years. That brings his pay up to $8.60 an hour after seven years working at the restaurant.

Low wages and a lack of benefits for workers aren't anything new in the fast-food industry, of course. It's why "McJob" has been a pejorative term for so long. What's changing now is that such jobs are playing a bigger role in the U.S. economy, bringing the fast-food protests closer to home for many.

Currently, the median annual wage for all U.S. full-time wage and salary workers is about $40,350, according to the Bureau of Labor Statistics. That's based on weekly earnings of $776.

Raising wages for fast-food jobs means figuring out where the money would come from.

More than 90 percent of McDonald's and Burger King locations in the U.S. are owned by franchisees who say they have to worry about making rent, buying supplies, paying workers and shelling out royalties and fees to their parent company for use of their name and brand. Franchisees say they have to do this while trying to eke out a profit on the super-cheap menu items that customers have come to expect.

Franchisees say their profit margins are thin - they make 4 cents to 6 cents on average for every dollar they take in - and that they can't afford to hike pay, particularly at a time when companies are trumpeting value menus amid heightened competition.

Kathryn Slater-Carter, who owns two McDonald's in California, said that what franchisees can pay workers depends "on what money you've got left after all (the company's) interference."

Slater-Carter said that in addition to emphasizing low prices, the company has been putting more costs onto franchisees for things such as software licenses and service contracts for restaurant equipment.

Prices for food ingredients are volatile and insurance and other costs are rising, too, meaning labor is one of the few costs franchisees can control. It's why franchisees often keep hourly wages as low as possible.

If franchisees and companies can't, or won't, pay more, that leaves the people who buy fast food. "This all comes back to the consumer," says Adams.

Although many Americans say they support higher wages for workers, the reality is that people flock to the cheapest meals, which cut into profits. It's why fast-food chains have been stepping up deals and promotions in the weak economy.

 
 
 

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