What’s a Fair Wage for Fast Food Workers?

image courtesy WGNTV

image courtesy WGNTV

What did your first job pay? I vaguely remember my first “real” job (i.e., not babysitting) at Borders during summer break from college, where I was thrilled to be making $6.25ish per hour. Fast forward to when I worked as a supervisor for Borders, post-college, with a degree, where I started at $8.75 an hour. Even with roommates, it was tough to stretch that every two weeks. So I have a lot of sympathy for the current fast food workers’ strike, where they’re fighting for a raise, specifically to a significant level above the current average rate of $7.25 per hour. The major objection to these requests is that the companies in question simply can’t raise wages without raising prices … an objection that Forbes is reporting may not necessarily be true.

Forbes has an excellent summary of the analysis done by a research assistant at the University of Kansas, who determined that if the entire cost of a wage increase to $15 was passed to the consumer, the “dollar menu” would become the $1.17 menu. The rest of the items McDonald’s sells would also cost a bit more, but nothing would increase by even a full dollar. In other words, the workers would double their salaries, and the average person would only be out a few extra cents. All that assumes, of course, that McDonald’s passed the cost onto the consumer entirely, and didn’t shave a few cents off various costs to make up the difference. The analysis also raised everyone’s salaries, from the line workers to the CEO.

So why don’t companies raise wages? I’ve heard many arguments, mainly centered around concerns regarding margins and profits. After all, if you raise workers’ salaries, and then the economy tanks, you’ve left less wiggle room to make up that extra cost. On the other hand, if you pay people a living wage, you put more money back into the economy, which, if you’re a McDonald’s, or a Wal-Mart, or a grocery store, you’re likely to see a bigger benefit. That extra money you’re paying to workers is going to come back in the form of workers shopping in those same stores for staples like food. And it’s not impossible…Costco has long been known for their excellent pay and employee benefits AND their ability to run a profitable business while doing so.

I also think it’s vitally important to put “$7.25 an hour” into context. At $7.25 per hour, assuming a 40 hour work week, 52 weeks per year, no vacations and no overtime, you’re making a grand total of $15,080 per year. At $8.75 per hour, that yearly pay jumps to $18,200 per year. $15 per hour is a very big jump, pushing the annual salary to $31,200 per year. $7.25 per hour also puts a single individual below the poverty line and eligible for food stamps. That’s for a household of one…as you can see from the USDA chart, even making a bit more ($8.75 per hour) pushes anyone other than a single person into eligibility for government assistance. This wouldn’t be fixed entirely with better wages for workers, but it would certainly mitigate some of the strain on workers and government assistance programs. And remember, that’s just addressing the cost of food. Add in rent ($804 per month on average in America) and the cost of either public transport or a car, even without health benefits you can’t stretch that $7.25 per hour very far. The Consumerist did an excellent takedown of McDonald’s “budget” they helpfully created for their employees, which is even more laughable when you really sit down and do the math on wages.

It’s easy to be dismissive of people who work in retail or food service and not care how much they make. But I can almost guarantee that if you’ve spent any serious time working in a service industry, you understand why these wages significantly underpay employees. I spent three years in management for Borders, and I barely made more than $30,000 per year, in a major metropolitan area. Needless to say, my employees didn’t get paid terribly well either. For college kids looking for beer money it was no big deal, but there were people who worked for us who had families depending on their income. They worked full-time for less than $2,000 a month. We were there on Christmas Eve for the last-minute shoppers. When everyone else was out enjoying shopping on Black Friday, we were open and working. Fireworks on 4th of July? That last beach day during Labor Day? You guessed it…

Retail and food service aren’t easy. Very few people are working at McDonald’s because it seemed like easy money, and when you look at what $7.25 an hour translates to in monthly and annual pay, it’s downright insulting. The analysis Forbes found is an amazing starting point to opening up the conversation further; how much are we, as consumers, willing to pay extra to ensure the person making our burger can afford one of their own?

Categories: Editorials

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17 replies

  1. I am just wondering where these strikes are like in the picture above. Since it came from WGN I assume Chicago. I have yet to see any of them here in the Columbus area. Same thing when some Walmart employees struck. Not saying they don’t occur but I have not seen them here.

    Would I pay more for stopping at a Wendy’s for a sandwich? Not so sure I would. When I take the family to Wendy’s for dinner I typically pay almost 30 bucks at the moment depending on what we get. If it was much more I would probably still go but I wouldn’t go as often and I know most of the people I know would probably do the same.

    The thing that I find totally weird now is that some fast food places are going upscale with really nice tables, cushy chairs and more. Going to Taco bell I was shocked as all of the hard plastic was replaced by cushy chairs and it all felt really…well…creepy. I go to these places for a cheap quick meal. I’d rather they not put money into nice interiors but into the employees and the kitchens. That doesn’t mean they can’t be nice but the old formica and plastic covered chars and table are just fine for me. I don’t need to pretend I am eating in a nice restaurant because I already know I am not.

    • Hate to reply to myself but this is in Chicago, Kansas City, St. Louis, Detroit, Milwaukee and Flint, Michigan. Probably New York as well. Not so sure that this kind of protest works as a lot of America has no idea unless it happens in their own town.

      I’ve done fast food. Totally hard work for sure. I am all for fair treatment and working for 7 bucks an hour for a 90 minute shift is kind of pointless…so I get a lot of the arguments too.

      • I think the protests are likely in places where they will get more media attention, as well as where it’s even more laughable to pay someone 7.25/hr. That’s a low wage for suburbs, but completely unliveable for urban areas.
        Sent from my iPad

        • That’s a very good point, Carly. I agree.

        • Totally. 7.25 isn’t liveable here in Columbus either…probably less liveable than some of the bigger cities as you pretty much have to have a car in Columbus for at least some parts of your life and our only transit system is a bus and the bus system as good as it is (is use it every day) doesn’t go everywhere you need.

          • True, but I was thinking about the higher cost of living. If the average cost is $800 for housing, in a city it is easily double that. Either you live with four or five roommates or you’re living somewhere truly horrible.
            So there’s trade offs…cheaper housing outside of cities but more expensive transportation.
            In the end, doesn’t matter where you are…it’s not enough to get by!

            Sent from my iPad

  2. I
    worked for a toy store in 1995 and I made minimum wage $4.25 and I also worked
    at k-Mart making $5.00 an hour. I was rolling in that dough. Lol

    • Funny how that perspective works – back in high school in the early 80s I was working at Bradlees department store nights & weekends getting $3.25/hour and also feeling like I was rolling in the dough! Pretty much every job at that point was minimum wage for high school kids, so it wasn’t a thought. It paid for all of my high school fun, buying loads of music stuff, bikes, and so on – and helping save for college.

      The huge difference is how many people now in those jobs are actually trying to make a full living doing this. The thing that gut-punched me about that Consumerist analysis was that McD assumed that there was a second full source of income – the person was working 60+ hours per week between two jobs … and still barely managing to scrape by without any cushion for anything going wrong.

  3. Increasing the minimum wage to $15 would presumably cost McDonald’s about $8 billion a year, and for a large corporation, it might make more sense to increase automation and reduce the workforce to compensate, so this might be an example of the law of unintended consequences.

    “On the other hand, if you pay people a living wage, you put more money
    back into the economy, which, if you’re a McDonald’s, or a Wal-Mart, or a
    grocery store, you’re likely to see a bigger benefit. That extra money
    you’re paying to workers is going to come back in the form of workers
    shopping in those same stores for staples like food.”

    But wouldn’t that come at the expense of other consumers who would be paying the difference to minimum wage workers, given businesses would certainly pass on the increase to consumers? You’d essentially be robbing Peter to pay Paul, and still not be able to increase the amount of money put into the economy. If I have two workers, one making $50,000 a year and the other $20,000 a year, the maximum that they could ever spend (ignoring credit) in total would be $70,000, regardless of how you redistributed the income…one would only be able to buy more by the other being able to afford less in absolute terms.

    I’m certainly not advocating a return to Dickensian labor mills, but I think both sides of the argument are oversimplifying things. These ideas require careful consideration and consequences considered.

    • But the apparent math is saying you could give a 100% pay increase to lowest paid workers (and scaled back increases up the line) and only induce a 10% price hike on products.

      Honestly, since we know these corporations are already starting to scale back so-called ‘full time’ workers to <30 hours to avoid giving them benefits, we pretty much know the moral compass of the general corporate entity.

      • 10-17% may seem trivial, and in fairness for certain items it would be, but it is a matter of perspective. Would a senior on a fixed income feel the same about such an increase? Would a student with student loans feel a rate increase of only 3% trivial?

        Internally, though, what would be the repercussions of increasing entry-level salaries? Would employees higher up on the ladder would find such noblesse oblige fair to them? Using Carly’s Border’s example, how would she feel if those under her suddenly found their salaries increased such that entry-level wages nearly rivaled hers? I suspect there would be a great deal of resentment unless there were more widespread salary/benefit recalibration up the ladder. This is part of why I think it’s wrong to assume that such a wage increase would have no other effect than to simply increase living standards for one group.

        • I am not saying it is trivial, just that it isn’t the sort of ‘zero sum game’ your prior math suggests. You make many great points about trying to cast this as a binary choice – which it certainly is not.

          And the 10-17% includes a ‘total ladder adjustment’.

          This was being discussed on NPR as I made my way to the airport earlier today, and the point about teens was mentioned. There is a feeling if you start to push too high with wages and benefits we will be like some European countries with >50% teen unemployment.

          I don’t know the answer … but one thing I *do* know is that the Reagan / Neo-Con ‘trickle down’ approach simply has been debunked too many times to keep doing it. People at the top are too good at wealth accumulation and lousy at distribution – with the end result being historic and unprecedented wage disparity and ever-shrinking social mobility. In other words, the rich get richer, the poor get poorer, and the chance of anyone escaping their ‘birth caste’ gets smaller with each passing year.

          • You’re right, Mike, and I hope my comments didn’t come across as adversarial (context in cyberspace is difficult). 😉

            • haha … remember I post stuff on YouTube :) Your comments were great – so long as there is actual discourse going on I am all for debate, even if it gets heated!

            • Also, note that the Forbes analysis specifically raised the salaries for everyone, not just the entry level workers. So in the Forbes analysis if my entry level people made more then so did I. :)
              I didn’t have the space or time to get into this in the post, but in theory better pay equals more loyal employees, and if employee turnover costs drop it probably saves the bottom line as well. I can’t speak for McD’s, but at Borders training a new employee was a 2-4 day process depending on the position. Lower turnover meant less time training and more time with productive speedy employees helping customers.
              Sent from my Windows Phone

              • Turnover costs are *huge* – it is estimated that for an entry level employee the turnover costs is 30-50% of annual salary. Pure business costs are ~$5000 for someone making $8 an hour, but then other cost factors make that number nearly double.

                • Absolutely agree with you, Carly & Mike that a better salary and benefits to encourage long-term employment could potentially reduce turnover (a la the Costco model) and reduce long-term costs not always obvious (training, HR & accounting support, etc.). @Carly, I must have overlooked the salary adjustment, but then that’s why I’m not an economist. 😉