Fast food workers walked out of many restaurant chains on Monday, demanding higher wages, according to multiple media reports on the events in major cities, and many Americans see their point.
The fast food industry certainly has been doing well, according to an article in the CSMonitor, at $200 billion with no signs of slowing growth. The article points out that despite the concerns some have voiced about consumers’ health, fast food continues to grow off of a rising demand in emerging economies. (Check out the video on KFC “special deliveries” in Gaza.)
The result, according to the Monitor story, is that “more employees are joining an industry that has been assailed by critics for exploiting workers.”
And now Forbes reports on a Business major who has studied the financial reports from one chain, McDonald’s, and calculated whether consumers could still afford the fast food if the company doubled its workers’ wages.
*This is an entirely hypothetical wage hike study by a business student.
From the story, Arnobio Morelix is a student at the University of Kansas School of Business, who did some financial modeling based on the annual reports and data sets submitted to investors from McDonald’s.
Morelix actually concluded that if McDonald’s workers were paid the $15 they have been asking, then the cost of a Big Mac would go up 68 cents, from its current price of $3.99 to $4.67, and if you wanted to buy off of the famous “Dollar Menu” it would then cost $1.17 and, ok, maybe someone would say “The Dollar-seventeen Menu” does not sound as good.
Morelix is quoted in the Forbes piece:
“Some folks online are complaining they will not pay $2 for their Dollar Menu, but the truth is that even if McDonald’s doubled salaries the price hike would not be 100%. I will be happy to pay 17 cents more for my Dollar Menu so that fast food workers can have a living wage, and I believe people deserve to know that price hikes would not be as high as it is often portrayed.”
How did the business student arrive at his numbers?
He assumes profits and other expenses are kept at the same absolute number, and his calculations are based on increases in salaries and benefits for every McDonald’s worker, minimum wage line cooks paid $7.25 an hour to CEO Donald Thompson, who made $8.75 million in 2012.
The federal minimum wage, according to a study from the Economic Policy Institute which was mentioned at the Huffington Post, at $7.25 per hour is worth about $2.00 less per hour than it was in 1968 when adjusted for inflation. In order to keep a family of four out of poverty, according to the EPI study, a full-time worker needed to earn $11.06 an hour in 2011.
Full time hours at $11.06 would be a dream job for the many millions suffering with one or two part time jobs to make ends meet.
But back to the Forbes article, which also quoted University of Kansas School of Business economics professor George Bittlingmayer, who said Moblix’s model requires “a leap of faith.”
Said Professor Bittlingmayer:
“The actual effects of raising the minimum wage are up in the air. It’s a brave new world. We know less than you might think. Fifteen dollars an hour is a huge jump from $7.25. It’s outside the range of experience. If you’re an empiricist, you have to say you don’t know what the outcome will be. But it will create some problems with McDonald’s business model.”
Dr. Bittlingmayer raised more good points in the discussions on fast food wages:
“Low wages for adults are a sign that something didn’t go right in terms of education and work experience. We’re not addressing the cause.”