Daily Ticker

New restaurant strikes put spotlight on the minimum-wage debate

Daily Ticker

Advocates for raising the pay of U.S. fast-food industry workers are bidding to reboot interest in their movement in a big way, with hopes they'll spur supportive strikes at restaurants across the globe on May 15.

For the sympathizers, the goal of getting these employees wages of $15 an hour in the United States is a noble one that would reward cooks, cashiers and cleaning crew for doing thankless jobs most of us would rather not call careers. Detractors say a minimum-wage raise to this level will destroy businesses financially or produce exorbitant menu prices, ultimately leading to joblessness for at least some of the nation's 13.5 million restaurant workers workers. So those agitating for this change could, ironically, be the most hurt by it.

The Daily Ticker’s Aaron Task interviewed Kendall Fells, organizing director of Fast Food Forward, about Thursday's planned strike in the video above. 

"Workers in the fast food industry are living in poverty," says Fells. The average wage for fast food workers in the U.S. is just over $9 an hour, which is equivalent to about $19,000 a year. That's below the official poverty line of $19,790 for a family of three.

Regardless of which side you're on, $15 an hour isn't going to happen without a collective-bargaining requirement that currently doesn't exist, or legislation mandating it. The former approach would have such business resistance it'll be practically impossible to achieve anytime soon, and the amount in question might be too high for even elected officials who support a minimum-wage hike. Democratic proposals at the national level have outlined raising the minimum wage to $10.10 in a series of increments. President Obama supports this rate, which would be 39% above today's $7.25 nationwide minimum for most workers. So while this is clearly well below the $15 worker groups want, it's also unquestionably more realistic.

Local issue?

It's at least conceivable that more-expensive states with liberally minded population centers, such as New York or San Francisco, would be open to substantial raises, though many business owners will be far less thrilled than their fellow residents. At the moment, San Francisco requires at least $10.74 an hour, and a recent published report said many in the city would be glad to see it go even higher. Some proposals have called for tying minimum wage increases to inflation, and there are states that already have minimums above the federal level, including Vermont, which just raised its base to $10.50, a rate that would take effect by 2018.

A few notable Republicans, including Mitt Romney, are also backing an increase in the country's minimum rate. As with plenty of things, a bipartisan solution that takes all sides into account would be ideal. On their own, most businesses aren't going to implement raises of more than 100% simply because workers demand it, especially those that have to answer to holders of public stock. There are exceptions, of course. Chipotle (CMG) says most of its workers earn above the U.S. minimum, but it also serves a pricier meal than a lot of chains. Meanwhile, a Michigan burger- and chicken-shop owner began paying $15 to new workers last fall, arguing that, among other things, it would keep staff turnover down and employee satisfaction up.

But for the most part, restaurant operators wouldn't readily opt for $15-an-hour wages for jobs that are fairly easy to learn and perform. Last year McDonald's (MCD), which owns about 20% of its 35,000 restaurants globally, paid out $4.82 billion in salaries and benefits, totaling 25.5% of the revenue brought in by the stores it operates. At Wendy's (WEN), another franchisor of most of its locations, labor was almost 30% of revenue. (Worker pay at the franchises is determined by each owner, not at the corporate level.)

In comparison, Chipotle, which owns all its restaurants, spent an amount equal to 23% of its revenue on pay in 2013. As of Dec. 31, it had 41,600 hourly workers and labor costs of $739.8 million. This will illustrate the impact of $10.10 an hour vs. $15. Assume each of those workers  some are part time, but this is an example  recorded 2,000 hours over the course of a year. At an average of $10.10, labor expenses are $840.3 million. Raising the hourly wage to a $15 average boosts payroll costs to $1.25 billion, or almost 39% of revenue. With that scenario, keeping last year's revenue of $3.21 billion and other costs unchanged, Chipotle's income from operations would drop from the $532.8 million it reported down to $24.5 million.

If, instead, half the employees worked 2,000 hours at $15, and the remaining 50% put in 1,000 hours, labor expenses would equate to $936 million, a $196 million increase from last year. Chipotle's management and the company's shareholders might be perfectly fine with this. But it probably wouldn't transpire. If $15 were to become required by law, executives likely would do one or a few things  lower hours worked per employee, try to cut some other expenses, raise menu prices or turn to technology when possible to replace human jobs.

Future food

Until we have fully automated restaurants, some number of workers will be needed to prepare food, fix orders that aren't correct, clean the store, answer questions about menu items and serve tables. But technology is impacting the restaurant roles in more ways, whether that's ordering through tablets at Buffalo Wild Wings (BWLD), kiosks at Panera Bread (PNRA) or pay-by-app from Burger King (BKW).

For now, we have only educated guesses as to how much automation will take over for people and what it will mean, but there is likely to be some impact, even as the number of American restaurants continues to close in on 1 million. Still, even with growing use of technology, new positions arise with every store that opens. So some existing jobs will be repurposed, for instance, with cashiers learning to serve as cooks or as servers, as is the case with Panera.

There's another potential factor as well, and this one is all about "awareness." Much like the ever-greater interest in knowing what's in our food and where it's coming from, it's not unreasonable to expect a portion of consumers will make their purchasing decisions based on their views toward fair worker pay  provided they can afford what might be higher prices.

-- Bernice Napach contributed to this piece.

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