It’s one of the largest restaurant chains in the world. Some workers are now demanding $15/hour pay. What would that mean for McDonald’s if they succeed?
Taking to the streets today will be thousands of activists and employees of large restaurant chains such as McDonald’s and Burger King demanding those companies pay a minimum of $15 per hour wages. Should the protests succeed, it could have far-reaching effects on the fast food giants, particularly McDonald’s.
The firestorm earlier this summer when McDonald’s, in partnership with Visa, released a guide titled “The Practical Money Skills Budget Journal”. Many took quick note of the guide’s “Sample Monthly Budget” which had entries for both first and second jobs totaling $2,060 per month. Assuming the two jobs together amounted to 60 hours per week, the hourly wages in that example would be $7.63. The national minimum wage in the United States is $7.25. As well, assuming this sample budget was for a family of four, the estimated income of $2,060 per month is just $97.50 shy of federal poverty guidelines.
Other assumptions in McDonald’s “Budget Journal” include health insurance costs of $20 per month. McDonald’s offers employees health plans for its employees but that’s at around $14 per week (about $63 per month). Its higher-end health plan costs about $140 per month.
After the “Budget Journal” was released, it quickly circulated on the internet and galvanized some to take action. However, protests for higher wages at places like McDonald’s were in motion months before, with a rally occurring in New York this past November. Besides higher wages, protesters are also demanding the right of McDonald’s employees to unionize.
This morning, McDonald’s responded, saying:
“The story promoted by the individuals organizing these events does not provide an accurate picture of what it means to work at McDonald's. We respect the strong relationship which exists among McDonald's, our independent operators, and the employees who work in McDonald's restaurants. Our restaurants remain open, with our dedicated employees providing strong service to our customers.
“McDonald's aims to offer competitive pay and benefits to our employees. We provide training and professional development for all of those who wish to take advantage of those opportunities. Our history is full of examples of individuals who worked their first job with McDonald's and went on to successful careers both within and outside of McDonald's.”
With 1.8 million employees worldwide, McDonald’s is one of the top employers on the planet behind Wal-Mart, the Chinese People’s Liberation Army, and the US Department of Defense. In the United States alone, they employ 760,000 people. It is believed that one in every eight Americans has worked at McDonald’s at one time or another.
Minimum wages is a key issue for one demographic – the young. According to the US Department of Labor’s Bureau of Labor Statistics, 3.6 million Americans work at or below $7.25 per hour (this population includes those exempt from minimum wages and many of those paid on a non-hourly basis). About 60% or so of all people working for minimum wages or less are working in food services. Half of all people earning minimum or below are 25 years old or less.
At the end of 2012, payroll and employee benefits were $4.7 billion for the company worldwide. That comes out to $2,616 per employee, which reminds us that not everyone works at McDonald’s full-time and the company also follows a franchise model. A third of McDonald’s revenues come from franchised restaurants. [As an aside, if all 760,000 American McDonald’s employees were to work full-time at minimum wage directly for the company and not with franchisees, McDonald’s US payroll would be $11 billion given a 50 week work-year.]
So, what would higher wage costs mean for McDonald’s as a whole? And is McDonald’s an affordable stock?
Looking at McDonald's fundamentals is CNBC contributor Gina Sanchez, founder of Chantico Global. On the charts is fellow contributor Todd Gordon, founder of TradingAnalysis.com.
Watch the video above to hear where Sanchez and Gordon think McDonald’s is headed next.