September 1, 2013

Workers' protests highlight fast-food economics

The Associated Press

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Protesting fast-food workers fill a McDonald's restaurant on New York's Fifth Avenue last Thursday. Thousands of fast-food workers and their supporters have been staging protests across the country 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.

AP

Nearly 70 percent of the jobs gained since the recession ended have been in low-paying industries such as fast-food or retail. That's even though half of the jobs lost during the Great Recession were in industries that pay between $38,000 and $68,000 a year.

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.

The tilt toward low-wage jobs is what makes it so critical for fast-food and retail jobs to provide better pay, says Robert Reich, an advocate for workers who served as Labor Secretary in the Clinton administration. "It's impossible for the economy to run on all four cylinders unless consumers have enough purchasing power to keep the economy going," he said.

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

THE FRANCHISEES

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 or try to avoid paying overtime, some franchisees and union organizers say.

Not that some franchisees don't pay workers more.

Aslam Khan, chief executive of Falcon Holdings, which owns 165 Church's Chicken and 44 Long John Silver's locations, says his employees start at between $8 and $8.50 an hour. To keep the best, experienced workers, he pays $10 to $13 per hour.

He recognizes that's still not much. "These days the whole family has to work to support the family. In order to put bread on the table, you have to do whatever," he said.

Over the past three years, Khan said that his profit margins have declined from 5 percent to  1 percent as food and other costs have climbed and menu prices remained flat.

THE COMPANIES

Many labor groups point to the profits of the fast-food companies – and the pay packages of their CEOs – when trying to assign blame for low wages for workers.

Last year, the five big publicly traded fast-food companies together earned 16 cents in profit for every dollar of revenue. That's 73 percent better than the average big U.S. company, according to FactSet research firm. And that compares with earnings of 4 cents for every dollar of revenue made by discount retailers Wal-Mart and Target, which also have come under fire for not paying workers enough.

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