We all have definitive opinions on the feasibility of a $15 minimum wage in the United States. What few - if any of us - have are facts. Too often arguments that boil down to nothing more than "you can" or "you just can't" are allowed to pass for reasonable discussion on the issue. I think we need to dig deeper.
McDonald's is an iconic American restaurant. It's hip to dislike it, but its appeal remains enduring and global in scope. McDonald's now makes more money abroad than it does at home. It is, unwittingly, one of the great ambassadors of American culture. Surveys in the past have found that the McDonald's logo is more recognizable to the average person than the cross. The golden arches loom large in our collective conscious.
It's not surprising, then, that McDonald's has found itself at forefront of the battle over minimum wage. Though the company itself has remained relatively mum on the issue, its labor practices remain the subject of protest and considerable public scrutiny. And why shouldn't that be the case? The company - one of America's top employers - commonly starts new employees at or near minimum wage, and raises are minimal and scant.
There is a popularly held belief that McDonald's can't afford to pay its workers more. At least, not without significantly raising the cost of its food. With the McDouble surging to over a dollar in price in some markets, that's undoubtedly a grave concern for the typical consumer. A $2 McDouble could very well put some Americans on an unwelcome diet.
To test the the veracity of the claim that McDonald's can't afford to substantially raise wages without significantly raising the cost of its food, I decided to first look at the company's profits.
Turns out McDonald's typically rakes in well over a billion dollars per quarter. That's about $5 to $6 billion in net income per year - needless to say, a lot of money. The company, however, hands back much of that money to stockholders in the form of dividends and stock buybacks. It's a well-greased machine designed to benefit investors, not low level workers. McDonald's has increased its dividend every year since 1976, and spends around a quarter of a billion on advertising each quarter.
Now let's say the minimum wage is raised to $15 an hour. Mind you, I think that's a bit high. Even if we adjust the minimum wage of the 1950s and 1960s and for inflation, $15 an hour in 2014 would still represent the highest minimum wage in American history. So we'll consider this a worst case scenario for McDonald's.
McDonald's has roughly 450,000 American workers, according to USA Today. Let's assume 400,000 of those workers actually take orders and make food, and that the average hourly wage for those employees is $8, which is line with industry estimates for the company. Your typical fast food worker nets about 24 hours a week, but I'll play nice and assume McDonald's schedules its workers for 28 hours a week on average. That sets us up nicely for the following (rounded) calculations:
400,000 workers X $7 additional wages = $2.8 million. $2.8 million X 28 hours = $78.4 million. $78.4 million X 52 weeks = $4.076 billion.
That's what I call a raise! Right?
It's clear from the numbers that a $15 minimum wage would force McDonald's to divert nearly all of its profits from stockholders to American employees. Dividends would have to be reduced or eliminated. Strategic price increases, cuts to the company's advertising budget, and decreased job training costs and increased sales from improved service could possibly help offset increased wages. That's all highly variable, of course.
So while it's technically feasible for McDonald's to pay $15 an hour in America, doing so would require a massive restructuring of how the company is run and would hamstring the company's ability to raise wages in other countries. A $12 minimum wage - more in line with historic minimum wages - would cost the company a little over $3 billion and would be more manageable. A $10 minimum wage could likely be stomached by the company with only minor restructuring.
In conclusion: Yes, McDonald's CAN likely afford to pay its employees $15 an hour, though it would be extremely painful for the company in the short term. Investors would be furious, though companies like Google have successfully managed to avoid paying dividends on stock for years.
At any rate, looking at the numbers, you can't be surprised that workers are testing their bargaining power. Talk that a $15 minimum wage would induce companies like McDonald's to replace human employees with robots or machines remains, for the time, just talk. But if such claims aren't merely a bluff or a product of wishful thinking, a $15 minimum wage could have an unintended but very important consequence, encouraging automation at a hitherto unseen scale. It would represent a major economic revolution.
Bring on our automated overlords, I say!