3 ms·

Bloomberg ran a nice piece on what it's like to own a McDonald's franchise here [1]. The raw numbers sound nice - $2.7 million gross, $1.8 million in gross prof

by rjf72 7y ago

Bloomberg ran a nice piece on what it's like to own a McDonald's franchise here [1]. The raw numbers sound nice - $2.7 million gross, $1.8 million in gross profit. But after your various expenses come into play, the honeymoon ends - you end up taking home about $150k for a mountain of work that's required to keep a franchise running in good shape. You're buying a job. The reason this matters is because those numbers are is pretty representative of many regular businesses; well outside 'our' world of VC driven mutual lotteries. You're taking home $150k yourself, but you're paying $540k in crew (non-managerial) payroll. And many of these guys are at or near minimum wage. Increase their wages just 30% (and going from $7.25 to $15 is a > 100% increase) would cost you $162k. And now you're losing money. And McDonalds are pretty primo in terms of profit. Life's often much harder for for the countless no-name businesses out there. It's the really counter intuitive nature of business. A company can make millions, yet have owner(s) that are, out of necessity, living relatively modestly. So imagine your labor costs skyrocket. What do you do? You really don't have any options. You increase prices or you go out of business. This seems likely to have a paradoxical effect. It means company with large profit margins are fine, but you squeeze the very low profit margin companies. And the low profit margins companies tend to have low profit margins because they're providing products at extremely cost to cost. E.g. company selling $50 steaks = no problem. Company selling $1 tacos = problem. So the very businesses who are doing to their most to cater to lower income people end up being the most negatively affected. Of course now their customers can afford to pay more, but that's precisely the definition of a reduction in a purchasing power per dollar. [1] - https://www.bloomberg.com/features/2015-mcdonalds-franchises/ https://www.bloomberg.com/features/2015-mcdonalds-franchises...

clairity 7y ago
you make it sound so bad to own a mcd's franchise, but most people would be ecstatic at the chance. $150k roughly puts you in the top 10% by individual income. most people are quite happy working hard for that amount of money. and raising prices as a result would be fine since other minimum wage earners (i.e., customers) would now have more money to spend on fast food. (estimating based on your numbers, prices would have to increase about 10%)
- gwright 7y ago
  > and raising prices as a result would be fine since other minimum wage earners (i.e., customers) would now have more money to spend on fast food. (estimating based on your numbers, prices would have to increase about 10%) And what about the customers that aren't minimum wage earners and don't have more money to spend? And what about the formally minimum wage workers who no longer have a job or have fewer hours (reduced total wages) because the business cut head count and/or reduced hours? Just because the minimum wage is increased doesn't mean that it makes business sense to keep the same headcount/hours at the increased wage.
  - clairity 7y ago
    what small business owner really wastes money by carrying extra headcount though? if the business could have cut headcount before and still have done all the work needed, they would have done that already regardless of a change in minimum wage. small businesses just don't generally carry extra overhead the way a larger organization does.
    - gwright 7y ago
      I think you are simplifying things quite a bit. For example, a grocery store might have minimum wage workers who help bag groceries to provide a better service to their customers. If the minimum wage goes up, then the store might decide to eliminate that service. My local Dairy Queen, for example, might decide that two people getting paid $15/hour will just have to do instead of three people getting paid $10/hour. Maybe that isn't for all shifts/times, but just on the margins. And of course it isn't just the lowest paid workers that are affected by this. Let's say there are two tiers of jobs at a particular business. One that pays $15/hour and one that is $10/hour. If the lowest tier must be paid $15, what happens to those workers at the next tier of $15/hour? Either their pay must be increased or they are going to be unhappy about having more responsibilities/skills for the same pay as the person that was just hired. Alternatively new hires will have little incentive to work harder to fill the next tier (since they won't get paid any more). So wages for the positions just above minimum wage also have to go up increasing total payroll costs. IMHO, Anyone who thinks that hourly wages can be increased by 50% ($10 to $15, for example), without having a significant impact on any business that depends on low-skilled labor isn't thinking very deeply about this sort of change. I'm being generous also since the federal change is almost a 100% increase.
rightbyte 7y ago
If the minimum wage increased fast food joints would, as you note, just have to raise their prices. There is McDonalds in Norway and Switzerland too. I find it quite disturbing that McDonalds prices are about the same in SF as else where. There is no way that is working out for the employees. If people want to live there they would have to be prepared to pay not just for their own housing ... Of course, some businesses would not be profitable at raised prices.
- gwright 7y ago
  > Of course, some businesses would not be profitable at raised prices. It is hard to tell from your comment, but you see that as a problem, right? I agree that some people will benefit from an increased federal minimum wage, but I don't understand how the negative aspects can be dismissed: * some people will be unemployable at $15/hour * some business models will be unworkable at $15/hour * some people will lose jobs as headcount is reduced * some people will lose jobs as businesses fail * some businesses will be less profitable * $15/hour ignores geographic cost of living differences * consumers will pay more for good/services In a free market, all these competing problems are resolved through millions of independent decisions by business owners, employees, and consumers for their particular situation. The idea that a bunch of politicians have magically come upon a single hourly wage that is optimal for all these situations is just non-sensical to me.
  - rightbyte 7y ago
    Ye, it's a problem if businesses fail. For both the owners and the formerly employed employees. And I think the concerns you present are valid. Where I live now (Denmark) there are not even any minimum wage. So having one is probably not really important. Any large coorparation that would pay "too low" would be blocked by unions. Small companies can pay whatever. In practice a minimum wage is like a really crappy government worker union. It's some protection against usary but the worst usary is not legal businesses anyway.
- PatentlyDC123 7y ago
  I agree you have a point regarding geographical fluctuations, but perhaps prices in SF might be limited somewhat by the franchise agreement?
NotSammyHagar 7y ago
Raise prices then. Wages are usually said to be a lesser part of the cost of a restaurant. Raise prices 10%. The gross goes up $270k, give yourself 20k more, give your employees 250k more. They get a 50% raise, that will make people want to work for you. My hamburger costs $3.30 instead of $3. In Seattle the restaurant industry said it was going to be all doom and gloom when they raised wages incrementally to $15/hour. Restaurants open and close all the time. There were a few that claimed they closed because of wages. Plenty of other restaurants succeed just fine, some put a small specific charge on the bill for this living wage instead of just raising prices. It didn't make much difference.
- rjf72 7y ago
  You can't ignore economics here. When you raise prices, sales tend to decrease. This sounds peculiar because it seems difficult to imagine that somebody would be "Okay, I will pay $3 for my burger, but $3.30? Oh no way." But of course if this did not happen then you'd see an annual 10% inflation on just about everything. This is compounded further because people buying cheap food tend to be buying it precisely because it's cheap, so they're generally going to be more responsive to price changes than the general population. There are also various cost increases that go along with higher wages such as increased payroll taxes and higher supply side costs as your suppliers also see their labor costs increase. I think the biggest issue here is determining results. Did the wage increase work, or not? The problem is that you can create compelling hindsight arguments showing either argument. And indeed there are now numerous studies that all show different results. None are lying, they're just prioritizing and organizing data in different ways. The problem is this introduces bias. If you want to show it was a good idea, you can. If you want to show it was a bad idea, you can. More needs to be done in terms of formal predictive hypotheses published ahead of time, rather than compiling data after the fact. In other words invite a large balance of both critics and proponents of minimum wage increases. Have these individuals come to a supermajority consensus on exactly what the goals would be in increasing the minimum wage and how the success or failure to meet these goals could be measured. And make the entire process completely visible and transparent. This, actually putting ideas to critical and impartial tests, would also hamstring demagoguery or accusations of such.

by rjf72 7y ago

clairity 7y ago

you make it sound so bad to own a mcd's franchise, but most people would be ecstatic at the chance. $150k roughly puts you in the top 10% by individual income. most people are quite happy working hard for that amount of money. and raising prices as a result would be fine since other minimum wage earners (i.e., customers) would now have more money to spend on fast food. (estimating based on your numbers, prices would have to increase about 10%)

gwright 7y ago
> and raising prices as a result would be fine since other minimum wage earners (i.e., customers) would now have more money to spend on fast food. (estimating based on your numbers, prices would have to increase about 10%) And what about the customers that aren't minimum wage earners and don't have more money to spend? And what about the formally minimum wage workers who no longer have a job or have fewer hours (reduced total wages) because the business cut head count and/or reduced hours? Just because the minimum wage is increased doesn't mean that it makes business sense to keep the same headcount/hours at the increased wage.
- clairity 7y ago
  what small business owner really wastes money by carrying extra headcount though? if the business could have cut headcount before and still have done all the work needed, they would have done that already regardless of a change in minimum wage. small businesses just don't generally carry extra overhead the way a larger organization does.
  - gwright 7y ago
    I think you are simplifying things quite a bit. For example, a grocery store might have minimum wage workers who help bag groceries to provide a better service to their customers. If the minimum wage goes up, then the store might decide to eliminate that service. My local Dairy Queen, for example, might decide that two people getting paid $15/hour will just have to do instead of three people getting paid $10/hour. Maybe that isn't for all shifts/times, but just on the margins. And of course it isn't just the lowest paid workers that are affected by this. Let's say there are two tiers of jobs at a particular business. One that pays $15/hour and one that is $10/hour. If the lowest tier must be paid $15, what happens to those workers at the next tier of $15/hour? Either their pay must be increased or they are going to be unhappy about having more responsibilities/skills for the same pay as the person that was just hired. Alternatively new hires will have little incentive to work harder to fill the next tier (since they won't get paid any more). So wages for the positions just above minimum wage also have to go up increasing total payroll costs. IMHO, Anyone who thinks that hourly wages can be increased by 50% ($10 to $15, for example), without having a significant impact on any business that depends on low-skilled labor isn't thinking very deeply about this sort of change. I'm being generous also since the federal change is almost a 100% increase.

rightbyte 7y ago

If the minimum wage increased fast food joints would, as you note, just have to raise their prices. There is McDonalds in Norway and Switzerland too. I find it quite disturbing that McDonalds prices are about the same in SF as else where. There is no way that is working out for the employees. If people want to live there they would have to be prepared to pay not just for their own housing ... Of course, some businesses would not be profitable at raised prices.

gwright 7y ago
> Of course, some businesses would not be profitable at raised prices. It is hard to tell from your comment, but you see that as a problem, right? I agree that some people will benefit from an increased federal minimum wage, but I don't understand how the negative aspects can be dismissed: * some people will be unemployable at $15/hour * some business models will be unworkable at $15/hour * some people will lose jobs as headcount is reduced * some people will lose jobs as businesses fail * some businesses will be less profitable * $15/hour ignores geographic cost of living differences * consumers will pay more for good/services In a free market, all these competing problems are resolved through millions of independent decisions by business owners, employees, and consumers for their particular situation. The idea that a bunch of politicians have magically come upon a single hourly wage that is optimal for all these situations is just non-sensical to me.
- rightbyte 7y ago
  Ye, it's a problem if businesses fail. For both the owners and the formerly employed employees. And I think the concerns you present are valid. Where I live now (Denmark) there are not even any minimum wage. So having one is probably not really important. Any large coorparation that would pay "too low" would be blocked by unions. Small companies can pay whatever. In practice a minimum wage is like a really crappy government worker union. It's some protection against usary but the worst usary is not legal businesses anyway.
PatentlyDC123 7y ago
I agree you have a point regarding geographical fluctuations, but perhaps prices in SF might be limited somewhat by the franchise agreement?

NotSammyHagar 7y ago

Raise prices then. Wages are usually said to be a lesser part of the cost of a restaurant. Raise prices 10%. The gross goes up $270k, give yourself 20k more, give your employees 250k more. They get a 50% raise, that will make people want to work for you. My hamburger costs $3.30 instead of $3. In Seattle the restaurant industry said it was going to be all doom and gloom when they raised wages incrementally to $15/hour. Restaurants open and close all the time. There were a few that claimed they closed because of wages. Plenty of other restaurants succeed just fine, some put a small specific charge on the bill for this living wage instead of just raising prices. It didn't make much difference.

rjf72 7y ago
You can't ignore economics here. When you raise prices, sales tend to decrease. This sounds peculiar because it seems difficult to imagine that somebody would be "Okay, I will pay $3 for my burger, but $3.30? Oh no way." But of course if this did not happen then you'd see an annual 10% inflation on just about everything. This is compounded further because people buying cheap food tend to be buying it precisely because it's cheap, so they're generally going to be more responsive to price changes than the general population. There are also various cost increases that go along with higher wages such as increased payroll taxes and higher supply side costs as your suppliers also see their labor costs increase. I think the biggest issue here is determining results. Did the wage increase work, or not? The problem is that you can create compelling hindsight arguments showing either argument. And indeed there are now numerous studies that all show different results. None are lying, they're just prioritizing and organizing data in different ways. The problem is this introduces bias. If you want to show it was a good idea, you can. If you want to show it was a bad idea, you can. More needs to be done in terms of formal predictive hypotheses published ahead of time, rather than compiling data after the fact. In other words invite a large balance of both critics and proponents of minimum wage increases. Have these individuals come to a supermajority consensus on exactly what the goals would be in increasing the minimum wage and how the success or failure to meet these goals could be measured. And make the entire process completely visible and transparent. This, actually putting ideas to critical and impartial tests, would also hamstring demagoguery or accusations of such.