Ed Rensi, former president and CEO of McDonald’s USA and CEO of Famous Dave’s of America. (Courtesy of the author)
Last week, the Fight for $15 took its grievances to the annual McDonald’s shareholder meeting in Oak Brook, Illinois. The union-backed campaign has been petitioning McDonald’s and other restaurant businesses to embrace a $15 minimum wage for years now.
But a $15 hourly wage would threaten entry-level career opportunities for people who need them the most—ironically, many of the same entry-level workers picketing restaurant businesses now.
Most restaurant businesses—including McDonald’s and Famous Dave’s of America—are run by individual franchisees who by and large operate independently of corporate headquarters. These franchises are faced with slim profit margins, with business expenses like staff and rent offsetting a large chunk of revenues from sales. As such, franchisees are ill-prepared to pay their employees more for the same work if they hope to keep hiring new people and expand their business. A $15 hourly wage would effectively make employees more expensive without increasing revenue, eating away at the profits job creators need to stay afloat.
To offset higher labor costs, these job creators would be faced with a few undesirable options: Raise prices, cut back on staff, or switch to automation (and perhaps all of the above). The last option is increasingly popular. For example, McDonald’s now has self-service kiosks in about 600 U.S. locations and that number is expected to increase to roughly 1,000 by the end of 2016.
The real tragedy here is that more machines mean fewer employees acquiring the tools they need to succeed. Entry-level work at restaurant businesses is meant to teach once-inexperienced employees the skills they need to move up the career ladder.
Consider the composition of the entry-level workforce. In 2015, more than 78 million workers age 16 or older were paid at hourly rates—almost 60 percent of the workforce. Among them, roughly 870,000 employees earned exactly $7.25 an hour—the federal entry-level wage. That comes out to about 1.1 percent of hourly workers and a fraction of one percent of all wage and salary workers in the country. Employees under the age of 25 made up about half of that workforce in 2015, confirming that an entry-level wage is really a training wage for those on the first rung of the career ladder.
I used to be one of them. I joined McDonald’s in 1966 as a part-time manager trainee, manning the grill, packaging menu items for hungry customers, and earning 85 cents an hour. After learning on the job, I was promoted to restaurant manager within a year and later became a regional manager and vice president. Eventually, I was named president of McDonald’s USA in 1984—after nearly two decades working for the company.
But if McDonald’s had been inundated with burdensome wage mandates in my youth, I might not have even been given the opportunity to get my foot in the door. That is now a grim reality for entry-level employees in places like California and New York—where job creators are forced to bear a higher entry-level wage.
The chance at upward mobility is the enduring value of entry-level opportunity. Over four million U.S. workers are employed at “limited service” restaurants such as McDonald’s and Famous Dave’s. Even more are yearning for their first taste of the professional world.
We should help them find it—not crush their dreams with bad government policy.
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