Source of a fast-food worker wage increase is uncertain

NEW YORK — American fast-food workers often earn about $7.25 an hour to make the $3 chicken sandwiches and 99-cent tacos that generate billions of dollars in profit each year for McDonald's and other chains.

Thousands of the nation's many millions of fast-food workers and their supporters have been staging protests across the country in the past year 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.

The industry is built on a business model that keeps costs — including those for labor — low so companies can make money while satisfying America's love of cheap, fast food. And no group along the food chain, from the customers to the companies, wants to foot the bill for higher wages for workers.

Caught in that triangle are the workers. The median hourly wage for a fast-food cook last year was $9, up from about $7 a decade ago, according to the Bureau of Labor Statistics.

But many workers make the federal minimum wage, which was last raised in 2009. At $7.25 an hour, that's about $15,000 a year, assuming a 40-hour workweek. It's well less than half of the median salary of an American worker.

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.

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 the FactSet research firm.

And that compares with earnings of 4 cents for every dollar of revenue made by discount retailers Walmart and Target, which also have come under fire for not paying workers enough.

Still, publicly traded companies are under pressure from shareholders and creditors to maintain or improve profits; even a slight change from quarter to quarter can send stock prices moving in either direction.

The customers and workers

Although many Americans say they support higher wages for workers, the reality is that people flock to the cheapest meals, which cut into profits. It's why fast-food chains have been stepping up deals and promotions in the weak economy.

If prices went up noticeably at McDonald's, for example, 23-year-old Eugene Santos said he would probably find someplace else to eat.

"That's probably one of the reasons why it's a quick stop for a lot of people," said Santos, a self-employed resident of Providence, R.I. They enjoy the convenience and affordability."


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