Debunking the Heritage Foundation’s New Minimum Wage Myths One by One

The Heritage Foundation released a new Issue Brief this week: “Higher Fast-Food Wages: Higher Fast Food Prices”. Author James Sherk claims that if the minimum wage in the fast-food industry were to increase to $15 an hour, “the average fast-food restaurant would have to raise prices by nearly two-fifths … caus[ing] sales to drop by more than one-third, and profits to fall by more than three-quarters.”

While the Heritage Foundation attempts to present a mathematically and logically correct depiction of the aftermath of a minimum-wage increase, they fail to acknowledge one fundamentally important fact: the increase will be gradual, occurring over a period of years. Even without considering the report’s many other flaws, the Heritage Foundation’s assumption of a sudden jump in the minimum wage from its current level of $7.25 to $15 is unrealistic.

As Vanessa Wong highlights in “This is What Would Happen if Fast-Food Workers Got Raises”, there are two distinct types of outlets: “those run by the company, and those operated by independent franchisees who set their own wages and pay royalties to the chain.” Thus, Heritage Foundation hastily categorized all fast-food restaurants as one, not even considering the elephant in the room: the corporations such as McDonald’s that charge each branch high franchising fees.

So, how much are these small franchisees paying the mother-ship corporations? According to Robert E. Bond’s “How Much Can I Make?” the franchise fee, royalties, and advertising for a typical McDonald’s is $45,000, +12.5%, and 4%. For a doughnut shop like Dunkin’ Donuts, the fees are even higher, with a franchise fee of $50,000.

If Heritage’s figures are correct, these fast-food restaurants have a profit margin of just 3 percent before taxes, which “works out to approximately $27,000 a year.”  Thus, the franchise fee and royalties are way too high — those profits go directly to, in this case, McDonald’s, which  operates at a profit margin of 19.31% as of June 30, 2014.

McDonald’s and other large fast-food companies have successfully shrugged off responsibility for the welfare of its workers by making the franchisees responsible. The low-wage jobs — and the cost of these salaries — are offloaded on the franchisees, while the corporations maintain their guaranteed profits, and relative profit margins from quarter to quarter.

Raising the minimum wage — even if only to $10.10, not to the living wage level of $15 an hour — is an economic imperative. Heritage believes that fast-food restaurants still offer “entry level jobs,” and “generally employ younger and less-experienced workers”.

Fast-food restaurants used to be a place for “entry level employees” — teens and young adults, sometimes still in school, newly entering the workforce. The recession drastically changed the dynamic. Today, at fast-food restaurants, we see the faces of older workers on the other side of the counter. Many are parents who rely on their full-time fast-food jobs to support themselves and their families. Instead of providing a “first work experience”, fast-food jobs are now a primary  source of income for older, experienced workers.

The problem, once again, is corporations. Individual fast-food restaurants should not be the only battlefront in the fight for livable wages. We should demand that the mother-ship fast-food corporations let go of their greed, and lower their franchise fees and annual royalties.

The Heritage Foundation points its finger in the wrong direction: the responsibility for providing minimum wage fast-food workers with a livable wage falls on the corporations.

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