The Chess Match: Employees vs. Companies in the Fast Food Industry

An immediate 25% wage hike for one subset of one industry will inevitably create confusion in the marketplace.

Unions are playing checkers, while companies are playing chess.

Last week, a new union called "The California Fast Food Workers Union" was formed by hundreds of fast-food workers in California. This union will be affiliated with the Service Employees International Union, behind the Fight for $15 campaign to raise the minimum wage.

However, this is terrible news for employees. If you don't believe me, please continue reading. I have experience in this area as a policymaker and academic.

Union workers want more money, and companies want to reduce costs.

Historically, unions have focused on short-term gains, while companies tend to make long-term plans.

Employees have various reasons for joining the union, including the desire to have a voice and representation in the workplace, the satisfaction of securing a union job, and the expectation of receiving retirement benefits and healthcare coverage for themselves and their families. On the other hand, companies want to use automation primarily to reduce costs.

With the break-even point for investing in automation now reached, more and more companies are turning to automation to replace line workers. This trend has been observed among fast-food chains such as McDonald's, Burger King, Carl's Jr, and Jack-in-the-Box.

Unfortunately, history has shown that labor tends to lose out in the face of economic realities.

Union leaders don't think long-term.

Joseph Bryant, the executive vice president of the Service Employees International Union, believes that the recent changes made in the fast food industry in California can serve as a model for workers all around the country. He hopes this will give employees a voice to advocate for better wages and working standards.

However, it seems that Bryant may have overlooked the fact that the Department of Labor already guarantees the three main priorities he identified for union employees: a 3.5% increase in the minimum wage, protection against being fired without a valid reason, and rules to ensure that workers are scheduled enough hours to sustain themselves financially.

This suggests that Bryant may focus too much on short-term gains rather than long-term solutions. Even if Bryant is correct in his worker demands, what about consumers?

Unions don't care about consumers, only employees.

Good for workers, how about consumers?

Some people argue that the issue of consumer versus worker is irrelevant, but let's take a closer look at the facts.

In California, where the minimum wage for workers is set to go up to $20 an hour in April, fast-food burgers and fries are about to become more expensive. For every $1 increase in wages, restaurants have to raise prices by 2% without any other offsets. California already has some of the highest prices for burgers and pizza in the United States, and this increase in the minimum wage is likely to drive prices even higher.

We have seen an increase in prices in California, including the Big Mac combo, which costs nearly $18 now.

According to Fat Brands chairman Andy Wiederhorn, businesses will always pay the cost to consumers, no matter what unions do. Wiederhorn wants his employees to earn more, but the problem is how to pay for the increase because restaurant operators don't have enough margin. Therefore, prices are going to go up.

Wiederhorn explains the economic formula for consumers and union leaders to understand. A restaurant operator typically makes between 5% to 15% of the total cost. If labor cost is one-third of the overall cost, which is 30%, and the wages are raised from $15 to $20 or $25 over the next couple of years, the cost almost doubles.

The only solution for businesses is to raise prices to compensate for the increased labor cost.

The end of the fast food era.

I wouldn't buy food at McDonald's for that price; it's not worth it. Buying and cooking a steak home would be cheaper, tastier, and better.

Gone are the days when fast food was fast and cheap. Fast food was popular because it was quick and affordable; now, it is neither. Fast food is expensive; most consumers won't pay for it.

This trend of increasing fast food prices hurts everyone but will help improve our country's health. Finally, people will be forced to eat better food at home. I want employees to make more money, but I want to address this issue by creating programs that train employees to improve their skills and get better-paying jobs.

Those jobs are typically intended for high school students and laborers with limited education and are inappropriate for those seeking a long-term career. The quality of food served at fast food restaurants does not always reflect the prices being charged, and now it seems that the prices are increasing again.

Perhaps it is time to consider saying goodbye to these fast-food restaurants or work on creating a better solution.

Create programs to improve employees' skills.

Compensation is usually correlated with individuals' value to the job market.

Fast food jobs are typically considered entry-level positions intended to serve as stepping stones rather than long-term career choices. Therefore, if workers want to increase their income, they must enhance their skills and value proposition.

A strategic approach would be implementing training programs tailored to upgrade their expertise and marketability. By investing in self-improvement and gaining valuable skills, individuals can position themselves for higher-paying opportunities, which fosters personal growth and economic empowerment.

Suppose unions truly want to help their employees and members. In that case, they should collaborate with local and national leaders to develop programs to help prepare their members to enhance their skills and increase their value in the job market.

This way, they can earn more money and improve their standard of living.

Pay equity is a real problem in this country.

Pay equity is most important in our society, as disparities exist across various sectors. I am aware of the statistics, and they are concerning.

I acknowledge that CEOs are earning more money than ever before. I believe this issue can be tackled by establishing performance metrics incentivizing front-line employees and executives to achieve their targets. Additionally, providing adequate training opportunities for front-line employees to move up to higher positions and avoid being stuck in entry-level jobs forever is crucial.

As mentioned above, policies targeting education, skills development, and job training should be implemented first to empower workers to access higher-paying positions across all industries. It reduces workers' dependence on minimum-wage jobs.

By addressing the root causes of wage inequality, we can bring about meaningful change that benefits workers and businesses.

Proceed with caution.

The data presented above shows that the country should be cautious moving forward.

While it is important to address pay equity and advocate for workers' rights, the current approach being taken by the fast food industry may not deliver the most effective solutions to these problems.

Achieving a balance between the needs of employees, businesses, and consumers necessitates a comprehensive strategy that prioritizes long-term sustainability and equitable outcomes for all concerned parties.

How would you solve the problem?