Wages stall as fast-food corporations squeeze franchisees

by: Michelle Millman Updated:


SEATTLE - Martina Phelps doesn't mind her tight living quarters -- at least for now.

“There's me, my sister, my cousin and my sister's daughter in this room,” Phelps said. “It's not really that bad, living in a room with them. But why would I want to live in a room with three girls for the rest of my life?”

In all, Martina and seven relatives live in a two-bedroom, one-bathroom apartment in South Seattle.

She works at McDonald's and makes $9.32 an hour.

“A regular check is like $576,” Phelps said. “To some people it may seem like a lot, it's almost a thousand-something dollars every month, but when you have bills to pay, you have responsibilities to take care of. Once you do all that, it's gone.”

Martina supports a higher minimum wage for one reason: “We work our butts off so you can have a clean restaurant and good food to eat.”

It's estimated your local McDonald's grosses $2.6 million a year. Wendy's grosses nearly $1.5 million in revenue and Burger King about $1.2 million.  Despite that, industry expert Sam Oches believes a $15 minimum wage will lead to job losses and higher prices.

“On a broad perspective, considering traditional fast-food chains like McDonald’s, Wendy's or Burger King, I don't think $15 is feasible as a minimum wage,” Oches said.

Oches is the editor of QSR Magazine, a trade publication.  He said franchisees can't afford across-the-board minimum wage increases.

“Profit margins in the fast-food industry are very small. This is an industry that has relied on discounts and sales for years,” he said.

Meanwhile, corporate revenue has increased. Reports suggest McDonald's franchisees' profits are being increasingly squeezed by the company.

McDonald's HQ owns most properties McDonald's restaurants are built on; in turn, franchisees pay rent to headquarters.

According to Bloomberg, McDonald's has increased rent and royalty costs 8 percent in the last five years.

Rent alone is estimated to have increased from an average of $213,000 to $300,000 a year.

In Olympia, Washington McDonald's franchisees are lobbying lawmakers against wage hikes.

They sent out a packet of information to legislators pointing out their businesses pay $20.1 million in taxes each year.

Yet researchers find taxpayers fill the gap when fast-food workers earn meager wages.

“I'm eligible for free Medicaid,” said Phelps. And she is far from alone.

In Washington, fast-food workers and their families receiving Medicaid, the Earned Income Tax Credit and food stamps cost taxpayers $96 million a year, according to researchers at UC Berkley and the University of Illinois.

Nationwide, it adds up to $7 billion a year.

Martina said even some of her managers are on food stamps, so she doesn't see much of a future with McDonald's.

“I love my co-workers, I love my boss, everything, but a $400 check, every two weeks? It’s not anything to make me want to grow in your company,” she said.

Many industry experts believe workers won't see higher wages unless fast-food companies reduce franchise fees.

No franchisee would agree to a sit-down interview for this story.

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