Sanders Calls for $15 Wage at McDonald’s, but Can the Company Maintain Profits?

October 5, 2018 by Douglas A. McIntyre

Senator Bernie Sanders wants McDonald’s Corp. (NYSE: MCD) to raise its minimum wage to $15, just as has done. McDonald’s may make a decision to buckle to the senator’s pressure, which will erode its bottom line. And that could affect both shareholder value and the number of people McDonald’s can afford to employ. It would benefit workers but also could trigger some negative consequences for them.

In a letter to McDonald’s CEO Steve Easterbrook, Sanders wrote:

If McDonald’s raised the minimum wage to $15 an hour and respected the constitutional rights of your workers to form a union, it would set an example for the entire fast food industry to follow.

McDonald’s responded that it has advanced training programs and a tuition compensation plan. McDonald’s current wage package promises it will pay $1 an hour higher than the local minimum wage, which in some places is only $12.

But what can McDonald’s afford without a sharp erosion of its margins? The company had revenue of $5.5 billion in the most recently reported quarter and net income of $1.5 billion. In the U.S. region, which is the one that would be affected, revenue for the period was $2 billion. A $2 an hour wage increase across 50,000 workers could cost the company $100 million a year. McDonald’s does not include data on how many minimum wage workers it has in the United States.

Typically, companies with squeezed margins do one of two things to improve them. The first is to raise prices. McDonald’s is in cutthroat business as it competes with a small army of fast-food companies, so price increases are unlikely to be possible. The second is to lay off staff. Whether McDonald’s can afford to run its stores with fewer people is open to question.

And if wage increases hurt the McDonald’s bottom line, it will pay a price with shareholders, which includes many of its workers. A $15 dollar an hour wage may be critical to keep workers above the poverty line, but it is not without trade-off.

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