The 27.9 million small businesses in this country are run by people no different than you and I. Many of these businesses are run by owners who put in well over 40 hours per week. Many aren’t millionaires. Most are making a profit of less than $50,000 per yr. The state of New York has enacted a $15/hour minimum wage for the fast food industry. It is causing quite a stir but for the wrong reason.
A 50% wage increase by the stroke of a pen?
#1. Franchisee Enslavement
Many opponents of minimum wage increases say it will increase prices. These critics are right and wrong. Unfortunately, of 770,000 franchisees many don’t set their prices. National headquarters tell them how much to charge. McDonalds requires operators to keep prices consistent as that is essential to the consistency of the brand. For example, a McDonalds franchisee can’t sell drinks for $1 more tomorrow than today. Instead, New York business owners will have to petition McDonalds corporate for approval.
McDonalds and Burger King Owners Can’t Afford it
#2. Franchisee Owners Don’t Make Enough
While McDonalds and Burger King are quite reputable companies and hold a tremendous value of real estate, their stores are susceptible to closing. The U.S. Bureau of Labor Statistics reports the average fast food franchisee makes just $47,000 per year. Assuming a store open has four employees and open 90 hours per week, a minimum wage increase from $10/hour to $15/hour represents $7,780 in extra monthly payroll expenses. Immediately, one signature of the New York governor can put the average franchisee on the road to bankruptcy.
#3. Companies are Fleeing
Some owners will be fearful of losing customers to raised prices and will have their salaries take a hit. The effect? Owners will be less likely to open new franchises. Some will even shut their doors and pursue other opportunities where they don’t need to comply with the higher minimum wage. The mass exodus of companies from California to Texas shows the frustration of business owners.
-Last year, more than twice as many Californians moved to Texas than vice versa.
-Farmer Bros., Toyota, and Chevron all have made the move in the past five years.
-Texas has edged out California as having the headquarters of more fortune 500 companies.