Fast-food and the Risk to Jobs

Fast-food and the Risk to Jobs

A recent Washington Post article [Caitlin Dewey, “For fast-food franchises, price cuts hard to digest” WP 12-29-17] describes the problems corporate franchisers like Subway and McDonalds cause their franchise holders by declaring promotional discounts on key parts of their menu. Discounts please the board of directors who want more revenue but squeeze the profits out of franchisees that face rising costs.

From 2015 to 2016 jobs at food services and drinking places increased by 367.9 thousand jobs as reported by the U.S. Bureau of Labor Statistics. Full service restaurants and fast food restaurants had a combined 309 thousand new jobs, which were split almost evenly between them. Except for a slight pause during the 2008-2010 recession these jobs have increased every year since 1990. Full service restaurants have 5.4 million jobs; limited service fast food 4.3 million jobs. That would be consistent with the article’s citation from the U.S. Department of Agriculture data reporting 18 thousand new fast food restaurants between 2009 and 2014.

There was no mention of the risk to the economy if restaurant and fast food expansion comes to a halt. Those 367.9 thousand new jobs I mentioned above make up just under 15 percent of the country’s new jobs for the year.

The fast-food industry fusses about wage costs going up over the last ten years, 2006-2016, and higher minimum wages in 29 states, but occupational employment survey data shows modest increases. The hourly median wage for fast food cooks (#35-2011) over the same 10 year period increased from $7.41 to $9.55 and hour. If the 2006 wage of $7.41 increased at exactly the rate of inflation until 2016 it would be $8.82 an hour instead of $9.55. Fast food cooks got an annual average of 2.57 percent increase in wages when the inflation rate was 1.76 percent a year. The modest increase in buying power from 2006 to 2016 applies to the median wage, which may not be the starting wage in an industry with a high turnover rate.

Looking at the state files I find only one state, Washington, with a median wage for fast food cooks more than $12 an hour, which represents 1 percent of national employment of fast food cooks.

Three states Hawaii, Massachusetts and North Dakota have a median wage for fast food cooks more than $11 an hour and less than $12 and hour, which represents 2.1 percent of fast food cooks.

Five states with Alaska, California, DC, Oregon and Vermont have a median wage for fast food cooks more than $10 an hour and less than $11. California has 19.8 percent of nationwide fast food cooks with a median wage of $10.54 an hour.

Twenty-five states pay more than $9 and less than $10, which is 40.8 percent of nationwide jobs for fast food cooks; the remaining 17 states pay less than $9 an hour, which is 31.4 percent of the national jobs for fast food cooks.

The WP article reports that year over year sales at fast food restaurants and fast-casual chains have fallen dramatically over the past two years, suggesting saturation levels of new chains and franchisees. Rather than have price cutting promotions they might consider raising prices. Remember price cuts can only increase revenue if sales increase by a larger percentage than the price decrease, no guarantee in market filled with new competition.

During the ten years from 2006 to 2016 the number of fast food cooks declined from 612 thousand to 513 thousand in 2016, helping to increase the surplus of labor for low wage jobs. The news media likes to report on job growth and lately about a shortage of jobs without mention that so many new jobs have low wages, especially in fast food. The fast food industry could change that given those higher wages franchisees now have to pay. Instead of helping to contribute new jobs in low wage occupations, the fast food industry may not generate new jobs at all.