There’s been a lot of talk circulating about raising the minimum wage to something around $13 an hour. I’ve heard that companies like McDonalds can afford to pay their workers that much. I decided to dig into some numbers to see if that was even possible, I found out that it wasn’t.
I don’t often source my work but for this article all my sources can be found at the bottom. Keep in mind this is a philosophy website, while these numbers are as accurate as their sources, the point of this article is to change the way you think about raising minimum wage.
In 2013 McDonalds had 1.8 million employees. In order to comply with a minimum wage increase to $13, McDonalds would have to fire a lot of these employees, even if it gave away all of its profits for that year directly to employees.
With a $13 minimum wage, McDonalds would have to reduce it’s employees to approximately 1,277,038 or fire about 523,000 employees to break even with $13 minimum wage. While doing that it would have to maintain it’s current output, locations, and revenue with about 30% less workers which is probably impossible.
Update:
Some people didn’t like the averaging system because it took into account part-time workers and workers of McDonalds in other countries. For those people that think they deserve more money than others for the exact same job just because you’re an American, shame on you, but here’s new calculations just for you.
There are about 860,000 Full Time US Workers that average 35 hours a week. They make about $7.84 an hour on average costing McDonalds 12.27 billion dollars in labor. Assuming we only want to raise the minimum wage for full time employees we can then add the entire 5.59 billion dollars to it giving us a total of 17.86 billion that we can now distribute to the 860,000 full time US workers only.
This would allow a wage increase to $11.87 per hour for a full time employee that gets 2 weeks of vacation and works 35 hours a week. At this hourly wage, McDonalds breaks even and does not return a profit to any shareholders (lots of angry investors now).
Raising the minimum wage to $13 an hour would cost McDonalds (860,000 employees * 35 hours * 50 weeks in a year * $13 an hour) or 19.565 billion dollars which is 1.705 billion dollars beyond profit.
McDonalds would have to fire (1.705 billion / 22750 average yearly employee cost) approximately 74945 of it’s full time US employees to break even which is a reduction of about 8.7% of its work force.
So there you have it, 8.7% employee reduction or about 75000 full time employees for $13 an hour minimum wage based on 2013 annual financials for McDonalds.
Keep in mind McDonalds is owned by thousands and thousands of people, not some rich evil person. Some of you own McDonalds that support minimum wage hikes to $13 an hour. You should be warned that McDonalds is only returning 5.9% on its market cap. Taking up anymore of its profits will eventually hurt the value of the company making your retirement portfolios and investments go down which will could cause a selling frenzy and significant reduction in holdings value.
So how did I reach the number 500,000?
Currently McDonalds pays an average of $7.73 per worker or $16,078.40 per year. This amounts to a total pool of (16078 * 1,800,000) or $28,940,400,000 (28.94 billion dollars) that it currently pays to its 1.8 million employees.
The total profits of McDonalds after all expenses was 5,590,000,000 (5.59 billion dollars) for 2013.
By adding all of the profits to the current pool (28.94 billion plus 5.59 billion) we end up with a total available pool that COULD be paid to employees of about 34.53 billion dollars.
Let’s pretend we keep all 1.8 million employees and want to pay them $13 an hour or (13 an hour*40 hours a week *52 weeks in a year) is $27,040 a year. This would amount to a total employee cost of (1.8 million workers * $27,040 per year) $48,672,000,000 or about 48.672 billion dollars.
Paying over 48 billion dollars a year to employees puts McDonalds at a severe loss of about 14 billion dollars a year which would collapse the company within only a few years.
In order to pay workers a wage of $13 an hour McDonalds would have to reduce it’s employees to about 1,277,038, a cut of 523,000 employees. (1,277,038 employees * $27,040) = 34,531,107,520 or about $34.53 billion dollars which is the current money paid to employees plus all of its profits.
The maximum wage McDonalds could pay its 1.8 million workers on average is approximately $9.22 using all of it’s profits. (34.53 billion divided by 1.8 million employees)
But What About The Shareholders and Investors?
Shareholders invest in a company and expect a return just like you expect a return on your 401k or retirement plan, in fact, some of you might have a mutual fund that includes companies like McDonalds in it.
If McDonalds stopped returning profits to investors and shareholders their stock price would fall and so would their retirement plan. People would stop investing and the company would have cash shortages.
The typical investor is happy to see a 6-10% increase every year in their stock portfolio. The current market cap of McDonalds at the time of this writing is almost exactly 100 billion dollars. If McDonalds profits 5.9 billion dollars a year, what type of return is that?
Easy math, thats a return of 5.9%.
The average return on the entire stock market since its inception is roughly 8%. A return of 5.9% is far below investor expectations and far below the market average, making McDonalds an iffy investment already. The only thing McDonalds has going for them is their stability.
Increasing minimum wage will cut into an already struggling return for its investors and cause the company cash shortages.
Conclusion
Sorry about all the math but I wanted to use real numbers and explain my calculation the best I could so that people understand the impact of raising the minimum wage. It’s great you think people should be paid more, and it’s easy to blame major corporations for employee struggles, instead of the actual employees themselves, but suggesting a minimum wage hike is insane.
It will result in a lot of job loss which leads to more unemployment which leads to more state and government assistance which leads to increased burden on the taxpayers which leads to more tax hikes which leads to even less jobs and the cycle goes on. We’ve already lost enough jobs from the previous wage hikes.
The bottom line is that this is America. It’s not a jobs job to pay your bills, it’s your job. You live in a land of infinite opportunity where you can make as much as you want. Everyone has access to education whether it’s self-improvement or an actual college. We can improve ourselves and we can climb the corporate ladder.
Raising minimum wage only makes sense to those who plan to stay at the bottom of the ladder instead of climbing and bettering themselves.
What kind of life is worth living when you’re stuck at the bottom by your own doing?
Sources:
http://en.wikipedia.org/wiki/McDonald’s (total employees for 2013)
http://www.huffingtonpost.com/2013/12/10/mcdonalds-hourly-pay_n_4414538.html (average wage paid to an employee of McDonalds)
http://www.marketwatch.com/investing/stock/mcd/financials (2013 profits and expenses)
http://www.marketwatch.com/investing/stock/mcd (current mcdonalds stock prices and market cap)
http://247wallst.com/jobs/2013/07/31/the-wage-hike-to-15-would-cost-mcdonalds-8-billion/ – (average hours worked per week)
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