McDonald’s CEO Claims Technology Will Replace $15 Minimum Wage Workers

The former president and CEO of McDonald’s USA insists that the $15 minimum wage will kill thousands of entry-level fast-food jobs when employers implement self-service touchscreen kiosks to reduce headcount and payroll.

Although the federal minimum hourly wage is still $7.25, several states and municipalities have “supersized” it to $15 in their jurisdictions, which equals to about $31,000 for a full-time worker, although many don’t work full time.

In a recent guest article for Forbes, Ed Rensi, the ex-McDonald’s exec, provided what he described as the “ugly truth” about the $15 minimum wage, that in his view will ultimately will be self-defeating for jobseekers who might lack other employment options.

McDonald’s as a corporate entity will be fine, but the workers whose jobs will be wiped out, not so much, he suggested.

Contrary to perceptions, most McDonald’s franchise restaurants are owned by independent operators, who are only able to “keep roughly six cents of each sales dollar after paying for food, staff costs, rent and other expenses” and that a $15 minimum hourly wage for employees could consume three-quarters to 100 percent of the store profits, according to Rensi’s math.

That’s where technology comes in play, he continued.

“Instead, franchisees can absorb the cost with a change that customers don’t mind: The substitution of a self-service computer kiosk for a full-service employee. In higher-cost European countries, these kiosks are already the norm. In 2011, the company ordered more than 7,000 of them to replace entry-level employees. They’ve been tested successfully in a number of markets in the U.S., and now the company is even testing self-serve McCafe kiosks where a customer can prepare and customize their own coffee beverage.”

Rensi also questioned the underlying motivations of labor unions and living wage activists in their nationwide push to increase the minimum wage.

“I suspect that the labor organizers behind this campaign for a $15 minimum wage are less interested in helping employees, and more interested in helping themselves to dues money from their paycheck. They’re unlikely to succeed in their goal of organizing the employees of McDonald’s franchisees, but they may well succeed in passing $15 into law in other sympathetic locales. You’ll see their legacy every time you visit the Golden Arches, where ‘would you like fries with that’ is a button on a computer screen rather than a phrase spoken by an employee in their first job.”

“About 30 percent of the restaurant industry’s costs come from salaries, so burger-flipping robots — or at least super-fast ovens that expedite the process — become that much more cost-competitive if the current federal minimum wage of $7.25 an hour is doubled…. The labor-saving technology that has so far been rolled out most extensively — kiosk and tablet-based ordering — could be used to replace cashiers and the part of the wait staff’s job that involves taking orders and bringing checks,” the Washington Post detailed.

Parenthetically, the Wendy’s hamburger chain going with self-service kiosks later this year for its 6,000 outlets. “It will be up to franchisees whether to deploy the labor-saving technology, but Wendy’s President Todd Penegor did note that some franchise locations have been raising prices to offset wage hikes, ” Investor’s Business Daily noted.

In a response to Ed Renzi’s commentary, Oximity argues, however, that the McDonald’s Corporation could share some of the huge franchise fees that it collects from each store to subsidize a pay increase for workers, plus raising the price of a Big Mac by a nominal $0.17.

“McDonald’s USA could surely share some of the reported $9 billion in profits it received last year from these fees when distributing the increased labor cost across the nation. In fact, sharing the cost between consumer and corporation could easily take the entire burden off the franchise.”

The economics analysis firm Sentier Research has put forth a calculation that Americans haven’t received a pay raise in about 16 years, the New York Post reported. Both Hillary and Bill Clinton have mentioned this statistic on the campaign trail.

On board with the Fight for $15 movement, Bernie Sanders has introduced a bill to raise the federal minimum wage to $15. Donald Trump supports minimum wage reform but says that says that the minimum wage hike should be left up to each state to decide rather than federally mandated. Hillary Clinton’s position has shifted, but she apparently now supports a $15 national minimum wage that contains some escape clauses.

No one would likely dispute that hardworking individuals in all sectors of the economy deserve to make more money, and some employers may be taking advantage of the situation.

Regardless of what side of the debate you find yourself, a government-imposed hourly minimum wage rate (assuming such intervention by regulators into the private sector still makes sense in the first place), whether set at $15, $10.10, or at another arbitrary benchmark was originally designed as an entry-level pay grade rather than an endpoint.

In the normal course of things (and maybe now there is an inapplicable new normal), minimum wage employees — and this generally applies to younger workers — pick up work experience, new skills, and get promoted to higher-paying positions or land at another company that offers better opportunities.

On the other hand, in contemporary society, many would agree that hourly pay needs to be high enough, for example, to incentivize some portion of the population to get off public assistance and permanently enter the workforce.

Moreover, while some unethical or unfair businesses in a variety of industries exploit their hard-working labor force with artificially low pay, some free-market-oriented observers have asserted that a one-size-fits-all minimum wage fails to distinguish between employers who operate in good faith (and may be struggling to keep their doors open) and those that do not.

Do you think that increasing the minimum wage will result in an accompanying decrease in employment as the McDonald’s executive contends?

[Photo by Joe Raedle/Getty Images]