[Dion]

Why don’t greedy companies pay their employees higher salaries?

Oped piece for information puroposes

Today we are going to discuss the issue of “why don’t greedy companies pay their employees higher salaries?” I have been hearing this a lot lately, both in my personal interactions and in the media. So, bear with me why I try to explain this issue in the simplest terms possible. I am struck that surprisingly few people understand the basics of how businesses work, so I will be trying to do a little educatin’.

I have started several small businesses. I have also worked in a corporation where I had to hire and fire people. So, I have first-hand knowledge of how small businesses work and how large corporations work.

So, why does McDonald’s pay such a low wage? People can’t live on $7.25/hour, right?

Well, the first point is that many people at McDonald’s are in high school or college or are just starting out their careers. So, relatively few of them are actually “living on” $7.25/hour. Many of them probably still live at home or in dorms rooms. They are doing what all employees are doing. They are renting their time (which is valuable but less valuable because they have relatively few skills) for money, which is also valuable.

But let’s say that there is an employee at McDonald’s who is trying to maintain a family on his own. How is it “fair” that he or she is making so little money?

The first point to understand is that most McDonald’s are franchises. This means they are actually not owned by the huge corporation McDonald’s but instead are owned by small business people. What they do is they pay McDonalds a franchise fee and either buy an existing McDonalds or build a new one. The McDonalds corporation charges a monthly fee to these franchise owners.

Starting a McDonald’s franchise is expensive. A good rule of thumb is that you probably want to have at least $100k cash to start the business, and perhaps a lot more if you are building a new McDonalds. And there is no guarantee you will be successful. As anybody who has driven around town knows, there are all kinds of fast-food competitors. As anybody who has started a business knows, you could spend money opening the restaurant and not be successful and lose all of your money.

So, the franchise owners expect a return on their investment. They didn’t invest $100k so they could spend the rest of their lives making $20k/year. They invested the money (and took the risk) so they could make a good living.

Could these franchise owners pay their employees more?

Sometimes yes, but again you need to consider the fact that many of them took out loans to come up with the $100k franchise fee. If they don’t pay their loans, they will lose their business. In addition, franchise owners have their own families and their own bills to pay.

So, let’s say a kind-hearted franchise owner pays his employees $15/hour because he believes nobody can live on $7.25/hour. There are probably some franchise owners who do this, but most of them don’t. He may think it is a wise business decision: perhaps you get better, more productive employees who don’t steal as much.

But let’s say all of the other fast food restaurants in town keep wages low. What happens when the economy goes south? What happens when people stop eating at McDonald’s and start eating at In N Out? The franchise owner must either 1)fire people 2)cut wages or 3)go out of business.

The reality is that small business people who stay in business are always worried about such eventualities. It simply does not make sense to pay people much more than what the market will bear. You are taking a risk that you may lose your business and all of the money and time that you have invested.

https://www.millennialstar.org/why-d...gher-salaries/