Why the Franchise Industry Can’t Solve the U.S. Wage Problem

As Posted by Ed Teixeira in BluMauMau


Raising the minimum wage in certain industries won’t change the economic realities of what’s causing the problem. Upon announcing the ruling by the New York State Wage Board recommending an increase in the NY State minimum wage to $15 an hour for fast food workers, Governor Andrew Cuomo stated that “A family of four can’t live on $18,000 a year.” It would be difficult to challenge that statement whether one lives in New York or North Dakota. The problem is that the cost to raise a family of four in the United States costs a great deal more than the Governors number. In fact the poverty threshold published by the Federal Government for a family of four is $24,250, which is a 40% increase over the $18,000 figure. Expecting the fast food industry to support that size increase is pure folly plus it misses the point. The fundamental problem surrounding the minimum wage issue is rooted in two key areas borne out by the Bureau of Labor Statistics:

1.         The U.S. has seen a substantial loss of manufacturing jobs, that has been accompanied by a shift to a more service based economy.

2.         The smallest disparity between the highest paid and lowest paid workers is in the Accommodation and Food Services Sector, which supports the premise that these jobs by their very nature are low paying.

According to the BLS, employment in manufacturing has declined steadily over the 1990-2013 period. By the mid-1990s, retail trade had become the leading employer in a number of states, and health care and social assistance was emerging as the largest employer in a few. Health care and social assistance became the largest industry in New York State in 1992 and in North Dakota in 1995. This map from the BLS details the shift from manufacturing to other jobs in the 1990 to 2013 period. It’s dramatic to see the changes that have taken place.

In terms of wage gaps, the Information industry has the largest wage gap from highest to lowest. The highest paid 10 percent of workers in the information industry earned nearly 6 times as much as the lowest paid 10 percent, with a 90-10 ratio of 5.8. The Information sector includes several smaller industries: publishing, broadcasting, telecommunications, data processing, and motion picture and sound recording. Finance and insurance, management of companies and enterprises, and professional, scientific, and technical services all had 90-10 wage ratios above 5.0 in May 2014.Accommodation and food services had a 90-10 wage ratio of 2.1.This means the difference in pay between the highest and lowest paid workers was smallest in this industry. Retail trade and agriculture, forestry, fishing and hunting both had 90-10 ratios below 3.0 in May 2014. This table from the BLS points this out in vivid detail.

The underlying reason why there is increased income disparity in the U.S. is due to a lack of manufacturing jobs, a shift to service/technology and an increase in unskilled workers, many of whom work in the hospitality and food service sector. Looking to franchise chains, especially the fast food sector to solve the problem or correct the cause is an exercise in futility.