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Wendy's, McDonald's, Denny's in Worker's Wages Dispute Spotlight

Last quarter, for instance, McDonald's (MCD - Get Report) labor costs for company owned restaurants were 25.7%% of sales. For Wendy's (WEN - Get Report), labor costs were 29.1% of sales last quarter; for Denny's 40.1%. While it's not clear what the exact impact of $15 per hour wages would be, suffice it to say that it would be significant, and any resulting cost increases would be passed on to customers who hold the keys here. Either they will pay more for a burger and fries, or they won't.
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The unfortunate thing is that many fast food employees have few other choices these days with the job market still in a terrible state. The organizations pushing for the $15 per hour wage are doing these workers a disservice because they ignore how free-markets work. While some fast food workers may be worth $15 an hour, those that can't produce at that level might find themselves unemployed if the demands are met. Setting an arbitrary price for hourly wages without regard to the level of skill each worker brings to the table would have unintended consequences, namely higher unemployment. The increased menu prices that would result would keep more customers at home, lowering the need for labor. You can't force consumers to patronize restaurants.

It is certainly the fast food workers' prerogative to go on strike in order to better their circumstances. But this is not the time to be demanding double wages. If the economy was booming, and labor markets were tighter, wages would rise naturally as there would be greater competition for labor. But not in this tepid economy.
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If you've been to Wendy's lately, you can easily drop $8 for a combo meal that includes my current favorite fast food burger, the pretzel bacon cheeseburger. That's expensive enough and I'm not sure how many consumers would be willing to pay $10 for the same meal.

Restaurant: Impossible!

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.
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