Last quarter, for instance, McDonald's (MCD) labor costs for company owned restaurants were 25.7%% of sales. For Wendy's (WEN), 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.
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.
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. Follow @JonMHellerCFA This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
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