The PJ Tatler

Did McDonald's Cave in to Union Pressure or is this the Free Market at Work?

McDonald’s Corporation has announced that it will be raising the minimum wage it pays employees as of July 1. The increase involves at least a $1-an-hour raise from the local minimum wage for corporate-owned restaurants around the country. The wage increase doesn’t apply to restaurants that are owned by franchisees. Approximately 90% of McDonald’s employees will not be getting any wage increase as they work for franchisee-owned McDonald’s.

Other mega-corporations are also raising their wages. Companies like Wal-Mart will be raising wages to $10 starting next year. The Wall Street Journal reports the raise “reflects wider public pressures over income inequality as well as intensifying competition for low-skilled workers.”

The increase doesn’t apply to employees of franchisees, which operate nearly 90% of the 14,350 U.S. McDonald’s stores—a fact critics seized on. But it applies to some 90,000 workers at all levels of experience and rank at company-owned restaurants and it will lift the average hourly rate to $9.90 on July 1 and more than $10 by the end of 2016, from $9.01 currently.

Steve Easterbrook, the Chief Executive officer, said the raise was in response to employee feedback and an attempt to revive sales. “Motivated teams deliver better customer service,” he said in an interview, “and delivering better customer service in our restaurants is clearly going to be a vital part of our turnaround.”

But McDonald’s has been the target of a vicious campaign by labor groups to pressure them raise wages to $15 an hour.

Writes the New York Times, “McDonald’s has been under fire for some time from labor groups fighting for a base wage of $15 an hour. Employees and their supporters have held one-day rallies outside restaurants. The Service Employees International Union has been spending millions in a campaign to organize McDonald’s employees and others to press for higher wages, and it plans to hold an array of protest rallies across the country on April 15.”

But some experts say McDonald’s had to raise wages to compete with other business that are raising their wages.

Several large companies that have direct contact with consumers have raised wages over the last year, including Walmart, the TJX Companies and Ikea. There was a risk that McDonald’s could lose its better employees to other companies that compete for low-wage workers. Many of its franchisees face similar challenges, which could ultimately lead to broader wage gains at other McDonald’s fast-food outlets.

“McDonald’s said that one of the reasons they’re doing this is because of competitiveness, and there’s no reason why their franchisees wouldn’t be feeling that same competitive pressure,” said Mark Kalinowski, an investment analyst who follows McDonald’s at Janney Montgomery Scott.