(Crain’s) — When Barack Obama and his fellow Democrats take power in Washington, D.C., restaurant operators are expecting them to push a minimum-wage hike and a union-friendly right-to-organize law — moves that could change the playing field for McDonald’s Corp. and others in the food industry.
Mr. Obama wants to boost the federal minimum wage to $9.50 an hour by 2011, up from $7.25 an hour in 2009. The president-elect also supports the proposed Employee Free Choice Act, which would make it easier for workers to unionize by eliminating secret ballots and requiring only a majority of a company’s employees to sign authorization cards.
“Both of these issues are critical to restaurants,” says Joni Doolin, founder of People Report, a Texas company that tracks employment issues in the food-service industry. She says higher wages will affect mom-and-pop restaurants as well as large chains such as Oak Brook-based McDonald’s. Restaurants will pass increased labor costs on to consumers by raising menu prices, Ms. Doolin predicts.
The National Restaurant Assn. opposes raising the minimum wage, which has gone to $6.55 this year from $5.15 in 2006, and is scheduled to rise to $7.25 in July.
The association in June conducted a survey of 1,300 members in 18 states that found that 58% raised menu prices and 41% reduced employee hours because of the higher minimum wages.
Joe Sabia, an assistant professor of public policy at American University in Washington, D.C., says that a 10% increase in minimum wage reduces retail employment by 1%, and reduces employment among young workers by 3.4%.
“Obama’s proposal would raise the federal minimum wage by over 30%, causing even greater job loss at a time when our economy can least afford it,” Mr. Sabia contends.
Not all economists agree.
Bob Bruno, an associate professor of labor and industrial relations at the University of Illinois at Chicago, says many studies show that increasing the minimum wage doesn’t decrease jobs. Higher wages for lower-income people encourages spending, which helps stimulate the economy and restaurant sales, he says.
That view is backed by says Bob Goldin, an executive vice-president of Chicago-based food industry consultancy Technomic Inc.
“It’s a good thing for the industry because the people are grossly underpaid,” Mr. Goldin says. “But in the end of the day consumers will have to pay more.”
Employee Free Choice Act
Mr. Goldin says boosting wages also could help the restaurant industry avoid unionization.
With the exception of Las Vegas, unions’ presence in the restaurant workforce has declined to the point of non-existence in the past few decades, Ms. Doolin of the People Report notes.
That could change with the Employee Free Choice Act, legislation that passed in the U.S. House in 2007 but stalled in the Senate. The bill has been supported by many Democrats, including Mr. Obama.
Ms. Doolin says the restaurant industry would be difficult to unionize because the average turnover rate is 150% a year. But she contends that large chains such as McDonald’s could become unionization targets.
McDonald’s CEO James Skinner told analysts in an October conference call that its employees couldn’t form a single union under the proposed legislation. That’s because more than 80% of McDonald’s restaurants are franchises, which employees would have to unionize one at a time.
McDonald’s declined to comment.
UIC’s Mr. Bruno says the Employee Free Choice Act would shift power to employees in labor relations and could lead local restaurant and hotel employees to form a citywide union that could barter for higher wages.
The National Restaurant Assn. opposes the legislation. It contends that secret ballots protect workers from coercion by union representatives and employees.
The act “would have a significant impact on the service industry and in particular the restaurant industry,” says Dennis Lombardi, a restaurant consultant based in Ohio who opposes such legislation.
