Minimum Wage: Dooming the American Worker

by Jeff D. Opdyke
The Sovereign Investor

We begin today with some McDonald’s math.

We do so because of recent votes to raise the minimum wage to $15 per hour in California and New York. It is a boneheaded idea. It shows the degree to which labor and its political supporters do not understand simple economics nor the knock-on effects a radically higher minimum wage has on the very people it’s supposed to help.

But first the math…

The service sector runs on thin profit margins. Consider that a typical McDonald’s generates about $2.5 million a year in sales, and labor costs eat up roughly 20% of that, according to a San Diego consultant who has worked with Mickey D’s franchisees. Subtract all the other costs — utilities, food commodities, rent, insurance, etc. — and those franchisees typically see a net profit of about 6% when all is said and done.

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