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.