Posts Tagged ‘Fast-Food Franchises’

Why franchisees should organize

March 19, 2014

I’ve written about low wages and poor working conditions at fast-food restaurant chains, but the fact is that a humane business owner who is a franchisee may not be in a position to treat employees humanely.

Franchisers of fast-food restaurants impose strict controls on franchisees, including the prices that they charge.

So if McDonald’s (to take a hypothetical example) says the price of a double cheeseburger is a dollar, and it costs more than a dollar to make the double cheeseburger, the “owner” of the individual McDonald’s restaurant loses money.

I put “owner” in scare quotes because a franchisee does not have the self-determination of a true owner.  Under a truly independent business owner, the franchisee is not free to raise or lower prices in response to supply and demand.

The effect of unionization of fast-food workers or a higher minimum wage will be to squeeze franchisees while the effects on franchisers at the top of the economic food chain will be minor and indirect.

The answer, as Martin Longman wrote in the Washington Monthly, is for franchisees to unionize to protect their own interests.   As Longman pointed out, franchisees typically pay thousands of dollars just for the right to the franchise, basic business decisions such as prices are made for them, and they often have to buy basic supplies from suppliers designated by the franchiser.  They are in much the same situation as sharecroppers in the Old South in an earlier era, and have just as little ownership rights.

Everybody who is in a position to be squeezed by giant corporations — employee, franchisees, suppliers — has a right to organize collectively to equalize the bargaining power.   It is not in the interest of franchisees and suppliers to be shock absorbers between these giant corporations and the workers who make their profits possible.

If franchisees organize, their organization would of course not be called a “union” [1].  It would be called an “association” or “federation” or something like that.  But the purpose would be the same.

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Overcoming the Iron Law of Wages

September 4, 2013

EPI-low-wage-workers-reality-8-28-2013-2-54-01.pngOne of the arguments against raising the minimum wage is that employers won’t hire people if the wage is higher than the value of the employee’s work.

Obviously this principle is true.  In fact, an employer will not hire someone unless the wage is less than the value of the employee’s work to the employer.  Otherwise the employer would make no profit.

Under conditions of economic competition, there is pressure to keep wages as low as possible.  This is especially true for franchise and subcontract businesses, when the franchisers and the buyers have the economic power to squeeze their profit margins as low as possible.

Workers have no power, as separate individuals, to prevent wages from being forced down to subsistence level.   There’s a name for this process, the Iron Law of Wages, which was formulated by the economist David Ricardo 300 years ago.

The reason that, contrary to Ricardo, wages have risen over the century is that sometimes skilled workers are scarce and command a higher wage,  sometimes workers have been able to organize unions and bargain collectively, and sometimes governments have set minimum wages to limit how far wages can be pushed down.

Certain libertarians and free-market theorists oppose a role for government or even for labor unions.  They say wages should be negotiated between free individuals.  When an individual business owner is hiring an individual worker, that may make sense.

When a worker is up against a powerful collective organization, such as a corporation, then the worker needs something to equalize bargaining power.   And in the case of fast-food franchises, workers are not up against the individual business owners.  They are up against the corporations that set the terms for the franchisees.   A higher federal minimum wage would change the equation.

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