McDonald’s, Amazon to raise wages
On Thursday morning, McDonald’s announced that it would be raising the minimum wage for all workers across its U.S. restaurants. Meanwhile, e-commerce giant Amazon said new hires will be paid an average of more than $17 an hour. Julie Hyman, Brian Sozzi, and Myles Udland break down what this could mean for the companies as they continue to search for new talent.
Video Transcript
JULIE HYMAN: Important news on the labor front this morning. A couple of big companies raising wages and hiring people. McDonald's and Amazon, both of them making some comments this morning, talking about hiring and raising wages. In the case of McDonald's, they're talking about more than 36,000 crew and managers are going to get a 10% average increase to their hourly wages. [INAUDIBLE] affects company-owned restaurants for now, so it's a small ish minority of the overall restaurant.
And then Amazon as well is talking about hiring 75,000 people, average starting pay there over 17 bucks per hour. And there are sign-on bonuses of up to 1,000. Myles, this is squarely in line with what we have been talking about that, you know, you seem to have this jobs and worker mismatch going on. And companies are really working hard to try and fix that.
MYLES UDLAND: Yeah, I mean, look, it couldn't be a clearer example of supply and demand and sort of how all the pure market folks want the economy to work. We continue to see competition for labor, especially at the lower end of the wage scale. And why is there such a demand for labor? Well, one, supply, sure, is constrained a bit by what's been happening with the unemployment situation and enhanced benefits that folks have received.
But when companies like McDonalds and Amazon are not talking about short-term wages, but a permanently higher wage rate that they are willing to pay for their workers, that is a very clear response to demand that they are seeing from their customers. And so, I mean, again, a preview of the Morning Brief for tomorrow, folks. We've written it three times already this week, and we're going to write it again. Every story in the economy right now, Sozzi, comes back to demand being robust, a complete reversal from how we came out of the last crisis.
BRIAN SOZZI: I will-- I just want to drill into McDonald's here for a second. Because this is a very important announcement not just for McDonald's, I would say for the country. You know that, Myles, what, McDonald's has 1.5 million workers in the country. This is a big development and reflective. It comes on the heels of what Chipotle announced, their starting minimum wage, $15 an hour. That's where they are moving to. An average McDonald's worker starting, you're making about $8.50 an hour. You can't even live on that.
But if you're an investor in McDonald's, you see this news and you have to wonder, now, are the franchisees going to raise hourly wages at their stores? And Julie mentioned it. About 90-- more than 95%, I believe, of McDonald's restaurants are, in fact, franchisees. It could be one person, independent operator that owns one restaurant or a handful of restaurants. Now they're looking at a significant increase in wages. And how could they offset those wages?
I just don't think McDonald's has the type of pricing power to raise prices on its menu enough to offset this increase in wages. Chipotle could. They serve you more food. They have good ingredients, they have better ingredients. I'm not sure McDonald's could do this to offset these wage increases. And it may come at the expense of the bottom line here in the next couple of quarters.
MYLES UDLAND: Yeah, and I think another important piece of context for folks is that when you hear things like small business owners are getting squeezed, a lot of the small business lobby is made up of people who own a couple of McDonald's franchises. And yes, they own a small business in terms of how many folks they employ, but to your point, Sozzi, about the franchise and HQ tension, I think is clearly just beginning, given how popular that model has become and given the way that HQ has the resources to respond to these kinds of pressures in a way that franchisees either cannot or do not want to respond.
And I think that's another really interesting sort of pressure point going forward. It's basically, how much pressure do rentiers in the economy, how much did they face as labor continues to gain leverage over capital? Again, kind of a higher level economic conversation, but it plays out in the trenches, I think, at something like a McDonald's.
BRIAN SOZZI: McDo-- Myles, one quick thing here to note-- this will very likely push the speed or the focus on automation in fast food restaurants. We've already seen robots out there, companies testing robotic hamburger flippers. This will increase that push to try out more robots in restaurants, in effect, replacing labor. We've been writing about this for five years. Well, the time is now. And this is the McDonald's development to get that going.
MYLES UDLAND: But the other thing is, does a franchisee want to go spend the money to upgrade the equipment? I mean, again, all the costs rolled downhill. And I think they are more resource constrained, again, than McDonald's HQ is. But anyway, we'll keep talking about this.
JULIE HYMAN: I think it's going to be really interesting to see what volumes are like in the McDonald's, right? Maybe if they can't raise prices, if the demand is going to be that robust, will it make-- more than make up for these increased costs? I think we'll have to wait and see what happens in the second half of the year.
