Study: Franchise Workers Will Lose Out on Minimum Wage Hikes

Majority of small business owners say they’d replace workers with robots

/ The All-Nite Images

Franchise businesses that employ millions of Americans will be hardest hit by minimum wage hikes, according to a new study.

The Employment Policies Institute, a free-market think tank, surveyed hundreds of franchise and non-franchise businesses to see how they would react to steep minimum wage hikes such as the $15 rate supported by Sen. Bernie Sanders (I., Vt.) and former Maryland Gov. Martin O’Malley and the $12 plan touted by Hillary Clinton. The study found that a majority of franchise businesses would cut their workforce, turn to automation, or reduce hours to cope with $15 wages.

"The impact of minimum wage increases on franchise businesses is even more pronounced in the fast food and hotel sectors. More than 80 percent of franchise fast food restaurant owners said they are likely to reduce hiring compared to 58 percent of non-franchise fast food restaurant owners," EPI said in a release. "Nearly 90 percent of franchise hotel owners said they are likely to raise room rates compared to 70 percent of non-franchise hotel owners."

Franchises employ more than 8 million workers in the United States and are controlled by small business owners who pay large corporations, such as McDonalds, to operate under the company brand. These entrepreneurs were more likely to replace workers than managers of non-franchise businesses.

Nearly 55 percent of those surveyed said that they would automate their workforce to reduce its reliance on employees compared to 37 percent of non-franchise businesses. Franchises were 40 percent more likely than non-franchise owners to say they would reduce worker hours with about two-thirds of franchise respondents telling EPI they’d be forced to do so.

Franchise operations have been targeted by wage hikes in certain states and localities. A Seattle minimum wage hike, for example, forced franchise businesses to adopt higher rates at a faster pace than traditional mom and pop shops. New York forced fast food restaurants to pay workers a $15 wage in a measure passed in September.

Matthew Haller, spokesman for the International Franchise Assoication, said that these measures unfairly single out individuals who are running small businesses.

"Every small business wants to pay its employees a quality wage, and franchise owners are no different. This research confirms what IFA has said in every city or state that has considered a wage hike — franchises are run by local families in communities throughout America," Haller said. "Arbitrarily imposing a higher minimum on these local families would be unfair, discriminatory and hurt the very people the policies are designed to help — even more so than those against non-franchise businesses."

EPI research director Michael Saltsman said that wage policies targeting franchisees represent a tactical shift by unions. Some cities have passed wage laws that exempt unionized businesses, giving small business owners an incentive to force workers into labor groups.

The Service Employees International Union has mounted a years-long campaign against McDonalds demanding $15 wages as it works to rally support among workers. These same workers could be hurt the most by these policies, according to Saltsman.

"A $15 minimum wage is a terrible idea for all businesses, whether they're an independent store or a franchisee contracting with a national brand. The notion that one group can better absorb this mandate than another is a pleasant fiction maintained by the SEIU, but this study shows that it's not factual," Saltsman said.