McDonald's Franchisees Blame Hiring Challenges on Unemployment Benefits and Say an 'Inflationary Time Bomb' Will Force Them to Hike Big Mac Prices
Some McDonald's franchisees say enhanced unemployment benefits are driving a struggle to find and hire workers.
The National Owners Association, an independent group of McDonald's franchisees, sent a letter to its members on Sunday that blamed hiring challenges on the "perverse effects of the current unemployment benefits."
The NOA's board pointed to last week's dismal job report, which said the U.S. added just 266,000 jobs in April, far short of expectations.
"What's going on here? When people can make more staying at home than going to work, they will stay at home," said the letter, which Insider obtained. "It's that simple. We don't blame them. We fault the system."
The board said employers were countering with higher pay, signing bonuses, and other incentives — all "of which is good for the American Worker."
"We are glad for it, after all, the American Worker is our customer," the letter said. "The more money they have to spend, the better our sales. But something has gone off the rails here. When higher wages, signing bonuses, paid interviews no longer work, we have a problem."
Neema Ardebili, the vice president of global franchise and strategic partnerships at ADP, told Insider that most restaurant-industry workers were hired at low wages, meaning many would earn less money working than they could collect in unemployment benefits.
"Natural human behavior is to choose receiving more money while staying at home than working for a highly demanding job — especially with the amount of stress that is being put on employees right now," Ardebili said.
McDonald's executives addressed what CEO Chris Kempczinski called a "very tight labor market" in a recent call with investors, hinting that wages may be increasing.
"We're working through what some changes in our company-owned restaurants might look like from a wages-and-compensation perspective," said Joe Erlinger, the company's U.S. president. "We think the external environment is right to do this. We think the internal environment is also right to do this. And we think it's actually a great business decision for us."
Some people have called for an early end to enhanced unemployment benefits, which are set to continue until September. On Friday, the Chamber of Commerce urged Congress to end the additional weekly $300 in federal unemployment benefits in light of the April jobs report.
"The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market," the chamber's chief policy officer, Neil Bradley, said in a statement.
"Why work when you can get more staying home?" a McDonald's franchisee previously told Insider. "Stimulus and unemployment are killing the workforce."
Others have said that concerns about enhanced unemployment are overhyped. Ardebili said the economics would reach an equilibrium when companies improve pay and benefits or when enhanced benefits run out.
On Friday, President Joe Biden said that unemployment benefits had had no measurable effect in slowing people's return to work. Lauren Silberman, a Credit Suisse analyst, previously told Insider that while the stimulus package was playing a role in hiring struggles, it was far from the sole factor in the apparent labor shortage.
Restaurant workers have told Insider they're burned out after a year of working during the pandemic. Workers said that, in addition to safety risks associated with catching Covid-19, customers — including some who refuse to wear masks — had been taking out their frustrations on employees.
Higher prices and higher pay are on the menu at McDonald's
The NOA's board said the jobs report showed that offering candidates new incentives and higher pay had failed to persuade people to apply for jobs. But the board said franchisees would need to invest more in pay and benefits — and would raise menu prices as a result.
"Inflation is the flipside to all of these changes," the letter said. "Price increases are happening everywhere you look and will continue as employers pass along these added costs. We will do the same. A Big Mac will get more expensive.
"Our government officials need to know what is happening out in the real world," the letter continued. "They need to know what they are creating: an inflationary time bomb."
Restaurants typically raise prices when labor costs increase. On Monday, Chipotle announced that it would raise workers' pay to an average of $15 an hour by June. Recently, the company's chief financial officer, Jack Hartung, said higher minimum wages would result in slightly higher menu prices.
Chains including Kura Sushi, The Cheesecake Factory and Texas Roadhouse have increased prices in response to regulations increasing the minimum wage. So far, executives of these chains have said, customers have been willing to pay more for their food.
"Our industry has always been competitive, and we have been in a knife fight for years regarding price," the NOA board's letter said. "That is no longer the case. Now the winning strategy is simply being open and giving fast service. Our competitors are literally not open due to staffing shortages."
The board added: "We have no idea how long this will last, but for now, we need to do whatever it takes to staff our restaurants and then charge for it."
The board said it celebrated McDonald's working with franchisees to invest more in hiring and retaining workers. But it signaled discontent with some of McDonald's decisions, such as bringing back unannounced safety-and-security visits.
The board also said franchisees should read voting recommendations from the corporate-governance firm Glass Lewis before the McDonald's shareholders meeting in late May. Glass Lewis recommended against the reelection of two board members who've been accused of failing to properly address the sexual misconduct of former CEO Steve Easterbrook.