How much an increased minimum wage would cost McDonalds

Back in college, I had one professor that told us an interesting lesson.

Don't take anything at face value. Everyone has an agenda. You will be lied to by the government, the media, your parents, and me. Go do your own research and determine what is true for yourself.

Lately, there has been some media coverage about fast food workers demanding a higher wage. I think they were fighting for $15 an hour. I think even the national government was considering increasing the minimum wage up to $10.10 an hour.

Conservatives say that higher minimum wages will destroy jobs and liberals say that everyone deserves a living wage. With that being said, I was wondering how much an increase of the minimum wage to $10.10 an hour would cost McDonalds.

First I had to look up what the average minimum wage is in America. That information can be found here at the National Conference of State Legislature. The minimum wage varies from state to state a little bit but for the most part, the minimum wage is $7.25 an hour. If the national government increases the minimum wage to $10.10, then each hour worked by a minimum wage employee would cost an extra $2.85 per hour. This estimate is a little over stated because the mean minimum wage is slightly higher than $7.25 per hour. For that sake of simplicity, I will use $7.25 per hour as the minimum wage.

The second thing I had to find out was how many McDonald's employees in America make minimum wage. According to stastita, there are 14,267 McDonald's restaurants in the United States. According to Macroaxis, there are a total of 440,000 employees working at McDonald's in the United States. On average, this comes out to be about 30 employees for every restaurant.

If the minimum wage is increased to $10.10 an hour, McDonald's would only incur extra costs for each employee that makes less than $10.10 an hour. With 30 employees per McDonald's, I initially estimated that 20 of those employees work part time for minimum wage. However, I found a figure from McDonald's that states that about 80% of their employees work part time for an hourly wage. I'll stick with my initial estimate of 67% of McDonald's employees making minimum wage. This part of the estimate will be under stated.

At this point, I decided to plug in some numbers.

Extra wages due to increase of minimum wage * 20 employees per McDonald's * total McDonald's in America = Extra cost of labor per hour for McDonald's.

$2.85 per hour * 20 employees * 14,267 McDonald's = an extra $813,219 per hour for labor.

Assuming each one of these 20 employees per McDonald's works 20 hours a week, the extra cost of labor per week comes out to be $16,264,380.

Assuming each one of these employee works this rate for each week of the year, the extra cost of labor for the whole year comes out to be $845,747,760.

An increase of the minimum wage to $10.10 would cost McDonald's $846 million if McDonald's decided to absorb the cost.

This figure does not mean very much by itself, so lets compare it to McDonald's net income.
So, according to McDonald's income statement, McDonald's 2013 net income was $5,585,900,000.
Roughly $5.59 billion.

If in 2013, the minimum wage was $10.10, an extra $846 million would have been added to operating expenses and subtracted from net income which would leave the net income at $4.74 billion.

$846 million out of $5.59 billion is slightly more than 15%.

An increase of the minimum wage from $7.25 to $10.10 is almost 40%.

A 40% increase to the minimum wage would cause McDonald's a loss of 15% to net income.

Should the federal minimum wage increase to $10.10, McDonald's would not just sit there and absorb the loss. McDonald's would have to either increase prices or fire employees and shut down some locations.