McDonald's franchisees blame hiring challenges on unemployment benefits, and warn that an 'inflationary time bomb' will force them to hike Big Mac prices
An independent group of McDonald's franchisees is blaming labor shortages on unemployment benefits.
"When people can make more staying at home than going to work, they will stay at home," the NOA said.
The group said the end result will be higher wages and higher menu prices.
Some McDonald's franchisees say enhanced unemployment benefits are driving an ongoing struggle to find and hire workers.
The National Owners Association (NOA) - 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 Board pointed to last week's dismal job report, which showed that the US 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," reads the letter, which was obtained by Insider. "It's that simple. We don't blame them. We fault the system."
The NOA Board notes that employers are 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 reads. "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 are hired at minimum-to-low wages, meaning that 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," US president Joe Erlinger said. "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."
'Everybody is honestly so tired of being so mistreated'
Some people are now calling for an early end to enhanced unemployment benefits, which are set to continue until September. On Friday, the Chamber of Commerce urged Congress to stop 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, Neal 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 is overhyped. Ardebili said that the economics will reach an equilibrium when companies improve pay and benefits, or when enhanced benefits run out.
On Friday, President Joe Biden said that unemployment benefits have had no measurable effect in slowing down people's return to work. Credit Suisse analyst Lauren Silberman told Insider that, while the stimulus package is playing a role in hiring struggles, it is far from the sole factor in the apparent labor shortage.
"People want to work, if they have the opportunity," Silberman said.
Restaurant workers have told Insider that they are burnt out after a year of working during the pandemic. In addition to safety risks associated with catching COVID-19, workers said that customers - including some who refuse to wear masks - have been taking out their frustrations on employees.
"You couldn't pay me $20 an hour to work in food for the conditions we had to endure there," said Chris Drown, who quit his job at a Chipotle location in West Virginia in February. "After I left that location, five more people quit. Now, they are operating with online orders only and limited hours because they still can't keep up."
Some said that the recent labor shortage has made the job even more stressful, as existing workers are needed to work longer hours with less support.
"Everybody is honestly so tired of being so mistreated, still," said a Starbucks employee, who requested anonymity to speak frankly about the situation, and whose identity was verified by Insider.
"We still have issues," the Starbucks employee continued. "The pandemic isn't over."
Higher prices and higher pay are on the menu at McDonald's
The NOA Board said that the jobs report shows that offering potential candidates new incentives and higher pay have thus far failed to convince people to apply for jobs. But, the board said, franchisees will need to invest more in pay and benefits - and will raise menu prices as a result.
"Inflation is the flip side to all of these changes," the letter reads. "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 continues. "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 per hour by June. Recently, the company's CFO Jack Hartung said that 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 regulation that increased minimum wage. Thus far, executives of these chains 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 letter reads. "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."
"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 added.
The NOA Board celebrated that McDonald's is working with franchisees to invest more in hiring and retaining workers. However, the board signaled discontent in some McDonald's decisions, such as bringing back unannounced safety and security visits.
The board also said franchisees should read voting recommendations from corporate governance firm Glass Lewis prior to the McDonald's shareholders meeting in late May. Glass Lewis recommends against the reelection of two members of the board, who have been criticized for failing to properly address the sexual misconduct of former CEO Steve Easterbrook.
Read more: Some McDonald's investors renew efforts to oust chairman over ex-CEO sexual misconduct investigation
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