Posted on January 25, 2016
A Comparison of Minimum Wage Effects on Franchise and Non-Franchise Businesses
Sponsored by the Employment Policies Institute
One unique feature of recent local minimum wage battles is the focus on franchise businesses.
In Seattle, for instance, a minimum wage of $15 took effect in 2015 with multiple phase-in paths that depend on the business size (as measured by number of employees), with smaller businesses being granted more time to adapt to the mandate. Under the Seattle law, an independent, locally-owned franchise business is treated like the larger corporate entity from which the franchise business gets its brand-name and trademark.
Justifying this treatment, Brian Surrat, director of the city’s Office of Economic Development, stated “franchises are different, in that they are part of a network, with built-in economies of scale and support with advertising, supply chain management and menus.” Similarly, Washington State’s Attorney General Robert Ferguson, in a brief defending Seattle’s law before the 9th District Court of Appeals stated, “franchisees enjoy a unique economic advantage that gives them the ability to more easily absorb an accelerated wage phase-in.”
In fact, a new national survey of mostly-small businesses shows that minimum wage increases being considered by some cities will likely have a more negative impact on franchise businesses. Conducted by Dr. Lloyd Cordor for the Employment Policies Institute, this survey of franchise business owners (n=307) and non-franchise business owners (n=305) focused on eight key industries such as restaurants and hotels that typically have a larger share of minimum wage employees.
The survey finds that franchise businesses are more likely to employ minimum wage workers than other businesses, and are more likely to take offsetting steps to manage the increased labor costs. Despite the claim that franchise businesses have unique economic advantages and can manage the cost increases more easily than non-franchise businesses, the survey results show the opposite to be the case.