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How fast food keeps wages down, and what's being done about it

The head of the Labor Department's Wage and Hour Division discusses how franchising can hurt workers — and what his agency is doing about it.
Fast food workers and supporters protest low wages outside a Krispy Kreme store, May 15, 2014, in Atlanta, Ga. (Photo by David Goldman/AP)
Fast food workers and supporters protest low wages outside a Krispy Kreme store, May 15, 2014, in Atlanta, Ga.

It's a well-known fact that fast food is one of the lowest-paying industries in the country, but what keeps its wages so low is less thoroughly understood. A common trope would have it that the industry pays "starter wages" for teenagers in temporary or part-time jobs, but that doesn't fit with the most recent data regarding who works in fast food. In fact, the vast majority of fast food employees are over the age of 20, and over 25% of them are raising children.

So, if most fast food workers are adults, why are they paid so little?

Dr. David Weil, who currently heads the U.S. Labor Department's Wage and Hour Division, believes that the franchising structure of most major fast food companies plays an important role. Under this system, local franchise owners carry the responsibility of paying workers, managing fast food restaurants on a day-to-day basis, and adhering to the rules handed down by whichever corporation owns the restaurant's brand. And to top it all off, the franchisee pays the corporation royalties in exchange for the privilege of using its name and business model.

When companies divide up responsibility and liability like that, it can come at a cost to workers, according to Weil.

"For many working Americans, wages have been stagnating a decade or more," he said. "This in part comes from the way our whole work organization has shifted."

Weil, who taught economics at Boston University's School of Management and co-directed the Transparency Policy Project at Havard's Kennedy School of Government prior to his Labor Department appointment, studied franchising and similar company structures for his recent book, "The Fissured Workplace: Why Work Became So Bad For So Many and What Can Be Done to Improve It." When corporations spin the management of their branded stores and restaurants out to franchisees, he writes in the book, it means those same franchisees "may be more willing to violate consumer, workplace, or environmental regulations in order to reduce labor costs than would be the case for company-controlled units."

There are two reasons for this phenomenon. First, franchisees' obligation to pay royalties and manage the day-to-day business of the store mean they have limited resources to pay workers. Second, their distance from corporate headquarters means they have less of a stake in the reputation of the fast food chain's brand. As a result, they may be more willing to compromise that brand through poor workplace conditions or outright illegality.

As a Labor Department official, Weil is now charged with figuring out what to do about that. One tactic he's tried, apparently with some success, is working with the national chains to improve compliance among franchisees.

"Subway has a collaboration with the Wage and Hour Division where they are trying to increase compliance with our federal laws at their Subway locations all across the country," said Weil. "And they do that by providing outreach to their franchisees, by being very clear that this is their expectation of the franchisees to be following the law."

Of equal importance to Weil's strategy is worker education. Many of the laws his division enforces, he said, "are given life because workers are provided rights and have to exercise those rights for them to have an impact." Part of the challenge with enforcing wage and hour regulations is giving workers the confidence to report when their rights are being violated.

"Individual workers exercising their rights sometimes doesn't happen because people feel really exposed," said Weil. "When you, on the other hand, provide workers with some notion that they're not alone ... they're likelihood of exercising their rights goes up. They're more likely to step forward."

Weil said he believes the movement of striking fast food workers can play a role in letting workers know they're not alone.

"As a government agency, we can and should work with groups like that in terms of educating the workforce about their rights," he said.