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Comment by CobrastanJorji | Hacker News Reader

I agree that there are many companies that ignore this correlation, but I'm not convinced those companies are making the most rational choice.

If Burger King significantly increased the salary of their workers or otherwise found ways to improve their morale, would it benefit Burger King in the long run? I tend to suspect so, but it would be hard to prove.

The burger joints known for taking care of their people are also usually seen as being pretty good burger places, and that may be causal, but it also may be that they're just slightly "upscale" of the other burger places and also spend more on the ingredients.

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They tend to be somewhat upscale in terms of ingredients, employee training, overall experience, etc.

That's not to say that Burger King or McDonald's couldn't do better. I don't really have enough experience with them as a customer or anything else to have a real opinion. But I suspect that, if Burger King were to try to improve their experience in a way that forced them to raise prices by 25% they'd lose a lot of business from people basically just looking for the cheapest burger.

See also the experience of JC Penney and Ron Johnson. A lot of people are pretty much in the position where they have to shop on price.

> A lot of people are pretty much in the position where they have to shop on price.

Keep in mind, though, that if a larger portion of money went to the workers, less of them would be in that position.

Only if that happens across the board, not in one particular company.

No? Even if only the employees of one particular company get a wage increase, that's however-many-people-work-there who now have more money to spend. It might not be a very large number of people, depending on the company, but it doesn't have to happen across the board for the people to exist.

>If Burger King significantly increased the salary of their workers or otherwise found ways to improve their morale, would it benefit Burger King in the long run? I tend to suspect so, but it would be hard to prove.

It would not benefit Burger King as its clientele’s main goal is purchasing at the lowest price and they will happily go to McDonalds if prices went up. Not all businesses have the luxury of selling to people willing to spend more than rock bottom, and you can see that in most cities, only one or two areas where the upper middle class live will have the business that pay more than the minimum.

Worker wages could go up without increasing the cost of a burger (or other food item), it would just mean the owners make less money per sale. If the decreased stress leads to Burger King workers being more productive (and/or more pleasant to customers), that could mean more sales and more money for everyone involved.

Restaurants are notoriously low margin businesses, I doubt there’s much room to move up in wages, which is also their greatest cost.

"Low margin" is relative. If the owner is taking home more money than the employees, there's room to shift things. I would bet quite a lot that most Burger Kings are in that position.

Profit margin is the amount left for the owner after all expenses are paid. Googling shows restaurants in general have single digit profit margins, so there isn’t much room for pay increases, especially if the owner wants to save for capital improvements like renovations, equipment, or new restaurants.

"Single digit profit margins" is in terms of percentages. I'm talking absolutes: However low the profit margin is as a percentage, as long as it's positive and the owner makes more than enough to live on, it could be made lower by a pay increase.

In my limited experience big chains vary greatly based on locale, presumably due to those particular stores being owned by different franchises.

> I'm not convinced those companies are making the most rational choice

Neither am I - they're just making the common choice.

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