In defence of McJobs

The idea of "McJobs" -- low-paying positions with little chance of advancement -- bothered the CEO of McDonald's so much that, when Merriam-Webster included the term in its dictionary in 2003, he wrote a public letter of protest. His plea went unheeded. "McJobs" stayed.

by Knowledge@Wharton
Last Updated: 23 Jul 2013

But McDonald's hasn't given up. Earlier this year, it launched a similar effort in the UK, trying to persuade the Oxford English Dictionary to drop the term.

As these debates suggest, the idea that franchises, especially those in the fast-food sector, create dead-end jobs is widespread. Comedians like David Letterman joke about it. Muckrakers write books about it (think Fast Food Nation or Nickel and Dimed). Even Peter Cappelli, director of Wharton's Center for Human Resources, admits that he accepted the prejudice that many franchises provided "lousy jobs", with low pay, few benefits and limited opportunities for training and advancement.

But Cappelli, a management professor, and Monika Hamori, a management professor at Instituto de Empresa Business School in Spain, decided to investigate whether facts supported the conventional wisdom. In a recently completed study, "Are Franchises Bad Employers?" the researchers conclude that, in some cases, they didn't. "Once we control for size and industry, we find little evidence that jobs are worse in franchises and considerable evidence that they are better than in equivalent non-franchise operations," they write.

In analyzing data from a national employment survey designed by Cappelli, they found that franchises paid their employees better than comparably sized independent operators in the same industry and offered more training.

Indeed, when it came to training, franchises beat their independent competitors on two different measures: They not only trained a higher percentage of their workers, but they also provided more hours of instruction per employee, on average.

They were also more likely to have a formal training policy and to use practices that required employee involvement -- like work-related meetings and Total Quality Management. Meetings may often be dull but, in many workplaces, they offer a genuine opportunity for employee input.

Yet there is also another side to this story. Franchises don't trump non-franchise operators on every measure. They have greater turnover, and in their non-managerial ranks, they employ less experienced, less educated workers. They also have a higher percentage of part-timers.

"A fair assessment might be that franchise jobs offer more [than non-franchise ones] to lower-quality workers," the two researchers write. The average McDonald's employee isn't weighing a job making quarter pounders versus one writing software for Microsoft. He's comparing it with one at the local Greasy Grill. And in that contest, McDonald's wins.

According to Cappelli, the mixed evidence that he and Hamori found "takes away from the idea that there are good guys and bad guys out there [among employers]. On some dimensions, franchises are good, and on some they aren't.... Our view is that different companies have different models. Some are good at training, and so it makes sense to train. Others would rather pursue a low-wage, churning strategy." Maybe, for example, they operate in a market where low-skill workers are plentiful and therefore can't command high wages. In such a market, retaining employees matters less.

The facts uncovered by Cappelli and Hamori did present a puzzle: If franchises invest more in their employees, through pay and training, why do they see higher turnover than non-franchise firms? And how do they compete, given their higher costs and higher turnover?

One potential explanation is that franchise turnover is lower than it would be without the superior pay and training. That's possible, but it still leaves open the more vexing question of franchises' competitive advantage. "Spending more per employee than non-franchise operations would appear to put franchises at a considerable cost disadvantage that somehow has to be offset -- possibly through superior productivity or some other method of adding value," the authors write. Little research has explored what that advantage might be, and Cappelli and Hamori's data didn't allow them to address the question. Even so, they have little doubt that "the competitive advantage of franchises is not based on a model of spending less on employees."

If franchises are better employers than non-franchise firms by some measures, then why does the McJobs stereotype endure? Cappelli and Hamori chalk it up to "confounding attributes", that is, characteristics of franchises that have nothing to do with franchise status per se. "Franchises are concentrated in smaller establishments, which have fewer resources, and in industries like hotels and restaurants, which have lower quality jobs," they write. "But within those sectors, franchise operations appear to offer more sophisticated management practices and to make greater investments in their employees."

Source:
Are Franchises Bad Employers? A Closer Look at Burger Flippers and Other Low-paid Jobs
Peter Cappelli, director of Wharton's Center for Human Resources
September 5

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