McDonald’s Faces Teen Labor Shortage

By David Sterrett

A new McDonald’s Corp. commercial tells the story of Karen King, who began her career as a teenage crew member in the 1970s and rose to head the company’s $10 billion Eastern U.S. division.

The spots are meant to resonate with American teenagers, who are leaving the workforce in droves—and leaving McDonald’s with a labor crunch that threatens to take a bite out of its surging sales.

“It’s a shrinking labor market, and we recognize less people will be available to hire,” King says.

The declining number of teenage job seekers presents a super-size challenge for McDonald’s, where 40 percent of the top 50 managers—including CEO James Skinner—worked their way up from the cash register or fry vat, and which more than ever needs qualified workers to keep service from bogging down in an era of computerized cash registers and electronic ovens.

“There is a direct correlation between the quality of the crew and sales restaurants do,” says Steve Bigari, a former McDonald’s franchisee who now works with fast-food companies on labor issues.

With the number of teenage applicants dwindling, McDonald’s has rolled out a new commercial emphasizing the opportunity for advancement at the company.

For years, McDonald’s has manned its crews largely with teenagers. In the 1990s, 45 percent of its U.S. employees were under 20. Today it’s 33 percent of the workforce, which totals 650,000 employees.

Getting harder out there

It’s not just that fewer teenagers are working at McDonald’s—fewer are working, period. Last year about 44 percent of American teens held jobs, down from nearly 60 percent in 1982. The reason isn’t clear, but many attribute the shift to an intensified focus on academics and after-school activities.

Whatever the explanation, the trend scares fast-food operators. “Everyone I talk to in the industry says it’s becoming harder and harder to maintain their operations standards given what is happening in the workforce,” Bigari says.

About half the employees in the fast-food industry are between 16 and 25 years old. The number of jobs in the industry is expected to increase about 17 percent in the next decade, while the number of workers in that key age group is expected to increase 0.3 percent.

McDonald’s is trying to get ahead of the coming squeeze with its aggressive new recruiting campaign, launched in May and driven by the TV ads featuring King. The company also revamped the recruiting portion of its Web site to facilitate online job applications, which are routed to franchisees, who hire the bulk of McDonald’s frontline workers.

Lurking behind the recruiting drive is another reality: McDonald’s could ease its labor crunch by raising wages. But that’s a last resort for the franchisees. Increased payroll costs come directly out of their pockets.

Steve Russell, McDonald’s U.S. senior vice president of human resources and chief people officer, says the company doesn’t feel pressure to raise wages, which vary by restaurant but average about $7.35 an hour, 26 percent more than the current federal minimum wage of $5.85.

Touch screens and new menus

At the same time it expands recruiting efforts, McDonald’s is trying to be more selective about its hires. About half of its stores require applicants to take a short test designed to measure their experience and behavior patterns. Russell says the number of stores utilizing the test quadrupled last year and the company continues to “rapidly deploy it.”

The increased scrutiny matches the rising sophistication of fast-food jobs. Burgers are no longer flipped on a griddle but cooked in an oven operated by an electronic timer. New menu items have forced kitchen staff to master new preparation techniques and have given order takers more buttons to locate on cash registers with touch screens—easy to use but often intimidating to workers uncomfortable with technology.

In the 1990s, 45 percent of McDonald’s employees were teenagers; now it’s 33 percent.

Fumbles with the equipment slow down order times—a big turnoff for customers looking for a quick meal. That’s why it’s critical to find, and keep, qualified workers. An internal McDonald’s study shows that stores with higher-performing crews reduce turnover by 30 percent and increase sales by $200,000 annually.

“Now more than ever, we realize our people are the main drivers of our business,” Russell says.

This week in Las Vegas, McDonald’s is having a meeting of 15,000 managers at which employment will be a primary topic of discussion.

Industry observers say McDonald’s has done more than any of its national competitors to promote employment, even while it may pay lower wages than some regional and national chains, such as coffee giant Starbucks Corp.

The effort may be paying off. Last year, according to Russell, McDonald’s reduced its turnover by 9 percent, matching the chain’s increase in sales, which hit $21.6 billion. The company won’t disclose its retention rate; the industry averages about 150 percent annual employee turnover.

But it remains to be seen how McDonald’s will replace the teenagers who continue to drop out of the workforce.

“There is not a readily available supply of teenage workers lined up at the door begging for jobs,” says Joni Doolin, founder of People Report, a Texas-based company that tracks employment data. “And the problem is not going away anytime soon.”

Filed by David Sterrett of Crain’s Chicago Business, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.