The Franchise Gap: Job Quality, Labor Policy, and Non-Compliance

• In Event: Determinants and Consequences of Work Schedule Quality for Child and Family Well-Being

Abstract

Work has increasingly re-organized and fissured: the breakdown of traditional employment relations has pushed lower-income workers into lower-income firms (Weil, 2014), including through sub-contracting, outsourcing, and franchising. A growing empirical literature links such arrangements to declines in job quality, with studies of domestic outsourcing documenting sizable wage penalties (Dube and Kaplan 2010; Goldschmidt and Schmieder 2017) and elevated employment instability (Aeppli 2025). Research on temporary help agencies similarly finds that outsourced workers capture less of firm-specific pay premia and rents (Drenik et al. 2023).

We contribute to the literature on fissuring and job quality by examining franchising and its implications for a broad range of job quality dimensions, including work schedule quality.

Franchising consists of a parent company — the franchisor — which uses contractual devices to integrate individual establishments — franchisees — to carry out customer-facing operations on their behalf. In exchange for licensing a brand name and products, franchisees pay upfront fees, royalties on sales, and must adhere to highly specified franchise agreements. These arrangements constrain franchisee business operations in ways that may induce cost cutting on labor, with serious implications for job quality. Yet prior research has been limited in its ability to examine franchising's effects on job quality by existing data.

We deploy two sources of novel linked data in the U.S. context. First, we use a national individual-level sample of thousands of hourly workers employed at dozens of fast food firms surveyed between 2019 and 2025 by The Shift Project. These data provide unusually detailed worker reports of job quality and the capacity to link responses to organizational attributes at the firm level. We leverage this capacity alongside a second novel data source: legally required annual Franchise Disclosure Documents (FDDs), which report by state and year the number of company-owned and franchised outlets as well as detailed contractual provisions standardizing production. We scraped state-firm-year level counts of franchised and company-owned establishments for major fast-food chains for 2019 to 2024.

We show that workers in franchised fast-food restaurants earn on average $1.70/hr less than workers in non-franchised fast-food restaurants, and have on average a 40–50 percentage point lower rate of access to paid sick leave and a stable schedule. On an overall job quality index encompassing wages, hours quality, scheduling, fringe benefits, and work-life balance, franchisee companies score on average three-quarters of a standard deviation lower than non-franchise companies.

Using the staggered implementation of Paid Sick Leave policies across 11 states, we show that these policies reduced the gap in access to paid sick leave by 26 percentage points. Despite this substantial effect, we also document rampant non-compliance: over 60% of workers in paid sick leave jurisdictions in franchised establishments have their right to paid sick leave violated. We will conduct a similar analysis of the implementation of Fair Work Week Laws.

Author

• Daniel Schneider, Harvard University
  Presenting Author