by Jon Sanders
Director of the Center for Food, Power, and Life, Research Editor | John Locke Foundation
If it were to succeed, the campaign to hike — or worse, double — the minimum wage would have serious negative repercussions for the young, least skilled, and least employable. Previous newsletters have explored in depth this well-known negative policy consequence. It’s one of the issues about which there is greatest agreement among economists.
A huge increase in the minimum wage would also harm employers. Those harms, in turn, would make things even more difficult for consumers.
The current campaign focuses mainly on fast-food workers, donning the ill-fitted "moral" mantle of a movement whose alpha and omega is government growth. Fast-food workers are undoubtedly hurting in this economy, but one key aggravating factor is the Affordable Care Act — which has made it where low-wage fast-food workers cannot even approach a 40-hour week.
Under the law, if they are allowed to work "full time" (which, under Obamacare, is 30 hours a week), then their employer has to pay for their (ever increasingly more expensive) health insurance. It’s a significant, hidden increase on the price of employing someone. Since it is hidden, the movement can pretend not to know about it, which turns out to be a real a convenience given they rely on the public perception that the plight of fast-food workers a moral issue to them.
What is worse than low hourly wages? Low hourly wages and forced cutbacks in working hours. But the same movement that supports those workers walking off their jobs — zero wages and zero hours of work, for those keeping score — also supports the law that keeps them at 29 hours per week or less.
Especially if your business model is low-price retail (whether food, groceries, clothing, whatever), a forced spike in labor would create huge problems. Recognize that raising the minimum wage from $7.25 per hour to $10.10/hr. or, worse, $15/hr. would not only affect workers earning the minimum wage, but also workers earning $8/hr., $9/hr., $10/hr. and perhaps on up. Gratuitous, uncalled-for hikes on the price of labor raise the cost of doing business because it raises the prices on a major input in doing business.
Bloomberg News discussed the recent struggles of McDonald’s restaurants, faced with rising prices on beef, cheese, and pork (as well as minimum wage increases in California, Minnesota, and Michigan). McDonald’s is known for its "Dollar Menu," but keeping with that is cutting into profits and leading to price increases elsewhere. As Bloomberg wrote, customers are noticing:
Mike Hiner used to take his grandsons to McDonald’s (MCD) when they wanted a treat. With higher wage and food costs pushing up prices at the Golden Arches, he’s increasingly taking them to IHOP, Denny’s and Chili’s instead.
"Those meals are the same price," said Hiner, a 58-year-old geologist in Houston. "And they’re better." …
Some Americans are extremely price sensitive, and any increases may send them elsewhere, said John Gordon, principal at San Diego-based Pacific Management Consulting Group, an adviser to restaurants and franchisees.
"If you encourage and kind of seed the notion that you can come in for a couple bucks and get some food — and then you can’t do that anymore — there’s bound to be a reaction," he said. …
The result has been that fast-food chains, long thought of as the cheapest place to grab a quick bite, may now have that reputation working against them, said Joel Cohen, president of Cohen Restaurant Marketing Group in Raleigh, North Carolina. The higher prices may be driving some customers to seek alternatives either at fast-casual chains like Panera Bread Co. (PNRA) or even at sit-down places, he said.
"It’s sticker shock," Cohen said. "You’re up at price where you could just about be dining at a casual-dining restaurant."
Notice, however, it isn’t just McDonald’s (or other fast-food places) losing out. The "extremely price sensitive" customers who would prefer the lower prices are losing out as well. If higher prices are persuading them to eat at higher-priced options since that’s what they’d be paying for food anyway, that means they are having fewer meals out (or less expendable money for whatever other activity they’d prefer to do in addition to eating cheap fast food).
McDonald’s doesn’t exist to employ people or to sell Dollar Menu items. McDonald’s exists to make money. If keeping the Dollar Menu items remains McDonald’s best plan for making money, and input prices get in the way, McDonald’s will figure a way around it.
The most obvious way around it, in this "Second Machine Age," is using automated tellers, which McDonald’s already does in Europe and which is finding a greater hold here, even at higher priced family restaurants. From an economic standpoint, a "Double the Minimum Wage" movement is effectively indistinguishable from a "Rush In Automated Cashiers Now" movement.
The Wall Street Journal writes about McDonald’s planning "fundamental changes," which include:
By the third quarter of next year, McDonald’s also plans to fully roll out new technology in some markets to make it easier for customers to order and pay digitally and to give people the ability to customize their orders, part of what the company terms the "McDonald’s Experience of the Future" initiative.
A movement that cares about the position of fast-food clerk earning $15/hr. would not be affected by a transition to automated tellers. They would declare victory with the forced wage increase and move on to their next "moral" cause of growing government power, with self-righteous indifference to that one’s unintended negative consequences, too.
A movement that cares about the people working as fast-food clerks earning low wages and consigned by Obamacare to part-timer status would not, however, promote policies to speed that transition along. Especially if it considered the other people in policy harm’s way: the employers, the workers they would have employed, and the consumers losing buying power.
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