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A $15-An-Hour Minimum Wage Hike Won't Hurt the Fast Food Industry

Watch the California Matters episode on fair restaurant wages here.

 

 

Whenever a battle occurs over raising the minimum wage, the arguments against it tend to fall into the same general sphere. Really, you can copy and paste most of the counter-attacks at this point.

 

If employers are forced to pay their employees more, so goes the claim, they'll have to fire a bunch of workers. Otherwise, if they don't lay off the workers, they'll have to raise the prices of goods, consumers will refuse to pay, and businesses will be destroyed. Therefore, while the minimum wage will be a boon to workers who don't get laid off, they won't have their jobs for long.

But are these legitimate arguments? A new study says nope, not at all.

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The paper comes from the University of Massachusetts, Amherst's Political Economy Research Institute. They looked at what raising the federal minimum wage to $15 an hour would do, and decided to create a scenario using the fast food industry as an example, seeing as the industry has the highest concentration of low wage workers.

"It's on the order of 90 percent [of workers] who earn $15 or lower," says Assistant Research Professor Jeanette Wicks-Lim. "If you want to know who's going to be most impacted by a $15 minimum wage, it's going to be the fast food industry."

Before heading into the nuts and bolts of creating a sustainable policy, the researchers set a few boundaries. First, they wanted to get there without job losses, seeing as that defeats the purpose of a higher minimum wage. (Anti-minimum wage hike argument number one.) Secondly, they wanted to keep the industry's profits consistent with the current rates, so that businesses wouldn't be forced to close. (Anti-minimum wage hike argument two.)

What did they find? Well, actually, it's a pretty easy feat to accomplish.

"We were able to come up with a plan that gets fast food businesses from $7.25 to $15 an hour over four years," says Wicks-Lim.

To get there, the group cited three components. First is the standard rate of industry growth. The fast food industry is on a steady incline, so that accounts for a portion of the money needed for the wage increase. Second is the savings the industry will make by a decease in worker turnover. (People tend to stay at jobs when they're paid a living wage.) But that doesn't cover all the costs that come with the hike. Meaning, fast food companies would have to increase their prices.

How much? Three percent per year over four years. Or:

"The average Big Mac is $4.50. Each year, you'd see that go up by about 15 cents," says Wicks-Lim. "Overall, you'd be looking at a Big Mac a little over $5.00."

How would that affect the revenue of the companies? "With this price increase they'll see a modest decline in consumer demand, but not enough to outweigh the amount of revenue growth they'd experience by increasing their prices." In other words, while less people may be buying Big Macs, McDonald's will sell enough to offset the rise in cost.

An important aspect that would ease the transition is that the theoretical minimum wage would be instituted across the industry so that no one company is undercut by a competitor's low employment costs. "All of these businesses would experience the cost increases, and they'd all raise their prices at about the same amount," says Wicks-Lim. "So nobody in this business would be at a disadvantage."

The ease of making the $15 an hour minimum wage a fiscal possibility isn't all that surprising. "We know businesses can adjust to minimum wage increases without turning to large job losses," says Wicks-Lim. "This has been shown over and over again in the economic research in the past."

All of this means that if you're trying to find a legitimate argument against raising the minimum wage to $15 an hour for fast food workers, well, good luck with that.

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