At National Review, James Sherk tackles the wonky math that has been used to support the call for $15 an hour minimum wage by claiming it will have a minimal effect on costs (short version: if it sounds too good to be true, it’s too good to be true). Comparing a Perdue report that claims that claims a $15 minimum wage “would raise fast-food prices only 4 percent” with more… nuanced figures from the Heritage Foundation;
Last year, the Heritage Foundation estimated how a $15-an-hour minimum wage would affect fast-food prices — accounting for all these factors. That report used data on average fast-food balance sheets, relied on BLS wage estimates, and accounted for customers’ price sensitivity. This model found very different results: Prices would have to rise 38 percent to cover the higher wages, while sales and employment would both fall by over a third.
In the short term, the price of a Big Mac would rise from $3.99 to $5.50. A Big Mac meal would go from $5.69 to $7.85. That takes a much larger bite out of consumers’ wallets than a 17-cent hike. Moreover, this money won’t come from “the rich.” Warren Buffett and Bill Gates don’t spend much on fast food. Low- and middle-income Americans would bear the brunt of the higher prices.
Let’s not play favorites with Fast Food joints though! The WSJ reports comments from Wendy’s Corporation second-quarter earnings call;
[Wendy’s] CFO Todd Penegor talked about the pressure to pay higher wages and said that “we continue to look at initiatives and how we work to offset any impacts of future wage inflation through technology initiatives, whether that’s customer self-order kiosks, whether that’s automating more in the back of the house in the restaurant. And you’ll see a lot more coming on that front later this year from us.”
How did it come to this? Less then two years ago, we were assured that $15 minimum wage was a movement that was sweeping the nation, a sure-fire path to prosperity that would lift people out of poverty.
Such promises, such unbridled enthusiasm… such a complete ignorance of economic reality. What a reality it is: the $15 an hour movement played nursemaid to the future, a future of automation.
The future came quickly, didn’t it? Those protesters outside of LA McDonald’s above don’t have to go far to see their replacements: just “get to the corner McDonald’s at 201 W. Washington Blvd, just below the 10 freeway” and you can see the future… also get some (alleged) food. LA Eater tells it simply even in an article looking on the bright side of fewer people working;
In the near future, not talking to humans may well become part of the built-in business plan for companies like McDonald’s, especially in cities like Los Angeles where a $15 minimum wage is set to become the norm. Lower labor costs and their associated payments (health care, insurance, etc.) means more money for stockholders, so don’t be surprised if kiosks start to become the norm. Let’s hope they at least pay to pipe in a little music though, otherwise the place is going to sound like a crypt.
There is no great conspiracy behind this, no hidden Cabal with the intention of keeping the poor down and the rich up. It’s a simple matter: labor, like everything else in commerce, has a value. Now, that value may fluctuate somewhat, but ultimately, labor is worth what employers are willing to pay for it. Right now, according to the Bureau of Labor Statistics, employers are willing to pay an average of a bit less then $9 per hour. Going to $15 an hour is a bit more then a $6 raise, that is, around a 66-70% raise.
Two workers under the new scheme are going to be making more then what three workers were making under the old scheme ($30 versus $27). Three months ago LA’s City Council voted in the $15 minimum wage, and the immediate question of “Does this spell the end for LA’s current restaurant culture?” became the question of the moment.
Whatever it means for LA, the future for any city or state that embraces this minimum wage will follow a simple course: people are going to be priced out of the labor market. It’s a cruel truth, and so public conversations don’t mention it, but not everyone can provide $15 worth of labor in an hour. Perhaps you can produce $10, or $9, or whatever. Those people are now functionally unemployable, their labor actually costing their employer more then the employee is providing.
Automation bridges the gap: those three workers making $10 before are replaced by two making $15, but producing more. Producing more with machines, that is. Little did they know, but those protesters demonstrating for higher wages may have earned themselves a new wage: Zero.