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When you think about it, what do low income workers actually spend their money on? When I was on of the working poor and got an increase, the only thing it did was help me pay the rent, phone, etc. I didn't go out and purchase a new car and I didn't go out to eat.
If you are going to speculate a 15% price increase at restaurants, then you also need to speculate a doubling of the MW. That is huge. And also ridiculous. Imagine being a poor worker and suddenly doubling your salary. That's a whole lot of extra spending.
Let's say, for the sake of argument, that a 15% increase in prices covers the cost to a restaurant for increasing the minimum wage. Could this have a negative the business? Seeing how the demand for their product is elastic, would you expect the amount of business to increase or deccrease? Afterall, people don't have to go there and won't, if they perceive prices to be higher than value received. Let me give you a specific example: Currently I pay $6.45 for a quarter pounder value meal. Last year the same meal was around $5.50. Most of the McDonalds here pay above minimum wage (8.50-9.50) because of competition for the workers in our job market. That being said, I can tell you if it goes up much more, there is a point at which I and others will no longer consume.
While it is true that "some" low income workers will have more money to spend, I believe there will be more of them out of work (and thus have less to spend)! There will also be pressure to automate. When you think about it, what do low income workers actually spend their money on? When I was on of the working poor and got an increase, the only thing it did was help me pay the rent, phone, etc. I didn't go out and purchase a new car and I didn't go out to eat.
I agree with your comments. People seem to buy into this 'theory' that people will continually pay more for things. No doubt at $15 an hour these businesses will be looking at automation too...which as we know eliminates jobs. Carl's Jr CEO already said that they are planning for automation.
People also always mention stuff like well Australia pays fast food workers $18 hr...but there's a loophole in their allow which allows 'youth workers' to work for about $8....So of course they rely on a lot of youth workers...and the higher paid 'adults' at more like managers at $18hr..
What i've read from high cost areas where the minimum wage has been increased is that workers are still struggling. They are still commuting far from less expensive areas to their work ,etc. Also a lot of people at the lower income level likely have debt.
People generally consume food at the relatively same level...unless they are getting into the much higher income scale with the expense account crowd eating big $60 steaks for lunch and $15 martinis or something..
If Bob makes $10 an hour and he goes to McDonald's for his combo meal everyday for lunch, if he makes $15 he'll probably still go for his combo meal at McD's for lunch.
Unlikely that Bob will say...you know what I'm making great money now making $15 hr in L.A or S.F or NYC....throw in another Burger will you? ...and a chocolate sundae for dessert! I can afford it!
In Los Angeles one needs to make $33 just to rent the average apartment
People will struggle at $15 just like they did at $10..especially after all the inflation.
The net effect will be bad too with many min wage workers being out of a job. Of course the employers staying in business will keep the best workers...most likely the ones that do a good job and might even be working on a college degree,etc.
We will see a gentrification of businesses. In cities like Los Angeles it's already been happening in certain areas..but this will accelerate it.
Ironically...the pro $15 hr crowd is also the Anti-gentrification crowd.
In L.A a former fast food place might be turned into a law office, an accounting firm, a post production film editing place.
All places that laid off fast food workers won't get hired by because it's unlikely they have the skills or degrees needed to work there.
this is the big picture that people aren't looking at with this issue.
It's just "min wage workers don't make enough ..they need a raise...these greedy businesses have to pay up..or else!"
Or else what? They'll move or if they own the building develop it into nice condos or use it for one of the business type I mentioned. Or the landlord will develop the vacant space or lease it out for the best use..which is unlikely to be a fast food place in a city that makes it hard for them to be profitable.
You'll have to be a saint running the business as a charity at $15 hr. Why would a business owner risk so much money and time and effort to invest in a business that is unlikely to be profitable.
Yes it's not known as an easy business at $10hr wages...but at $15 wages it gets much tougher.
With Oakland already at $12.55 there has been fallout... the biggest was Walmart's 3 day advance notice anchor store closing.
It has already caused some expansion plans for other businesses to be reconsidered.
SF might get away with it as it is a destination city and unique...
Yes and in L.A they closed as well Walmart Closes LA Store Over $15 Minimum Wage - Breitbart
Of course the Pro $15 crowd will say "No Biggie ...We Don't want a WALMART in our Community!!!"
Right but Walmart employs a TON of people per store...and not all the jobs are minimum wage there are managers, etc paid more.
The majority of people have no idea how basic economics or business works..and it results in bad policy.
Then in 5 or 10 years people are going to question why so many businesses closed and why people want to do business in L.A,SF,CA....but the Texas economy and other parts of the country are growing and booming...hmmm wonder why!
Being in business is difficult enough..but these cities and states want to make it MORE difficult to operate!
I agree with your comments. People seem to buy into this 'theory' that people will continually pay more for things. No doubt at $15 an hour these businesses will be looking at automation too...which as we know eliminates jobs. Carl's Jr CEO already said that they are planning for automation.
Of course they are! And the solution to that problem is... make low skill workers poorer so they can compete with automation???
I don't know about you, but that sounds really insane to me.
We've been destroying jobs with automation for 200 years. No one was expected to get poorer so they could compete. Rather everyone got richer, and new jobs were created. That's what works.
We've already addressed this. Most restaurants have <15% of their sales in low wage worker pay. Even if you doubled the MW, a 15% price increase would cover it.
........
Not at all. You are only pretending to address the cost of the restaurant worker. You also need to cover the increased costs for harvesting, processing and packing the food. Food costs are highly labor related and most workers are at or near minimum wage. Then there are the local delivery men. They are likely paid over MW, but not by much. Their salaries will increase out of necessity.
My wife and I just got lunch at BK. Two whopper meals were about $15 with tax. A MW increase could easily drive that to $25. I will stop going. That is too much for borderline quality fast food. Starting in 2008 we had Subway and Wendys and a lot of small restaurants close stores. Most are still vacant. An increased MW is very likely to put more under.
A growing percentage of us baby boomers have reached retirement and we are sensitive to costs since much retirement income is fixed or close to fixed. If costs go up, we will cut back and those jobs we are supporting will be cut back also.
Great point, I was going to post something along the same lines about the delivery guys delivering food, supplies,etc will get a raise too bringing overall costs up way above just paying their payroll employees more.
Yes it's actually gotten expensive and no longer a good value. I'm usually left disappointed after paying for fast food.
The worst part is we will continue to see more of these chains because they will have a better chance at making it versus the mom and pops. They have brand recognition, will be able to invest in automation, etc.
The mom and pops will be hurt much more than the multinational chains.
"Oh we can't operate in California?..no problem...Our China stores are doing GREAT!"
No $15hr minimum wage in China , Vietnam, the middle east or lots of other growing places.
A subway or wendys with people employed and earning a paycheck is better than a vacant building with no workers.
Oftentimes these buildings stay vacant for many months or years ...even in big cities like L.A
Hmmm wonder if people don't want to invest hundreds of thousands of dollars into a location where the minimum wage will be $15hr soon...Business owners run the numbers (or should) before they open...and even before $15 wages are going to $11,12,13,14 every year.
THe businesses that WILL be able to afford these locations are likely not going to be businesses that are high labor like fast food..it will be the types of businesses that fast food workers likely aren't qualified to work at.
Not at all. You are only pretending to address the cost of the restaurant worker. You also need to cover the increased costs for harvesting, processing and packing the food. Food costs are highly labor related and most workers are at or near minimum wage. Then there are the local delivery men. They are likely paid over MW, but not by much. Their salaries will increase out of necessity.
Do the math.
If aggregate prices in the whole economy go up just enough to cover the wage increases, and no one is laid off or has their hours reduced, sales will actually increase.
Do you know why?
There will definitely be some businesses that have trouble, but it won't be many, and it will be more than offset by others that experience an increase.
Yeah but pretty much every business is saying they will cut down on hours or have layoffs.
It doesn't matter if sales increase if the profit margin is the same or less though.
We see it all the time with big companies that bring in millions..but lose money.
Sales don't mean anything , it's profit that's important and keeps a business in business.
Lot's of these fast food places are operating on tiny profit margins now. It will get worse with a 50% hike in labor costs. in L.A that's less than 3 1/2 years away..
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