Class Warfare Blog

May 6, 2013

More Warfare Against the Min Wage

In a previous post I argued that the minimum wage argument needs to be recast. Partially that was because the arguments typically given for and against are full of hyperbole. For example an editorial in my local paper had this to say about the $15 min wage for fast food restaurant workers: “. . . (the) fight isn’t with management — it’s with price-conscious consumers. A $15 minimum wage will only hasten the service-industry trend toward automation and self-service. . . .” Later the editorial writer, Michael Saltsman, went on to say “Price hikes aren’t an option — picture your response if McDonald’s Dollar Menu became the Three-Dollar Menu — so robots instead lead the way.

Currently MacDonald’s are booming but as one source put it it is from an expanded menu and longer hours being open: “More hours of operations and a greater selection of menu items necessitate a larger staff and, accordingly, higher labor costs.” So, MacDonald’s restaurants aren’t raking it in right now. The average profit of a restaurant is about 5.7%.

But let’s look at the “if McDonald’s Dollar Menu became the Three-Dollar Menu” bit of hyperbole. Here are the average restaurant’s labor costs (as percents of net sales):

20% Crew
04% Manager
02% Payroll Taxes

Obviously the manager’s salary and payroll taxes shouldn’t be included, so the “crew’s” labor cost including taxes is 21.6%.

Now the increase in min wage in my state, using the largest min wage request ($15/hr), from the current $8.25, constitutes an increase in labor costs of 82%. So, instead of labor costing 21.6% of net sales, it would now cost 39.3% of net sales. Thus net sales income would have to increase by 17.7% to maintain the same profit level. That is the Dollar Menu would have to be raised from $1.00 per item to $1.18 per item and that’s if the entire increase in labor costs is born by price increases. Not $3 . . . $1.18. So, price hikes are an option. One, I suspect of many. What if MacDonald’s voluntarily went to a higher min wage? Can you imagine the goodwill an advertising campiagn focused on that would bring?

And the robot scare . . . “the robots are coming, the robots are coming,” MacDonald’s is already investing heavily in touch screen menu selection and other automations as “labor saving devices.” The only labor they want is what can’t be automated, but even MacDonald’s doesn’t want a “faceless” restaurant. The touch screen “innovation” threatens to do away with cashiers, the editorial claims. Uh, not unless you want to stop accepting cash. Sure a swipe of a debit/credit card could pay your bill without a cashier, but cash has to be counted, change given, etc. The amount of time you might spend at a counter will hardly change if you are pouring over a menu and pressing buttons rather than a clerk doing it for you. Also people don’t like machines up selling them, but it is okay for people to do so “(Do you want fries with that?”). Then there is a the cost of the automation, the servicing of the automation, the off putting of the automation, and if it doesn’t increase throughput (sales per day) will it be worth it? And the off putting factor of touch screens . . . associated with serving food? If you approach one and it is dirty, the normal reaction is to walk away. Look at the grocers who are providing hand wipes at their shopping cart stations.

There are many dimensions to this problem. It is complex. But hyperbole doesn’t help. What about experiments? What about trying something to see if it works? In San Francisco in 2003 voters approved a local ordinance tying the minimum wage to the regional rate of inflation. The minimum wage has thus increased annually from $8.50 an hour in 2004 to $10.55 as of January 1. Let’s see what happens there. Let’s look at all of the historical evidence of what did happen when the min wage was increased the last time, and the time before that.

And let’s not make up numbers in the process, okay?

 

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7 Comments »

  1. I saw a meme a while back which is perfect for this. Google, search, .08 seconds later, meme found. Praise Google! (Plus the rest of this site looks pretty cool)

    http://banana1015.com/memes-have-the-answers-to-all-of-americas-problems-or-do-they/

    Comment by john zande — May 6, 2013 @ 9:09 am | Reply

  2. Actually, the dollar menu price would go up a little more than by 18 cents, because managers salary would have to at least partially match the increase in the other employees wages, and payroll taxes would go up proportionally as well. And if you assume that all other business costs that make the other 68% non labor-related and not profit related expenses (e.g., food ingredients, utilities, etc.) are also affected by the minimum wage, and all of those costs have the same (26% labor, 6% profit, 68% other) breakdown, and so on, you’ll have an increase in the cost of the dollar menu by something closer to the amount of the increase in the minimum wage. (because, basically, if you break down the cost of most items, most of the price will be labor: cost of hamburger beef patty includes the cost of beef and labor that makes beef into ground beef; price of beef includes labor costs of the cattle rancher and feed; price of feed includes the corn farmer labor and price of fertilizer; price of fertilizer includes the labor of fertilizer plan workers and raw materials; etc.)

    Comment by List of X — May 7, 2013 @ 1:39 am | Reply

    • – But even with that in mind, the price of any item cannot increase by more than increase in the minimum wage, and will actually increase by less than that since some wages above new minimum will not be increased at the same level, and some source materials/parts are imported and are not as affected by US minimum wage increase.

      Comment by List of X — May 7, 2013 @ 1:42 am | Reply

    • I included the payroll taxes and there is no real reason for increasing the manager’s salary as his/her duties go unchanged. If a pay raise is given to salve the managers feelings then that is not a cost of the min wage increase.

      Utilities affected by min wage increase? I don’t think so. And food costs? Maybe. but still we are talking about some fraction of a dollar and not the $2 increase suggested hyperbolically. In Australia, the min wage is adjusted for inflation and that’s all there is too it. To not do so is the ask the employees, and only the employees, to subsidize the low costs on the menu. Having everyone’s min wage go up keeps the playing field level.

      Have you noticed gas prices lately? Just a few years ago, I was paying in the $2-3 per gallon range. Now it is in the $4-5 range and we aren’t even in the peak driving season. People have adjusted to this doubling of the price of gas because they had to. People would adjust to higher prices for a Happy Meal, too.

      Comment by stephenpruis — May 7, 2013 @ 8:57 am | Reply

      • If you have, say, a cashier at $8/hour minimum wage, shift supervisor at $14/hr, and manager at $20, then if you raise cashier’s wage to $15, the supervisors’ wage would probably have to be raised to above $15, and depending on this raise, the manager’s pay may need to be bumped up too. These raises won’t necessarily be as big (proportionally) as raise for minimum wage workers, but they’ll likely happen.

        Utilities will be affected, too. Again, price of electricity will factor in utility company labor costs + cost of coal + cost of power plant and grid equipment, and cost of coal and equipment will factor in miner’s labor and labor of equipment assembly plan workers. You can trace back these costs ad infinitum, but since at each step a fraction of cost splits off to labor, eventually most of the cost of any product is a combination of various labor costs.

        Comment by List of X — May 10, 2013 @ 1:26 am | Reply

        • Yes, and, the numbers of supervisors is significantly smaller than the number of line workers, level by level. In the case of McDonald’s the manager’s salary was already many times that of any worker, so no adjustment is needed.

          Again, we are talking hypotheticals when there are real data available. My plea is that we not make up nonsensical numbers in our hypotheticals.

          And again, we are talking about the effects of small changes in the salaries of our poorest workers but we don’t even blink when hedge fund managers, who don’t really make anything, “earn” over $1,000,000,000 per year. Wealth is being redistributed at huge rates from bottom to top. What is wrong with redistributing some from top to bottom?

          Comment by stephenpruis — May 10, 2013 @ 7:52 am | Reply


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