Hamilton Nolan points to two reports that say that we are all basically subsidizing the fast food industry corporations to the tune of about $7 billion per year. McDonalds alone costs us $1.2 billion. How?
Because by paying their workers so little, they force them to go to public assistance programs just in order to make ends meet. 52% of front-line fast food workers are enrolled in one or more public assistance programs compared to 25% of the total labor workforce.
The number of people working full-time yet do not earn enough to live on is a scandal. This is why it is essential to raise the minimum wage to at least $15 an hour as the fast food workers are demanding.
Of course, higher labor costs would raise the cost of fast food meals forcing price increases. This might reduce demand and cause consumers to eat cheaper and healthier home-cooked meals. Win-win all around. Well, it would probably cause some temporary employment restructuring, but in the long run that would be better for the workers.
@thewhollynone:
I think that was the point mano was making.
An in my home state potato processors are closing down plant to save a buck as they fight against cheap imports. The farmers affected take the brunt of the closure. The fast food industry has knock on effects all the way down the line.
A wage increase does not necessarily mean a price increase. This has been studied extensively and the results suggest that in general a 10% increase in wages results in about a 1% increase in price.
In the high-labor jobs, which fast food may be considered, a 10% increase in wages results in about a 1-4% increase in prices. So raising the minimum wage of fast food workers from $7.25 to $14.50 (a 100% increase) might mean your Big Mac goes from $4 to $5.50, or maybe only to about $4.50.
A more realistic level, from $7.25 to $9, a 25% increase, would put the range of a price increase on a Big Mac from $4 to $4.10 -- $4.50. I suspect the impact would be small, especially as many of the people who would get the wage increase of $1.75/hr would, in fact, purchase more fast food.
Here are a couple recent articles about it;
First, an article about job losses due to minimum wage increases, turns out it’s minor;
http://www.msnbc.com/martin-bashir/minimum-wage-meta-analysis-evidence-over-the
next, an article about how wage increases are absorbed by businesses, not everything gets passed on;
http://jaredbernsteinblog.com/so-if-the-minimum-wage-doesnt-cost-jobs-how-does-it-get-absorbed/
Finally, an article about who is getting minimum wage, hint, it’s not mostly high-school part-timers;
http://jaredbernsteinblog.com/raise-the-floor/
Higher labor costs and higher prices might reduce demand and cause consumers to eat cheaper and healthier home-cooked meals. Win-win all around.
“Might” reduce demand? “Might” raise prices? Unless virtually every economics text I’ve read is wrong the appropriate word there is “will”, not “might”.
Eat cheaper and healthier home-cooked meals because prices are higher? Have you paid much attention to the typical fast food customer lately? Pigs might start flying, too!
“A wage increase does not necessarily mean a price increase.”
Eventually it does. It must. If prices don’t increase, then some other employee benefit decreases to offset the wage increase. Or, profits eventually disappear along with the firm.
You would be wise to visit some web sites for information that is not so left-leaning as what you get from MSNBC and Bernstein. Try cato.org or mises.org for some balance.
“So raising the minimum wage of fast food workers from $7.25 to $14.50 (a 100% increase) might mean your Big Mac goes from $4 to $5.50.”
Probably higher! And you don’t seem to be considering which fast food customers are going to be affected most negatively by these higher prices. It certainly won’t be the relatively affluent occasional fast food purchaser who is in a hurry and wants a quick bite. More likely it will be the poor who can least afford to pay the higher prices. (And I haven’t even mentioned the low-skilled workers who will never even get a job at the higher minimum wage.)
So to Singham’s and Nolan’s misguided assumption that raising the minimum wage will reduce government welfare payments…think again. It more likely will increase them!