New York’s Wage Board recently approved a $15 an hour minimum wage for fast food workers, which has stirred a lot of questions and criticism. For example, some claim that humans would be replaced with machines. Others want to know why the wage hike applies only to workers in chain restaurants, leaving many other workers out in the cold.
But the biggest issue for many is the effect a higher minimum wage would have on prices. A Forbes article from 2013 talks about how, if McDonald’s doubled the salaries of all of their workers, costs would go up by 17 percent. The author ties together the “workers will be replaced by machines” hysteria with the “prices will skyrocket” hysteria, and says that if McDonald’s could raise prices by 17 percent without reducing demand, they certainly would do so. Meaning that if McDonald’s thought they could charge more for their food, without raising worker salaries, they already would have done it.
Now, a new study from Purdue University calls into question the claim that a minimum wage increase would lead to drastically higher prices, such as a 68 cent increase in the cost of a Big Mac. This study says that New York’s move to raise salaries of “limited service” restaurant employees will increase prices by only 4.3 percent.
The study, done because of high turnover among food service employees, produced no surprises, say the authors. Richard Ghiselli, head of Purdue’s School of Hospitality and Tourism Management, says that they wanted to investigate the hypothesis that if you raise wages and benefits, turnover would go down. He says that, while they didn’t answer that question, their study confirmed what everyone already knew: a higher minimum wage means that prices will go up, or portion sizes will go down.
Ghiselli and his colleagues used data from the National Restaurant Association, as well as Deloitte & Touche. They assumed that the fast food industry would maintain their current profit margin of 6.3 percent.Using those numbers, they found that the price of a Big Mac would increase by only 17 cents.
If you extend that price increase across the entire menu at McDonald’s, the total cost of your meal, depending of course on exactly what you buy, will increase by less than $1. Now, consider this: the new minimum wage doesn’t jump to $15 an hour overnight, like conservatives want you to think. It will be phased in over several years. So, by the time fast food workers get to $15 an hour, that 4.3 percent price increase will probably be barely noticeable to most people.
Here’s how the $15 wage will be phased in.
In New York City, hourly pay would increase to:
• $10.50 on Dec. 31
• $12 on Dec. 31, 2016
• $13.50 on Dec. 31, 2017
• $15 on Dec. 31, 2018
For the rest of the state, the minimum wage would increase to:
• $9.75 on Dec. 31
• $10.75 on Dec. 31, 2016
• $11.75 on Dec. 31, 2017
• $12.75 on Dec. 31, 2018
• $13.75 on Dec. 31, 2019
• $14.50 on Dec. 31, 2020
• $15 on July 1, 2021
So no, workers are not going to see their wages double overnight. And there won’t be any plagues of locusts, either. What there will be is a whole group of people who will receive a decent wage for the work they do, and those people will put most, if not all that they make right back into the economy. It ought to be a win/win situation.
Here’s a report on the details of the new minimum wage, and what some New Yorkers think about it, from WSYR:
Featured image via Fibonacci Blue/Flickr