$15 dollar fast food wages

[ziggy29]

How can you 'argue' for anything other than what supply and demand determines for the price of an hour of labor?

I'm not specifically. I'm just throwing it out there about how various people with various points of view may see it. Not everyone feels the same way, and not everyone is so sure their way is the only way and that only they can be right.

From an economic point of view, I think the theories of people on both sides of the debate will be tested as some cities jack up their minimum wages to well over the state and federal rates. I'd rather let these experiments take place and govern according to results than dogmatically stamp my foot into the ground and insist I'm right.

 

[Midpack]

I'm not specifically. I'm just throwing it out there about how various people with various points of view may see it. Not everyone feels the same way, and not everyone is so sure their way is the only way and that only they can be right.

From an economic point of view, I think the theories of people on both sides of the debate will be tested as some cities jack up their minimum wages to well over the state and federal rates. I'd rather let these experiments take place and govern according to results than dogmatically stamp my foot into the ground and insist I'm right.

+1, esp the let's see what happens with Seattle et al.

 

[Fermion]

It would seem that the wage inflation would trickle up such that the net effect would be to just have higher inflation of goods at all levels.

If I can get $15 an hour at a min. wage job, then I am going to want more than $15 an hour starting out after graduating from a 2 year trade school. I am going to want at least $20 an hour or why bother wasting 2 years? If I just finished 4 years of college and see someone getting $20 an hour after 2 years of trade school, then I am going to want $50,000 a year in an environment that normally pays $40,000 a year (non STEM).

So everyone gets a higher wage but everything starts costing more. No net winner except the government?

 

[photoguy]

The Seattle experiment should be interesting. I imagine that both conservative and liberal think tanks are already doing studies on Seattle.

One of the great things about the US is that individual states are (generally) free to conduct social experiments. Unfortunately the results of these experiments tend to be politicized. Although education changes seem to be at least adopted based on primarily on results

From an economic point of view, I think the theories of people on both sides of the debate will be tested as some cities jack up their minimum wages to well over the state and federal rates. I'd rather let these experiments take place and govern according to results than dogmatically stamp my foot into the ground and insist I'm right.

I haven't followed economics literature on this very closely but from what I understand there are still dueling philosophies as to whether raising minimum wage helps or hurts (and whom it hurts/helps). I think running experiments is a great way to see. The only problem is that there will be no true control to see what would have happened in the other condition so the results will always be up for debate unless they are strongly one-sided.

My former home town (San Jose) raised the minimum wage by $2 over a year ago. As a consumer I didn't notice this at all. NPR has a few stories on this and interview a few business owners:

In Booming San Jose, Businesses Settle Into A Minimum Wage Hike : NPR

Interesting one Pizza my Heart owner raised the wages at all his locations not just the ones in San Jose (he has 4 in the city and 20 outside). He found that it helped with reducing turnover.

A Mall With Two Minimum Wages : Planet Money : NPR

 

[ziggy29]

I haven't followed economics literature on this very closely but from what I understand there are still dueling philosophies as to whether raising minimum wage helps or hurts (and whom it hurts/helps). I think running experiments is a great way to see. The only problem is that there will be no true control to see what would have happened in the other condition so the results will always be up for debate unless they are strongly one-sided.

Fair point about the lack of control, but as more cities do this we have more data points. Collectively comparing their economies to other similarly sized cities might not prove anything either way beyond a doubt, but with a preponderance of evidence it would give a good idea. I have much more faith in observation and empirical evidence than in talking heads with an agenda.

 

[aaronc879]

The current federal minimum is definitely too low but raising it to $15/hr is a bit much. I would say a 3-year phase-in to $10/hr is reasonable. Then it should be indexed to inflation after that.

 

[Andre1969]

I've read that if we went to a $15/hr minimum wage, McDonalds is the only fast food chain that could actually absorb those costs, simply because they're that profitable. In general, fast food (or all restaurants in general) don't have that high of a profit margin, yet McDonalds does. All the others (Wendy's, Burger King, etc) would have to raise their prices, cut their staff, etc.

I own some McDonalds, and for awhile it was doing great. I bought in initially back in October 2006, at $39.84 per share. In those days, it only paid a dividend once per year. It paid $1/share in December 2006, and $1.50 in December 2007. Then in 2008 they started going to quarterly distributions.

Looking at my dividend history, it looks like it's gone up pretty consistently since then. Here's the quarterly payout...
2008: $.375/sh
2009: $.50
2010: $.55
2011: $.61
2012: $.70
2013: $.77
2014: $.81

I've heard that they haven't been growing as quickly though, so the next dividend increase, which is usually in December, may not be that big this time around. And notice the last jump, from 77 cents to 81 per share, while still a 5.2% increase, was down considerably from earlier years.

In general though, I think McDonalds, and other restaurants and industries, will find a way to make these higher minimum wages work. They have in the past, and they will in the future.

 

[ERD50]

Originally Posted by ERD50 View Post
How can you 'argue' for anything other than what supply and demand determines for the price of an hour of labor?

I'm not specifically. I'm just throwing it out there about how various people with various points of view may see it. Not everyone feels the same way, and not everyone is so sure their way is the only way and that only they can be right. ...

OK, clearly people have different viewpoints (or this wouldn't be debated) but I do have trouble seeing how anyone can reasonably argue against letting supply/demand set prices (assuming there is no monopoly, and then I prefer the breakup of the monopoly over 'band-aid', micro-managed-from-afar fixes).

If the price of a menial job can be fixed at $15, then why not any other arbitrary transaction? Should the govt set the price if I want to sell my car? Maybe a poor person needs it to get to work, so it could be 'justified' that I sell it to them at below market prices. It just seems totally inconsistent to me to price fix a select transaction.

I keep hearing from some sides that anyone should be able to earn a 'living wage', even if there isn't enough demand for those skills to support those wages. So like my woodcarver example - shouldn't I be able to sell every woodcarving I make at a minimum wage rate, even if there isn't enough demand for my lousy woodcarvings, just because 'everybody should be able to make a living wage', regardless of demand?

From an economic point of view, I think the theories of people on both sides of the debate will be tested as some cities jack up their minimum wages to well over the state and federal rates. I'd rather let these experiments take place and govern according to results than dogmatically stamp my foot into the ground and insist I'm right.

Unfortunately, I don't think this will happen. People with an agenda on either side will twist the stats to say whatever they want it to say, and people on the same side of that agenda will eat it up. Cause/effect will be thrown to the side, we've seen it time and time again.

At least, if a municipality decides they want a minimum wage locally, that is theoretically what those local residents want, and they can live with any pros/cons. Having it done at a Fed level makes the 'experiment' tougher to sort out, or to see the pros/cons.

-ERD50

 

[photoguy]

OK, clearly people have different viewpoints (or this wouldn't be debated) but I do have trouble seeing how anyone can reasonably argue against letting supply/demand set prices (assuming there is no monopoly, and then I prefer the breakup of the monopoly over 'band-aid', micro-managed-from-afar fixes).

In theory I think this is ideal (and I don't think there's any such thing as a labor shortage for most professions). But there are a lot of distortions to the labor market besides the presence of monopolies (and oligopolies like the wage fixing scandal in silicon valley) and I think people have very different high level goals for what they want to achieve with the minimum wage.

 

[ERD50]

The current federal minimum is definitely too low but raising it to $15/hr is a bit much. I would say a 3-year phase-in to $10/hr is reasonable. Then it should be indexed to inflation after that.

But this gets right to heart the problem - you might feel $10 is reasonable and $15 unreasonable. But someone else will feel that $10 is unreasonable and $15 is reasonable. So why should your feeling have precedence over anyone else's?

If the market decides, then in effect everyone involved in the transaction agrees. Isn't that 'fairer'?

I've read that if we went to a $15/hr minimum wage, McDonalds is the only fast food chain that could actually absorb those costs, simply because they're that profitable. ...

In general though, I think McDonalds, and other restaurants and industries, will find a way to make these higher minimum wages work. They have in the past, and they will in the future.

OK, so getting back to the OP and the effect of any wage increases specifically on MCD....

I think your first paragraph is looking at this in a vacuum. If wages go up for all, they will all be able to increase their prices (and I think someone mentioned labor costs are ~ 7% of costs - if so, not a huge increase). They may lose some marginal sales due to price increases, and that may lead to some marginal job cuts. But since we can't go out of the country for fast food, I don't think it will have a huge effect on their profitability. So I agree with your last sentence.

-ERD50

 

[timo2]

It will happen soon, althought it may be 5 years. There are millions of people that the most they will ever achieve is a fast food job. They need those jobs to be a career, not a stepping stone. It will be the way we keep America a 'fair' place to live.

This has been the case for a long time in some communities. In 1978 in Saint Louis, a friend was in the McDonald's (hamburger) management training program, and was the manager of a restaurant in an urban part of town. He used to describe how, when business was slow, he only sent home the kids, as some of the staff were adults who supported their family with that job.

But out in the suburbs, it was all children barely of working age at the local McDonald's.

 

[Chuckanut]

The debate over the minimum wage masks what I believe is the real problem: For some reasons people who are working in low wage jobs are stuck there and can't or won't work their way up to higher paying jobs.

I never viewed a fast food job as a job that was supposed to pay a living wage so a person can live independently. I always thought of them as money for 'extras' or jobs for people in high school and college who still live at home.

So, the question in my mind is why there are so many people who view fast food jobs as a 'career' type job worthy of the higher pay.

IMHO, there are several reasons that vary from people who simply won't do what is necessary to better their economic conditions, to greedy/heartless folks with power who have tilted the playing field so that low income people have a steeper than necessary climb to economic independence.

 

[pb4uski]

How can you 'argue' for anything other than what supply and demand determines for the price of an hour of labor?....

While I'm normally am very free-market oriented, I have seen way too many situations where employers have all the power and take advantage of employees who have little power. I'm not a big advocate of unions either, but I concede they do add some balance but in too many cases go overboard.

I think that the minimum wage should be higher but I concede that $15/hour is probably too much. My view is that the minimum wage should at the least be set at a level where someone is working full-time doesn't have to live in poverty and where a family of four with two full-time workers don't have to live in poverty.

Assuming a 2,000 hour work year, a $7.25/hour minimum wage single would gross 124% of the poverty level and after SS and FIT that would drop to about 113%. A working couple with two-kids would gross 122% of the poverty level and after SS and FIT that would drop to about 110%. If they live in a state with state income taxes, they would be even closer to living in poverty at minimum wage.

After taxes, I don't think 110-115% of the poverty level is sufficient. If we increased the minimum wage to $9/hour then minimum wage workers would gross about 150% of the poverty level so, depending on the cost of living in the area they live in, they should be able to "get by" but at the same time would have incentive to improve their skills and hustle to climb the ladder.

If an increase was implemented gradually (say, over 3-5 years) it should not be too harmful to the economy.

Just my opinion.

 

[scrabbler1]

The current federal minimum is definitely too low but raising it to $15/hr is a bit much. I would say a 3-year phase-in to $10/hr is reasonable. Then it should be indexed to inflation after that.

I agree with this. $10 an hour is about what the minimum wage would be had it been indexed to inflation since the late 1960s or early 1970s, a common benchmark I see for comparison.

 

[pb4uski]

That sounds very sensible to me.

 

[Hamlet]

Actually, you can.

When I worked at McDonald's (over 20 years ago), we had a device that we could stick two quarter pound burgers under so that they would cook from both sides. They would then take about two minutes to cook instead of six or so. The only time we would make quarter-pounders in the normal way was at lunchtime when we needed to make a whole bunch.

I think people would be suprised at the productivity increases in fast food over the years. The automatic change dispensers, faster credit card payments, etc. The drink dispensers that they use these days are much more automated than they were when I was doing it. On busy days, the one by me has a person taking orders in the drive thru line with some sort of tablet system.

Well, true. I was speaking more of the general case. It's not like you can force a burger to cook in 3 minutes instead of 8 minutes.

 

[Midpack]

The government, states, cities, counties can set minimum wages as some have since the 1940's. That seems unlikely to change after 70 some years, but that doesn't seem to slow the "free market" debate.

Consumers have absorbed price increases on products and services for generations, and will always have to confront those choices. Consumers usually don't know or care why prices increase, materials, labor, other, all - (minimum) wages aren't unique or special for the consumer. The market will respond to price increases and find a new supply & demand equilibrium - the government can't and doesn't "dictate" prices and guarantee a living wage because they can't guarantee consumers will buy (higher priced products).

States, cities and counties who legislate for higher minimum wages will experience a market response just as they did after the countless past cost increases. It may be trivial, it may be substantial, we'll have insights after Seattle and others.

It may be technically possible, but I doubt anyone here can predict what a $15/hr minimum wage would actually do to any given industry/sector. Might be trivial, might not - though if labor is 7% of burger costs as an earlier post stated, might be more trivial.

 

[timo2]

I think that the minimum wage should be higher but I concede that $15/hour is probably too much. My view is that the minimum wage should at the least be set at a level where someone is working full-time doesn't have to live in poverty and where a family of four with two full-time workers don't have to live in poverty.

Assuming a 2,000 hour work year, a $7.25/hour minimum wage single would gross 124% of the poverty level and after SS and FIT that would drop to about 113%. A working couple with two-kids would gross 122% of the poverty level and after SS and FIT that would drop to about 110%. If they live in a state with state income taxes, they would be even closer to living in poverty at minimum wage.

...

If an increase was implemented gradually (say, over 3-5 years) it should not be too harmful to the economy.

Currently SNAP eligibility is limited to households with gross income of no more than 130% of the federal poverty guideline. I'd like to see the minimum wage coordinated with the SNAP limits, so that a full time person would not need food assistance from a program designed to keep people from starving. Because of the prevalence of part time work, rogue employers would still be able to game the system and use taxpayers to subsidize their workforce, but this would reduce it some.

 

[Andre1969]

I agree with this. $10 an hour is about what the minimum wage would be had it been indexed to inflation since the late 1960s or early 1970s, a common benchmark I see for comparison.

The reason they like to pick that benchmark tis that it represents the point in time where minimum wage was at its highest in history, when adjusted for inflation. Minimum wage went to $1.60 per hour in 1968. Adjusting for inflation, that's $10.95 per hour today. However, when it was first enacted, in 1938, it was only 25 cents per hour. That's only $4.22 per hour, by today's standards!

I started working in 1983, at the age of 13, doing house cleaning and yard work for an old lady in my neighborhood. I made $3.50 per hour, and minimum wage at that time was $3.35/hr. Adjusting for inflation, that's $8.01 per hour today.

I wish they would just pick a decent number for minimum wage, right now, start off of there, and simply index it to inflation.

The $3.35/hr minimum wage started in 1981, and lasted through 1990, when it was boosted to $3.80. In today's dollars, that would be $8.78 and $6.11, respectively.

Another problem is that jobs that once paid above minimum wage have been reduced to minimum wage or, worse, waiter pay. For instance, in 1991, while still in college, I got a part time job in a department store. I made $6.50 per hour, and time and a half on Sundays. In 1992, they cut out the time and a half, but gave everyone a raise based on how much OT they worked in the past. In my case, it put me to $7.03.

In 1991, minimum wage went to $4.25. So, this job paid me about 53% over minimum wage. But, fast forward to just a few years ago...one of my friends got a second job, in the same company, doing the same thing, but by this time it was just paying minimum wage, which was $7.25 by that time.

Adjusting for inflation, my $6.50/hr would be $11.37. I forget what year it was my friend did that second job, but $7.25 has been in effect since 2009. So, at the most, it would be about $8.05 today.

Back in 1988-90, I worked part time at Denny's. I started off as a dishwasher making $5.25 per hour, but soon became a dishwasher trainer and then a host, making $6.00 per hour. As a waiter, I made $2.14 plus tips. $6/hr in 1990 would be like $10.94 today.

However, today, I have a friend who works at Ruby Tuesdays, and he says that it's common to just give the hosts waiter pay, which in Maryland is around $3.XX per hour. The waiters all have to cough up 3% of their sales for the night, which goes into "Tip Share", and that money gets disbursed to the hosts and bartender. Possibly busboys and dishwashers as well, can't remember for sure.

 

[Chuckanut]

FWIW, at one city that has a minimum wage of $15 an hour currently in place, I notice that parking lot operators have a "living wage surcharge" of 99¢ per day for something like parking one's car at an airport lot.

 

[scrabbler1]

The reason they like to pick that benchmark tis that it represents the point in time where minimum wage was at its highest in history, when adjusted for inflation. Minimum wage went to $1.60 per hour in 1968. Adjusting for inflation, that's $10.95 per hour today. However, when it was first enacted, in 1938, it was only 25 cents per hour. That's only $4.22 per hour, by today's standards!

I started working in 1983, at the age of 13, doing house cleaning and yard work for an old lady in my neighborhood. I made $3.50 per hour, and minimum wage at that time was $3.35/hr. Adjusting for inflation, that's $8.01 per hour today.

I wish they would just pick a decent number for minimum wage, right now, start off of there, and simply index it to inflation.

The $3.35/hr minimum wage started in 1981, and lasted through 1990, when it was boosted to $3.80. In today's dollars, that would be $8.78 and $6.11, respectively.

Another problem is that jobs that once paid above minimum wage have been reduced to minimum wage or, worse, waiter pay. For instance, in 1991, while still in college, I got a part time job in a department store. I made $6.50 per hour, and time and a half on Sundays. In 1992, they cut out the time and a half, but gave everyone a raise based on how much OT they worked in the past. In my case, it put me to $7.03.

In 1991, minimum wage went to $4.25. So, this job paid me about 53% over minimum wage. But, fast forward to just a few years ago...one of my friends got a second job, in the same company, doing the same thing, but by this time it was just paying minimum wage, which was $7.25 by that time.

Adjusting for inflation, my $6.50/hr would be $11.37. I forget what year it was my friend did that second job, but $7.25 has been in effect since 2009. So, at the most, it would be about $8.05 today.

Back in 1988-90, I worked part time at Denny's. I started off as a dishwasher making $5.25 per hour, but soon became a dishwasher trainer and then a host, making $6.00 per hour. As a waiter, I made $2.14 plus tips. $6/hr in 1990 would be like $10.94 today.

However, today, I have a friend who works at Ruby Tuesdays, and he says that it's common to just give the hosts waiter pay, which in Maryland is around $3.XX per hour. The waiters all have to cough up 3% of their sales for the night, which goes into "Tip Share", and that money gets disbursed to the hosts and bartender. Possibly busboys and dishwashers as well, can't remember for sure.

I was looking up the MW history and I see what you mean about the high point.

http://www.dol.gov/whd/minwage/chart.htm

In 1968, the MW was raised from $1.40 to $1.60 per hour after only 1 year at $1.40. That's just under a 15% increase for only 1 year, a pretty big increase.
Back then, and up until 1977, there were multiple minimum wages, a lower one which was applicable to some jobs. The chart shows the history of those sets of minimum wages until the MW was consolidated in 1977.

When I was in high school and college and worked at jobs between 1979 and 1985, some of them were below the MW, too. I was not always in jobs which guaranteed the MW either because they were local govt jobs with employees not covered by the MW or they included tips. I do remember one of them at a local public library in 1979-81 with my starting hourly pay below the MW but after 2 years with some COLA raises and longevity raises (working x number of total hours got a raise), by the time I left that job I had finally gotten up to $3.35 an hour, the minimum wage in 1981 (as you pointed out).

I remember in 1984 I had a summer job as a messenger which paid a whopping $4.50 an hour. I earned more that summer than I did in the previous summers combined!

 

[pb4uski]

Currently SNAP eligibility is limited to households with gross income of no more than 130% of the federal poverty guideline. I'd like to see the minimum wage coordinated with the SNAP limits, so that a full time person would not need food assistance from a program designed to keep people from starving. Because of the prevalence of part time work, rogue employers would still be able to game the system and use taxpayers to subsidize their workforce, but this would reduce it some.

+1 It seems sensible to me to design the minimum wage so full time work without SNAP benefits is more attractive than part-time work with SNAP benefits (in both cases after SS and income taxes).

 

[jimnjana]

One thing is for certain, there will be less fast food jobs per customer in the future. Mobile apps for ordering and payment, robotic food prep, and order/pay kiosks etc all lead to less employees. Higher wages will follow as more will be expected from the employees that remain.

 

[Hamlet]

Labor is quite a bit more than 7% of a burger's cost. I think someone thru out that 7% number as McDonald's corporate labor cost. The typical McDonald's is actually owned by a franchisee, who is the one actually paying the individual store workers. I'm neglecting that some stores are actually owned by McDonald's itself, but they have become a pretty small portion of the total in recent years.

In general, I think labor is generally in the 25-30% range for a fast food franchise. So if you raised the minimum wage 25%, you'd be talking about about a ~7% increase in prices if the cost was simply passed on to the customer. So going from $7.25 to $9-$10 probably wouldn't have a dramatic effect. Going from $7.25 to $15 would translate to a 25%-30% increase in prices though (assuming it was all passed on), which probably would cause problems in the business model.

It may be technically possible, but I doubt anyone here can predict what a $15/hr minimum wage would actually do to any given industry/sector. Might be trivial, might not - though if labor is 7% of burger costs as an earlier post stated, might be more trivial.

 

[samclem]

. . . rogue employers would still be able to game the system and use taxpayers to subsidize their workforce, but this would reduce it some.

This perspective makes sense if we start with the assumption that the part-time employees are somehow wards of their employers, and so SNAP, Medicaid, etc are "subsidies" that help the employers meet their obligations to provide for the needs of these workers.

But if we instead view each party as liberated and qualified to make decisions for their own benefit (hire, fire, quit, get another job, etc), then viewing these govt payments as somehow "subsidizing" the employers makes zero sense. Would the Medicaid, SNAP, etc stop if the employee quit working? No. It's not in any way a subsidy that benefits the employer. Perhaps the EITC can be viewed as subsidizing wages, but since it doesn't go through the employer that's not very clear, either. Walmart gains no benefit (is not subsidized) to hire a single mom who gets EITC rather than a HS kid who doesn't. None of these govt payments that go to employees are subsidies to employers.