Higher Fast-Food Wages: Higher Fast-Food Prices

Heritage Foundation ^ | Sept 4, 2014 | James Sherk

[Toddsterpatriot]

If the restaurant's costs increase by 15%, why would they have to raise prices by ~40%?

The higher labor costs would initially force fast-food restaurants to raise their prices by 15 percent, which would drive down sales by 14 percent. This would force restaurants to raise prices again, pushing sales down further.

In equilibrium the average fast-food restaurant would have to raise prices 38 percent.[10] Prices would rise roughly twice as much as the initial increase in labor costs.[11] Total sales and hours worked would both fall by 36 percent.

Fast-food restaurant owners would also have to accept a 77 percent reduction in profits in order to stay in business—leaving them with an average profit of just $6,100 a year per store. Otherwise they would have to raise prices to an extent that would drive away their customer base.

[Hillarys Gate Cult]

Have intelligent hard working friends who still don’t get it and are for the increase. They tell me that where they work, the lowest starting pay is nowhere near minimum wage so an increase wont raise their prices much. One even starts at double minimum wage. They can’t tell me why the company can eat those increases and still make a profit. A $15 minimum wage would take their people from doing good to that number. They can’t answer how much their starting pay would be with the $15 floor added.

[Age of Reason]

So raise the prices.

If that hurts the wallets of consumers, maybe they’ll finally wake up to how the 1% has drained all the money out of the system.

[upchuck]

The dollar menu is one of the smartest things fast food operators have ever done.

I like the dollar menu at MCD. Everything else, IMHO, is too expensive for what you get.

[Diana in Wisconsin]

“...nuclear grade stupidity...”

Heh-Heh.

[Diana in Wisconsin]

BUMP for later. I’m supposedly ‘working’ right now.

(Soon to be replaced by a robot, LOL!)

[ClearBlueSky]

The thinking-and the whole idea- is to erase all profit. Businesses are supposed to eat all expenses,pay more and profit not at all. Prices MUST stay low and wages must go UP and costs must not be passed on but paid for out of the evil profits. We’re talking-for the most part- about people who have no concrete concept of money. ‘Money’ is a government card or a credit card, it’s a number given to you from ‘wherever’. So how hard it is to make the numbers bigger, add a zero? They only see what the numbers can get them, not that the money has to come from somewhere/someone.

[Spok]

It won’t be the first time a labor movement destroyed an industry. For big labor, it’s still a win, as it’s all about power and not workers.

[Svartalfiar]

Perhaps because labor is only part of the cost equation.

The article took that into account; it said, in a roundabout way, that a 60% increase in labor costs would increase overall costs by 15%.

Correct, but what it did not mention (in the excerpt) was that other costs go up as well. Anything the restaurant purchases from other minimum-wage or union companies is going to go up by similar amounts. So that 60% -> 15% association turns into something like 60% -> 30%. And when your margins are less than 5%, the only other way to still make profit is to raise prices. (When's the last time you saw Arby's 5 for 5 deal? Or the smaller size/fewer options on Wendy's or Mickey D's dollar menus?)

So what happens then is fewer people make purchases. So that 15% higher labor cost results in 30% higher labor/product costs. Then you raise prices by 30%, and now your sales drop by 15%. And you have to raise prices by another 10%. Hey, there's that magic 40%!

If you read the original article, Chart 2 gives a good graphical representation of this.

[Tolerance Sucks Rocks]

Minimum Wage Hike Nanny State PING!

[berdie]

“it won’t be the first time...”

Maybe these folks should talk to the Twinkie workers and see how that worked out for them.

[Lizavetta]

That's only on the first wave of consequences. The second, and larger wave comes with the wage inflation across the board as EVERY other economic group seeks to balance the books.

EXACTLY. Not to mention union wages are tied to the minimum wage so if the minimum wage rises so do union wages. Like you said, EVERYTHING, not just burgers, will go up.

[oldtech]

Here’s another thing to consider. I know people working at semi-killed to skilled jobs that aren’t making $15/hr. so how does this play out? People working at the skilled/semi-skilled jobs are going to continue at that & then have to pay more for a burger? I see a mess coming down the road.

[Rodamala]

Women and Children hardest hit.

[rdcbn]

The truly ironic thing about this spiteful attack on fast food joints is how totally counterproductive and damaging it is to the job opportunities of ambitious, hard working entry level workers.

Fast food is probably the last occupation in America where a hard working employee can start at the bottom as an entry level worker and rapidly work their way up to shift manger or better, to corporate level if they are good enough.

As an example, my daughter had a high school friend who was an honors student but came from a tough, poor family situation and could not afford to go to college despite earning a state tuition waiver.

She had been working at a McDonalds in her senior year of high school to earn money for school and had worked her way up shift manager just after graduation and site manager a year later. Another year later she was managing several restaurants for the same owner. A year or so down the road, they are helping by paying for to go to college and she is looking at a promising career with McDonalds corporate .

She now has the enviable position of the most highly promoted member of her high school class so far.

I know several other people who stated at the bottom and worked their way up to very nice management positions at Mc Donald's and McDonalds even seems to value their up through the ranks employees very highly.

In my opinion, McDonalds is one of the last bastions of the American dream. Jack in Box has similar success stories as well.

[mikrofon]

%%
SEIU, say me, say it for always,
That’s the way it should be.
SEIU, say me, say it together-
Naturally...

[roadcat]

However, fast-food restaurants operate on very small profit margins; they could only afford such wages by raising prices—significantly.

But that would hurt the poor who depend on fast food to survive! We must force politicians to enact a cap on prices at McDonald's! (Bye-bye McD's.)

[Caipirabob]

Someone tell me; who wants to eat at a restaurant run like the post office, department of motor vehicles or obamacare?

[hal ogen]

These unionistas don’t seem to realize that fast-food isn’t something anyone MUST have.

[MasterGunner01]

“Paying $15 an hour would raise fast food restaurants’ total costs by approximately 15 percent.”

Actually, that's not quite correct. A $15 per hour raise = 38% increase in the retail sale price of your favorite fast food.

To control costs and keep business, you can count on the franchisee to: 1) layoff staff; 2) cut hours back (more part time employees); 3) loss of perks such as free food, free parking, etc.; 4) invest heavily into automated preparation, sales, and service to eliminate employees. The people being paid $15 per hour will maintain the equipment that serves up the product.