What Would a $15 a Hour Minimum Wage Cause: Higher Prices vs. Robots

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The effort to provide millions of workers with a living wage put millions of workers out of a job, the SEIU Communist Party is leading protests against fast food joints all over the US.  Their demand is a $15 a hour minimum wage.  As usual, the SEIU Communists, being ignorant of how businesses actually work, fail to recognize the consequences of their actions; like higher prices…

Fight for 15

The Service Employees International Union (SEIU) has launched an expensive PR campaign calling for wages of at least $15 an hour in the fast-food industry. This Fight for 15 is part of a larger SEIU pressure campaign to unionize fast-food restaurants.[1] Hundreds of union activists have staged “walkouts” and protests across the country demanding the higher pay rate. These protests have attracted considerable media attention. However, if the SEIU achieved its stated goal, it would hurt the budgets of millions of moderate-income Americans.

No, Fast-Food Joints Cannot Absorb Cost Increases

Artificially inflating wages would substantially increase fast-food restaurants’ total costs—labor makes up a considerable portion of their budget. Chart 1 shows the financial statements of the average fast-food restaurant in 2013. Labor costs (26 percent) and food and material costs (31 percent) make up the majority of the typical restaurant budget.

The Bureau of Labor Statistics reports the average cook in a fast-food restaurant earned $9.04 an hour in 2013.[2] The SEIU’s push for $15 an hour would consequently raise fast-food wages by at least 66 percent. Paying $15 an hour would raise fast-food restaurants’ total costs by approximately 15 percent.[3]

Fast-food restaurants could not pay this additional amount out of their profits. The typical restaurant has a profit margin of just 3 percent before taxes.[4] That works out to approximately $27,000 a year[5]—less than the annual cost of hiring one full-time employee at $15 an hour.[6] In order to raise wages, fast-food restaurants must raise prices.

Total Economic Effects

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The Heritage Foundation constructed a simulation model using the data on the average fast-food restaurant’s income and expenses. (See Chart 1.) This model accounts for the sales that fast-food restaurants lose when they raise prices. (See the appendix for details of this model.) Chart 2 shows the effects of a $15-an-hour minimum wage on the fast-food industry.

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.

You can see the rest over at Heritage.  It is well reference and researched.  And, since it is fact based, it will be attacked by regressives, who hate nothing more than when their shameless rhetoric is shredded by reality.

I covered this before, but our old friend Snarky posted the following link on Facebook…

Here’s a schematic of what the burger-bot looks like and how it works. It occupies 24 square feet, so it’s much smaller than most assembly-line fast-food operations. It boasts “gourmet cooking methods never before used in a fast food restaurant” and will even deposit your completed burger into a bag. It’s a veritable Gutenberg printing press for hamburgers.

So, when faced with the prospective of going out of business, or ordering a robot, which do you think they will pick?
And, when hundreds of thousands of people are out of work because they fell for the SEIU’s snake oil, who will be blamed?
Bush, probably!
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  • Infidel de Manahatta

    I’m sure the Republicans will be blamed for this. I trust the ability of the MSM to construct a favorable narrative.