Minimum wage kills minimum-wage jobs

21 Sep, 2014 by John Seiler

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As I noted six weeks ago, I’ve been noticing higher restaurant prices since California boosted its minimum wage on July 1, to $9 from $8 an hour; with a $10 increase coming in 2016.

A new study by the Heritage Foundation shows how minimum-wage price increases across America increase fast-food prices and kill jobs. Those backing higher minimum wages say “greedy businesses” will pay for the higher wages through reduced profits. Wrong.

Heritage:

Union activists want to raise the minimum wage in the fast-food industry to $15 an hour. However, fast-food restaurants operate on very small profit margins; they could only afford such wages by raising prices—significantly. Higher prices would, in turn, drive customers away, forcing even larger price increases to cover costs. Ultimately, the average fast-food restaurant would have to raise prices by nearly two-fifths. This would cause sales to drop by more than one-third, and profits to fall by more than three-quarters. Absent the widespread adoption of labor-saving technology, the union-led “Fight for 15” would make fast food much more expensive for Americans.

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. 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.

And what about all the profits those greedy capitalists make? Surely those ripoff artists should suffer by paying higher minimum wages — even by having their property taken by the government and run for the benefit of all. As the Marxists urge: Expropriate the expropriators!

The reality:

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. That works out to approximately $27,000 a year—less than the annual cost of hiring one full-time employee at $15 an hour. In order to raise wages, fast-food restaurants must raise prices.