Minimum wage kills minimum-wage jobs

Minimum wage kills minimum-wage jobs

As I noted six weeks agominimum wage, taylor jones, cagle, May 8, 2014, 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.

Fast food restaurants

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.

6 comments

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  1. LetitCollapse
    LetitCollapse 21 September, 2014, 12:28

    “A new study by the Heritage Foundation shows how minimum-wage price increases across America increase fast-food prices and kill jobs.”

    Does the Heritage Foundation show how all these workers making slave wages get food stamps, free medi-cal, WIC, Section 8, etc… to supplement their crappy wages? I couldn’t care less if a Big Mac goes to $10. I don’t eat that garbage anyway. If I want a hamburger I make my own. Instead of forcing the taxpayers to supplement the rock bottom low wages it’s time for the businesses to start supporting their own workers so that they can live an essential life in the region where they live. The taxpayers shouldn’t have to bail out the businesses. If they can’t compete paying their workers a living wage – either relocate or find another line of business. We have too many fast food restaurants as it is. It’s time to thin the herd.

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  2. Ronald Stein
    Ronald Stein 21 September, 2014, 13:59

    Extra costs resulting from government actions on businesses such as over regulations, over taxation, and uncontrollable “fees” are a slight inconvenience to those making the big bucks, but the higher costs trickle down to all citizens for products and services. Those that earn the small bucks, which includes virtually all those in the food and hospitality industries, are the ones that can least afford higher costs for power, transportation fuels, and food. There is minimal impact to those that can afford the results of our relentless business unfriendly efforts, but little hope for those that barely exist at today’s cost of living.

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  3. LetitCollapse
    LetitCollapse 21 September, 2014, 20:06

    If fast food restaurants weren’t profitable there wouldn’t be so damn many of them. I bet there are 75 within one square mile where I live. We are a nation of fast food restaurants, banks and gas stations. Have any of you lived in Europe? Their communities aren’t designed like that. Over there they have beautiful parks with free entertainment on the weekends, roller skating or ice skating rinks, outdoor and indoor swimming pools, fantastic networked underground public transportation systems that can get you from one end of huge city to the other end in 15 minutes, speciality bars and eateries in the neighborhoods where people gather together and socialize, etc… Their communities are organized for the enjoyment of the citizens. Everything in America is designed to chase the dollar bill. I say get rid of 50% of the fast food restaurants. Raise the wages even if it causes the price of a hamburger to increase by 30%. Maybe people would eat healthier and it would save on medical costs.

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  4. Queeg
    Queeg 21 September, 2014, 21:14

    Brick and mortar service businesses are under intense pressures …….. cost, consumer expectation and regulatory.

    Inevitable the consumer will have less choices….price, variety, time of service, type of services.

    Does it make sense two Asian or burger fast gag places are in the same cookie cutter shopping center?

    Who cares it’s healthy….we tried this healthy gig in our Historic Hotel……bombed…..they demanded we bring back Captain Crunch, real sugar, glazed pastries/ donuts…they liked fake orange drink better than real orange juice too!

    Today you need king beds where in the 80-90’s queens sufficed….why…..lots of guests today are enormous-

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  5. LetitCollapse
    LetitCollapse 21 September, 2014, 21:54

    “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.”

    Sorry. I don’t buy it.

    I have been to Asian buffets that only charge $10 for lunch and about $13 for dinner. And they offer a HUGE smorgasbord of food – ALL YOU CAN EAT. Salmon, beef brocolli, beef ribs, pork dishes, soups, sushi, an entire salad bar with all the additions, etc…. and they manage to stay in business. How could you not make a load of money off a $5 hamburger that only costs $1.75 to make? Oh, and there are huge mark-ups on all the drinks. Remember, the chains buy in mass bulk quantities. I think the fast food places can afford to pay $15/hr and still do quite well. I think some of these small independent retail knick-knack stores would have trouble paying $15/hr. That’s why I think it will cause the underground economy to explode.

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  6. Queeg
    Queeg 21 September, 2014, 22:26

    If a restaurant makes 15% net that is fantastic. Read up on the numbers in restaurant management texts.

    A typical food joint may make 5-10%.

    The 3% number reported isn’t surprising……

    “What difference does it make”. 3- 10% on a million in sales on a 1.5 million dollar investment affords one tops a ROI of around 7 percent. Frankly, buying a high yield utility stock is less balderdash!

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