Steven Greenhouse and Stephanie Strom, writing in the New York Times, highlight a few fast food companies that pay entry-level workers above the minimum wage. Employees at these companies are not alone, 97 percent of American workers are paid above minimum wage, because otherwise they would quit for other jobs. But it does not follow that the federal government should mandate a higher minimum wage. Some of the downsides of a higher federal minimum wage deserve more emphasis than the authors provide.
The companies mentioned are:
•Boloco, a New England burrito chain that sets its base bay at $9 an hour.
•California-based In-N-Out Burger, which starts employees off at $10.50 an hour.
•Shake Shack, a trendy restaurant that pays an hourly minimum of $9.50.
•Moo Cluck Moo, a hamburger place with only two restaurants in Michigan that pays at least $15 an hour.
It is wrong to force a one-size-fits-all pay scale on companies with drastically different business plans, target markets, and geographic areas of operation. Furthermore, it makes no sense to deprive teens and low-skill workers of employment, another consequence of raising the minimum wage.
Proponents of a higher federal minimum wage argue that paying workers more is in the interest of all businesses, so there will be few, if any, negative consequences. But why do employers continue to pay below $10.10 an hour (the level proposed by President Obama) or $15 an hour (what is demanded by some union-funded worker centers) if it is against their interests to do so? The answer is that the benefits of higher pay do not apply equally to all businesses.
The New York Times article points to a “short-term focus on maximizing profits” as the reason firms continue to pay workers minimum wage. If this is the case, why has McDonald’s stock increased from under $13 a share in 2003 to $100 today? McDonald’s pay structure is based on creating lasting value for shareholders, which comes from providing customers with meals at lower cost or higher quality. If the company were truly short-sighted, it would not be continuing to grow.
Shake Shack and McDonald’s differ in many ways, among them prices. In Washington, D.C., a double cheeseburger at Shake Shack costs $7.40, while a McDonald’s double quarter pounder with cheese costs $4.69. Both burgers contain about 800 calories. While this may not be a material difference for a young professional living in Arlington, for a family of four living in Anacostia saving over $10 on a meal is a big deal. McDonald’s also sells items on its Dollar Menu at cost or at a loss, making meals for low-income individuals more affordable.
A telling case study of the effects of higher wages on restaurant prices occurred during April in New York City. The Restaurant Opportunities Center, a labor union in all but name and tax treatment, organized a “High Road Restaurant Week” to recognize restaurants it deemed to have satisfactory employment practices. The average price of a burger and fries at the honored restaurants was a whopper, namely $20.50. Perhaps ROC should have instead called its event “High Priced Restaurant Week.” For that price at McDonald’s, a person could buy a Big Mac, Double Quarter Pounder with Cheese, Grilled Onion Cheddar Burger, Bacon Habanero Ranch Quarter Pounder, McDouble, Mac Snack Wrap, and a BLT Quarter Pounder—or just buy 20 McChickens.
Though the unelected leaders of ROC claim to be looking out for the interest of low-skill workers, the worker center is clearly out of touch. Nothing is wrong with a restaurant paying workers more and charging higher prices, but paying $100 for a family dinner is not sustainable for most Americans—even if ROC got its wish of a $15 minimum wage. Simply put, not every American can afford to regularly dine at Shake Shack or a “high road” restaurant.
Costco, another company mentioned by Greenhouse and Strom, is commonly cited as an example of high wages leading to market success, whereas Walmart is the favorite whipping boy of the New York Times. However, similar to the differences between Shake Shack and McDonald’s, these companies serve distinct markets. Costco caters to those who prefer to buy in bulk, including affluent consumers and small business owners, while Walmart focuses on keeping costs low for everyday purchases.
With vast differences in wages across the country, a one-size-fits-all minimum wage at the federal level does more harm than good. Forcing employers to pay workers at Moo Cluck Moo’s level of $15 an hour might not have a large effect in affluent Seattle, where less than 8 percent of employment is in food preparation and the median hourly wage is $22.43, according to the Bureau of Labor Statistics. But other areas are a completely different story. In Myrtle Beach, South Carolina food preparation is the largest major employment group, and the median hourly wage half of Seattle’s.
In 11 states, Alabama, Arkansas, Florida, Idaho, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, Texas, and West Virginia, more than a quarter of workers earn below President Obama’s proposed $10.10 an hour federal minimum wage. This is where the pain would be felt from a minimum wage increase.
It is not surprising that the restaurants mentioned by Greenhouse and Strom operate in areas with higher than average earnings. Paying higher wages to workers and charging customers more is easier in the Northeast and on the West Coast than it is in the Deep South or Midwest. This is one of many reasons why states and municipalities should be afforded flexibility in setting their own minimum wages.
Kudos to companies such as Shake Shack, In-N-Out Burger, and many others, whose business models allow them to pay workers above the minimum wage and still remain profitable. Most businesses pay workers above the minimum wage, but there are few justifications that stand up to economic scrutiny for requiring a higher federal minimum wage. One-size-fits-all standards rarely work, and the federal minimum wage is no exception.
Jared Meyer is a policy analyst at Economics21 at the Manhattan Institute for Policy Research. You can follow him on Twitter here.
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