Why fast food strikes and proposed wage increases don't matter

Why fast food strikes and proposed wage increases don't matter (Part 1 of 10)

Walkouts and strikes are gaining momentum beyond McDonald’s (MCD)

Another strike

Fast food workers striked again on December 5, 2013—or maybe we should call the actions just “demonstrations.” The last time they went on strike was the end of August, and McDonald’s (MCD) was widely targeted. This time, the strike was larger, drawing employees at retailers like Walgreens (WAG), Sears (SHLD), and Macy’s (M).

Federal Minimum Wage Rate 2013-12-05Enlarge Graph

Nationwide walkouts appear to be gaining momentum, calling for action to increase the federal minimum wage that has remained stagnant since 2009 despite higher inflation. In November, workers at Walmart (WMT) also faced strikes, walkouts, and protests for higher wages.

Federal minimum wage

The federal minimum wage, which is what many fast food and retail outlets pay employees, is now set at $7.25 an hour. This is equivalent to $15,000 a year for a full-time worker who works ~7.5 hours a day and 270 days a year. This is roughly $8,000 less than the Census Bureau’s poverty income threshold level of $23,000 for a family of four, and it hasn’t changed since 2009 due to a weak labor market. While some states have higher minimum wages—like Illinois, with $8.25—protestors still say it’s too low.

White house offers a proposition, but no progress

In Wednesday’s speech, Obama called for an increase in minimum wage, backing the Senate’s proposal to increase it to $10.10 over a few years. This isn’t the first time the president had called for higher wages, though. In his State of the Union address in February this year, he called for wage increases. The Republicans, however, oppose these initiatives, and most of the talks died down due to topics like Syria and the latest government shutdown.

An uphill battle

As many other articles have mentioned, it’s going to be an uphill battle. Businesses with a large portion of their costs coming from labor, including consumer staple stores, can’t cope with the increases of up to $15 that were called for in late summer (more on this later). With retail workers joining the demonstrations, this series of strikes appears to be gaining voice. But will that voice translate into real action? It doesn’t seem so.

This article is an add-on to previous work starting from Fast food companies pay near minimum wage, yet high wage expense. It will also show up later in this series.

The Realist Discussions

  • Billdokie

    In talking with the regional mgr of Chili’s in my state, they will be using the pads to submit food orders as well as games and advertising.

    • Tom

      It is great for paying as I have used it at Uno’s here in Boston. We ordered our dessert for the kids as the waitress was busy and we wanted to get going quicker.

      Someone still has to cook the food and serve the food. If anything it helps with turning over tables during the busy hours.

  • jmacx2

    Well, then. The obvious answer is to reduce the minimum wage to $6.00 per hour. If the minimum wage is increased to $15/hr or somewhere in between, most companies will make adjustments in price and costs to continue to make a profit. Those companies that don’t make sufficient adjustments will fail. The article presents some interesting comments (I hesitate to use the word “Facts” since those are so often open to interpretation), but I don’t believe the observations presented here provide enough justification for maintaining the current minimum wage. The widening wage gap is not healthy for the overall economy. Yes, if the minimum wage is changed, some of us will lose by paying higher prices for services provided by low wage industries. Some businesses may fail. There will be greater justification for increased automation which might reduce employment in this business segment. Yet, any increase in wage costs will almost immediately be returned to the economy through increased purchases by a population of workers with enormous unmet needs and desires. It just isn’t simple. Businesses and the economy may morph, but they will not collapse.

    • harry

      I use to own a business and can tell you that any company watches the pay roll. The owner can not change the cost of materials/products and can only change the selling price if they own the firm out right, versus a firm like McDonalds where prices may be set by corp HQ. I am sure that if the wage goes up some employees will go out in order to pay for the products..

      • Tom

        They are already running at the bare minimum in regards to staffing. If they cut even more the product would suffer, heck the service now is garbage.

        Price inflation is not a bad thing and that would redistribute dollars from the haves to those at the bottom(have nots). Those at the bottom will be able to get off of federal and state assistance which will bolster government expenditures and would leave the opportunity to reduce taxes on those that can afford the more expensive burgers.

        We need to cycle up the wealth effect instead of cycling down to lower wages.

        • http://www.kennethballard.com Kenneth

          “Price inflation is not a bad thing…”
          Ever heard of being priced out of a market? Price inflation would lead to a higher number of people being priced out of markets in which they currently participate. So yes, price inflation is a bad thing. It doesn’t redistribute money if people aren’t willing to spend it, and price inflation makes people less likely to spend their money.

          That’s just basic economics.

        • Northwestdad

          Tom, inflation affects everyone including those who work for minimum wage.

        • Luca

          Price inflation is not equal for all. If you have a low income you buy different goods than high income people. A raise in McDonald prices will impact mainly low income people and not the top income earners at all.

          There will be no redistribution from that side. Small raises could be tried to see the impact but imposing by law +30% or doubling will wreck the industry, have inflationary impact and yes ..it reminds a lot of Detroit and the car industry. Try small if any…but by and large in an industry with low productivity gains increasing wages leads only to inflation and inflation in this industry is inflation for the poorest.

      • http://www.kennethballard.com Kenneth

        And McDonald’s franchises watch the payroll like hawks.

        At a McD’s, if you overhear a conversation by franchise managers and other employees, you’ll hear phrases like “labor was getting too high” — I heard something like that the other day over lunch. My wife works at a McD’s, and there’ve been nights she’s been dismissed early because of labor being too high. And if she stays late too often, they dock her hours in the next schedule period to control the labor expense.

    • mlpnko123

      “reduce the minimum wage to $6.00 per hour”

      This is what the Fed is doing. By buying bonds it is weakening the dollar, reducing the real minimum wage.

  • Mike Brown

    I can’t wait until criminals go around to all of the tablets at each table and install spyware that will steal all of the credit card info from every card that is swiped. Now much easier than before since you don’t even have to work at a place.

  • webcelt

    If your managers say, “Why are entry-level employees getting raises while I’m not, given the difference in the work we do?”, then you picked some dumb managers.

    • ok

      How is that? It only stands to reason that people who have put in the time and effort to get raises and promotions would be upset that entry-level employees now would make close to the same amount as the experienced employees. It happens every time the minimum wage goes up. Your comment simply displays your snobbishness and ignorance rather than any insight.

      • webcelt

        If your managers are making close to minimum wage, your comment shows cluelessness as to why they’re upset. Good luck hanging on to them.

        • http://www.kennethballard.com Kenneth

          What the article was getting at is that the managers that already make $15/hour or more would demand a pay raise if the minimum wage were increased to $15/hour. And if that does not happen, then the managers would rightfully become angry at the situation.

          After all, it is not fair for managers who have put in the time and effort to learn the ropes and go through the training to be managers to suddenly, simply because of a change in law, be paid similar to the people at the bottom of the chain of command.

          So if the law is changed to effectively double the minimum wage, then those who were already making that amount before the change in law would likely demand their pay be doubled as well.

          • webcelt

            They might not get double, but they probably should get a raise. $15 doesn’t seem like much for a responsible position. $15/hour would be an improvement of course, and get the employees off the public and charitable aid, but they’re still living tight. You can live on that as long as no one gets sick or the car doesn’t die, or some financial emergency doesn’t bust your budget.

  • george

    well you pay these ceo s 60 million or more millions millions and then the big bunch o sh%t and then the government the people subsdisa lowpay workers then the taxpayers get screwed America is on the slide going down

  • Lawrence Goldstein

    If it was that hard for “fast food” restaurants then the should go out of business cause they can’t pay for the real estate. So much garbage on min wage jobs…..

    • BOO BOO THE FOOL

      They can go out of business but the reality is if they were not seeking to get some there else then once the burger joints close they will just be bums. After food service and retail is gone all you have a skilled trades and careers. If they weren’t working for a better paying job while they are at the current level then what make you think they will work harder once McDonalds is gone.
      I worked in food service for 6 years I left to do some thing else but during that time I’ve gotten promotions and worked for raises even been Manager for 3 of those years responsible for quality for 1 during that time I asked for those positions
      The same people were there when I left they never tried anything else because they were having too much fun.

  • PBinLosAngeles

    To say a “proposed wage increases doesn’t matter” is a ridiculous statement; I’d ask: To WHOM does it NOT matter? Advocates of minimum wage laws often give themselves credit for being more “compassionate” towards “the poor.” But they seldom bother to check what are the actual consequences of such laws.
    One of the simplest and most fundamental economic principles is that people tend to buy more when the price is lower and less when the price is higher. Yet advocates of minimum wage laws seem to think that the government can raise the price of labor without reducing the amount of labor that will be hired; it cannot!
    The last thing the political left needs, or can even afford, are self-reliant
    individuals. If such people became the norm, that would destroy not only the
    agenda and the careers of those on the left, but even their flattering image of
    themselves as saviors of the less fortunate.
    Victimhood is where it’s at. If there are not enough real victims, then
    fictitious victims must be created — as with the claim that there is “a war on
    women.” Why anyone would have an incentive or a motivation to create a war on
    women in the first place is just one of the questions that should be asked of
    those who promote this political slogan, obviously designed for the gullible.
    The real war — which is being waged in our schools, in the media and among
    the intelligentsia — is the war on achievement. When President Obama told
    business owners, “You didn’t build that!” this was just one passing skirmish in
    the war on achievement.

  • PBinLosAngeles

    Each franchise individually owned and operated. Ever wonder why the price of a Big Mac is higher in airports than it is at street locations? Because the price of retail space in an airport is sky-high, that’s why. If an increase of the proposed magnitude were implemented, not only would staff be laid-off – hopefully based on performance, not seniority – stores would close; period! people are so blind to the destruction organized labor wreaks. Look at the CITIES of Detroit, MI. Stockton, Mammoth Lakes, and San Bernardino, CA. All declared bankruptcy as a direct result of egregious union demands. I say fire em or close the store, and move to a smaller location.
    As for this “journalists” perspective on keeping hours down to avoid medical insurance, that too, is a direct result of unionized pressure on retailers, the grocery store chains in particular; remember that one? Lessened hours has been going on for over a decade now, and you can thank organized labor for that one as well
    Advocates of minimum wage laws often give themselves credit for being more “compassionate” towards “the poor.” But they seldom bother to check what are the actual consequences of such laws.
    Our country once had an unemplyment rate under 2% nationwide. That was before the implementation of the minimum wage law.

  • ishkanota .

    besides the people that get these jobs to help out in tough times until they get back on there feet, id like to ask –since when did the job as a burger flipper become a rewarding and noble CAREER to go after when your done with highschool? anybody has the opportunity to learn a trade, land an internship, or put themself thru community college or strive for that scholarship to a university

  • Java 2 you

    I have been in the food business 25 years and I do not know anyone in the food business who has a labor cost of 25% that can make money. The pretax target rate is 11%, 15-18% including added tax liability.

    • mlpnko123

      You have tip earners?

  • hotrod

    “Fordism” of the service industry is the answer to bringing back a strong middle class in America. We can’t have high wages in products and jobs that can be imported any more but very few of the jobs in the service industry can be imported.

  • Catlady

    Some restaurants are going with tablets. I can see more restaurants going that route and reducing the workforce even more. Update the technology and get rid of workers.

  • johndubose

    Raising the min wage will cause everybody to make adjustments. 1. Fewer jobs 2. More automated restaurants. 3 Fewer Restaurants. 4 Higher prices. Just common sense.