High minimum wages are destroying the popularly priced food industry
Prices from restaurants have skyrocketed since the “Fight for $15” movement started in 2012. Now restaurants are closing.
In 2012, the “Fight for $15” movement started. The goal was to raise the minimum wage to $15 dollars per hour for all unskilled workers. The supporters said that this action was necessary because minimum wage workers couldn’t afford the basics of a normal lifestyle. The movement was successful and minimum wages increased in most states, but did it really help the unskilled workers?
For those who had jobs, this wage increase was a huge help. Those workers could now more easily afford the basics. But for those who lost their job, this wage increase was a disaster.
For businesses, particularly those in the fast-food industry and others in hospitality, this wage increase was a disaster. Coupled with price increases for food and supplies, the increased cost meant prices had to increase. The problem was that there was a limit to how much of a price increase the consumers could afford.
Since 2014, just after the movement started, prices at the most popular fast-food restaurants have increased substantially. McDonald’s average prices have increased 100%, meaning the prices have doubled. Much of the price increases have occurred in the last three years.
In Michigan, for instance, since 2019 the price of medium French Fries has increased from $1.79 to $4.69, while the Big Mac meal increased from $5.99 to $12.69. Even the famous Subway footlong has increased in price from $5.50 to $8.49.
Today most fast-food businesses and low-priced restaurants have increased prices so much that consumers simply cannot afford to purchase their food. That forces many establishments to close. Red Lobster, which was famous for some “all you can eat” menu items, like the endless shrimp, closed numerous restaurants but still had to file for bankruptcy protection.
Red Lobster cited a 30% drop in business as the cause of their bankruptcy.
Numerous other lower-priced restaurants have similarly announced that some locations will be closing, including Applebee’s, TGIF Fridays, Denny’s, Boston Market, Outback Steakhouse and Hardee’s.
Part of the reason for the closure is due to increased food costs resulting from the unprecedented overall inflation in the US economy in the past three years. However, these restaurants employ many minimum-wage workers. All wages are affected by the increase in the minimum wage.
If the minimum wage was $10 per hour, then those with a few years of experience who are no longer unskilled workers, demand a wage 50% higher than the unskilled workers, so they earned $15. Once the minimum went to $15, the experienced worker demanded 50% more or $22.50. That rippled through the entire work staff resulting in huge increases in labor cost.
The net result of the increase in the minimum wage to $15 was a sharp reduction in the number of jobs available. Nearly all teenagers 16 to 19 years old are minimum-wage workers. While the nationwide unemployment rate is 3.8%, the unemployment rate for 16–19-year-olds is 11.7%.
Some argue that no worker can support themselves on less than $15 per hour. And that is true, but minimum wage jobs are for completely unskilled workers. The purpose is to get a job, learn some skills and then, as a more productive worker, seek higher wages.
The longer-term impact of abnormally high wages for unskilled workers is that many of the jobs will be gone forever as businesses seek to keep costs in line by replacing labor with capital. Robots, artificial intelligence, and other means of automation will result in even fewer jobs available for unskilled workers in the future.
Already restaurants have replaced human order takers with touch screens. There are robots now that can replace a server by bringing the food to the customer without any human involvement. Soon robots will flip the burgers. The higher the minimum wage the faster this transition occurs.
It is always better to allow the marketplace to determine the market wage. That keeps labor costs reasonable for the business and prices reasonable for the consumer. It also lets workers know exactly what their value is to the economy. If a worker finds that value to be too low, so their wage is too low, then the worker must acquire additional skills.
In our system, a worker is paid according to the value of their output. Skilled workers are more valuable and therefore earn higher wages than unskilled workers.
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