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The Fast Food Strike and the Minimum Wage

July 31, 2013

fastfoodstrikeWorkers at McDonald’s, Burger King, KFC, and Wendy’s walked off the job on Tuesday in several cities in the United States. Striking workers are demanding higher wages, and state that the four-day work stoppage is intended to draw attention to the low wages paid by the fast food industry. The walk outs, which started in New York City, spread to Chicago, Detroit, Milwaukee, St. Louis, Kansas City, and Flint. The strike was described by some observers as the largest work stoppage in the history of the fast food industry, which has traditionally been characterized by low wages and flexible (read: insecure) employment.

Adding fuel to the fire, a report by a student at the University of Kansas suggested that the cost of increased wages would be relatively low. The study suggested that doubling the wages of all McDonald’s employees—regardless of rank or position—would increase food costs by about 17 percent—about 68 cents more for a Big Mac. A more comprehensive study by researchers at University of California, Berkeley, suggested that increasing the federal minimum wage to $9.80 per hour would increase food costs for all Americans by about 10 cents per day.

An article in Forbes opposing the any increase in the minimum wage suggests that an increase in fast food prices would only create greater incentives to reduce the employment rate, as companies like McDonald’s would find it cheaper to automate rather than pay higher wages to their employees.

Indeed, several Members of Congress—from Michelle Bachmann to Ron Paul—have proposed eliminating the minimum wage altogether, arguing that it decreases employment. While not advocating for its repeal, most Congressional Republicans oppose increasing the minimum wage. Their position, as summarized by Speaker of the House John Boehner, is “When you raise the price of employment, guess what happens? You get less of it.”

If the goal is to keep wages as low as possible, we’re making good progress. The federal minimum wage (currently $7.25 per hour) in real terms is lower now than in the 1960s, falling more than 12 percent since 1967 and almost 30 percent in real terms since 1979.

And there’s something disingenuous about the argument that ensuring a livable minimum wage would increase the poverty and unemployment rate. While the theoretical model might lead to such a simplistic conclusion, the real world is more complicated than that. If the model were true, there would be no fast food employees in San Francisco, where the minimum wage is $10.55 per hour. We’d also expect to see a higher unemployment rate in San Francisco than in other major cities, where wages are lower. So do we?

In short, no. The unemployment rate in San Francisco in June was 6.5 percent—compared to a national metropolitan rate of 7.8 percent. Indeed, San Francisco fared well compared to most other major cities, including Los Angeles (9.2%), Las Vegas (10.1%), Phoenix (7.2%), New York (8.2%), Atlanta (8.2%), and Dallas (6.7%). This suggests that the causal relationship is more complicated than the economic models suggest. It also permits some consideration of the normative questions raised by this issue.

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