Fast-food workers and their supporters are calling for a $15-an-hour minimum wage as they prepare to picket in nationwide protests Thursday.
That raises the question: If they’re successful, will burger prices soar?
Expert opinion is mixed. The current federal minimum wage is $7.25 an hour. More than doubling that level would be an unprecedented leap.
Sylvia Allegretto, a labor economist and co-chair of the Center on Wage and Employment Dynamics at the University of California-Berkeley, said it’s unclear whether a minimum-wage bump would have enough of a ripple effect to affect consumer wallets.
Most Read Business Stories
- REI picks new satellite office ‘surrounded by trail networks’
- Judge upholds Seattle eviction regulations, rebuffing landlords' lawsuit
- Fry's Electronics executive accused of embezzling $65 million
- Funky electronics chain Fry's is no more
- Alaska Airlines ordered to pay $3.2M to family of woman who died after escalator fall
“Many people have assumed that if you increase the minimum wage by X percent, the meal costs will increase by the same percent, and that’s simply not true,” she said. “There are so many other factors at work.”
The price patrons pay for a burger also reflects, for example, the cost of fuel used to deliver the meat from farm to processing center to eatery, Allegretto said. Fluctuations in the price of raw ingredients such as beef and wheat also play a part.
Michael Saltsman, research director of the Employment Policies Institute, added that menu prices aren’t set in a vacuum.
Restaurants are wary of charging more for their food, especially if dealing with the price-sensitive customers who most often frequent quick-service establishments. But if employee costs rise, “They can’t just absorb the hit either,” Saltsman said.
Many fast-food restaurants are franchisees of major brands such as McDonald’s and are on the hook for hefty franchise fees. Such eateries, along with small independent brands, tend to have extremely thin margins.
Increasing the minimum wage could eat up three-quarters of their profit, Saltsman said.
Some operators might try to stay competitive by charging customers slightly more while tamping down labor expenses via self-service options, automated payment kiosks or extra responsibilities for existing workers, he said.
Saltsman points to a 2006 study that found that each 10 percent increase in the minimum wage boosted quick-service menu prices by 1.6 percent and could reduce employment by as much as 2.5 percent.
Based on those figures, a $15 minimum wage would cause as much as a 17 percent surge in fast-food prices and nearly a 27 percent slide in employment, Saltsman estimated.
But UC-Berkeley’s Allegretto argues that raising the minimum wage could pay long-term dividends that would ease the pressure to raise menu prices.
Labor eats up a huge chunk of a restaurant’s revenue — roughly a third, according to the National Restaurant Association. And the fast-food industry is notorious for its employee turnover — greater than 75 percent annually, according to some estimates.
“Constantly having to recruit and retrain new workers is very costly,” she said. “If they had a higher wage and were more apt to want to stay in their jobs, that would lower those costs. You’d get more productivity gains from a workforce that isn’t constantly turning over.”