Revisiting the Cost of a $15/Hour Minimum Wage

For new readers, the blog’s position on a minimum wage has always been to increase it dramatically: while we will deficit spend at the drop of a hat, we find no national interest in subsidizing the billions in profits that the Walton Clan receives every year. Nonetheless, a minimum wage increase could lead to higher prices–the price of a Big Mac could increase by twenty-five percent and many people would rather screw over their fellow citizens than pay that. Well, it turns out that was a massive overestimate (boldface mine):

Raising wages to $15 an hour for limited-service restaurant employees would lead to an estimated 4.3 percent increase in prices at those restaurants, according to a recent study.

Researchers from Purdue University’s School of Hospitality and Tourism Management also examined the impact of limited-service restaurants offering health-care benefits and found that, due to current tax credits in the Affordable Care Act, there would be a minimal effect on prices at limited-service restaurants with fewer than 25 full-time employees.

Limited-service restaurants are what many consumers refer to as “fast-food restaurants,” where there usually is no tableside service and no tipping.

The study says increasing wages to $22 an hour, which the Bureau of Labor Statistics says is what the average American private industry employee makes, would cause a 25 percent increase in prices.

Low wage areas would see higher increases, but high wage areas would see smaller increases. Of course, there’s a healthy solution to these increases as well:

If an extra 17 cents for a Big Mac is too much to ask, maybe people will consider accepting a slightly smaller hamburger. Ghiselli also estimated how much fast food restaurants would need to downsize their food if they wanted to keep prices the same. The answer? About 12 percent.

We can do fifteen dollars an hour.

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2 Responses to Revisiting the Cost of a $15/Hour Minimum Wage

  1. anthrosciguy says:

    For many years I’ve noticed – whether the story was American auto workers or Indonesia shoe factory workers – there was always two types of stories being written, never in the same place and never intersecting. One was how any increase in wage would lead to a dramatic increase in the price of the final product. The other was about how wonderfully efficient and clever management had made things, so that labor costs were a tiny fraction of the total cost.

    The two cannot be reconciled.

  2. klima says:

    If you need to get to Libya, let me know. I might be able to help you out.

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