Study: $15 an Hour Would Not Increase Fast Food Prices Much

Study: $15 an Hour Would Not Increase Fast Food Prices Much

Washington — Would you pay 17 extra cents for a Big Mac if it meant the person who prepared it could earn a living wage? What about an extra 30 cents each time you ate out at any fast-food restaurant?

These are the small prices we would have to pay on average to ensure that fast-food workers around the country earned an hourly wage of $15, according to a new study by researchers at Purdue University’s School of Hospitality and Tourism Management.

“It would vary a bit, depending on where you live, but that gives you a sense,” said Richard Ghiselli, who is the Head of the School of Hospitality & Tourism Management at Purdue University, and lead author of the study.

Ghiselli used data from both the National Restaurant Association and Deloitte & Touche to estimate how much fast-food companies would need to boost sales given varying changes in the minimum wage. Assuming the industry maintained its current profit margin of 6.3 percent — which, to be fair, is fairly slim — hiking the pay floor at fast-food restaurants to $15 an hour would mean just a 4.3 percent increase in prices.

“If we were talking about the price of gas, that would probably be headline news, but people have a very different reaction to food,” Ghiselli said. “A 4 percent increase in the price of fast food doesn’t bother people as much.”

That being said, it wouldn’t be a 4 percent increase for everyone. Ghiselli used data from the Bureau of Labor Statistics to estimate the average hourly pay of fast-food workers in the United States (roughly $10.64). Any place where workers currently make less than that, the price hike would likely end up being much more; any place workers make more, the opposite would be true.

“Someone in Lafayette, Ind., where I live and we do pay $7.25, is going to be affected a lot more,” Ghiselli said. “And so are prices consumers will have to pay.”

Someone in Chicago, on the other hand, where the minimum wage is $13, will likely see a smaller price hike. And customers in Seattle and Los Angeles, where the minimum wage will increase to $15, won’t see any at all.

There are, to be fair, a few limitations inherent in the researchers’ model. For one, the consequences of raising the minimum wage for fast-food workers might affect more than merely how much they make and how much consumers pay. There’s research showing that higher wages don’t necessarily lead to job cuts — and evidence that better paid low-skilled workers are a blessing for employers because they’re more productive. But branches could decide to downsize their staffs once labor is twice as expensive, especially if they prioritize keeping prices low.

There’s also the reality that it’s hard to establish what exactly a fair or appropriate wage is for low-skilled workers. Everyone should be entitled to earn a living wage, but the cost of living varies a lot depending on where you live. In New York City, life is expensive; in Lafayette, Ind., less so. “Is it $15, or is it $22, which is what people make on average in the private sector?” said Ghiselli. “I don’t know — it might be lower. It probably depends on where you live.”

And fast-food restaurants, facing higher wages, might not raise prices evenly across their menus. McDonald’s might hike the price of french fries but barely touch the price of hamburgers; Taco Bell could decide to only charge more for Gorditas. But Ghiselli’s model, despite its assumptions, is still a telling sign of what kind of sacrifice it would take on behalf of consumers to help a large swath of those who earn at or below the minimum wage — especially since $15, though it has gained traction as of late, is at the higher end of the minimum wage hikes being considered.

Author: Roberto A. Ferdman The Washington Post

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