So, what happens if the minimum wage goes from $7.25 to $15 in Bugtussle, Iowa? “The price of a burger will double!” screams people like the National Restaurant Association. Thing is, it won’t be *that* much more for a burger. Labor costs for a typical McDonald’s restaurant, for example, account for 36% of costs. The rest is supplies, raw food, rent, utilities, etc. And McDonald’s actually has high labor costs relative to most restaurants. Restaurants generally aim to have less than 1/3rd of their costs be labor.
So, based on that, what happens if a Quarter Pounder costs $4 at the current $7.25 minimum wage? Well. 6.4% of that is profit, so the Quarter Pounder currently costs them $3.74 to make. Of that $3.74, labor is $1.35. So if you’re going to double the labor component of the burger, labor is going to go from $1.35 to 2.79, or a hike of $1.44. So if you’re wanting to cover the wage hike by raising the price of the burger, it’ll go from $4 to $5.44.
Which granted is a hike, but it didn’t *double* the price of the burger. The price of the burger only went up by 26% even though labor costs more than doubled.
People like the National Restaurant Association try to trick people into thinking that the price of restaurant food will literally double if restaurant workers’ wages are doubled. But most of the costs of a restaurant aren’t labor costs. Restaurants focus on labor costs because they can’t really do anything about the rent or utilities or property taxes or the cost of food inputs that is set by their franchising agreement or SYSCO, but labor costs typically are less than 1/3rd of the costs of a restaurant, meaning that at most doubling labor costs would raise food prices by less than 1/3rd if food prices were raised by only enough to pay the extra labor costs, not double them.
— Badtux the Economics Penguin
The economic arguments against raising the minimum wage never make sense. Having the price of a burger go up at McDonald’s being presented as a bad thing always makes it sound as though that one fast food outlet in Bugtussle is the only one being forced to adjust menu prices. It ignores the fact that every competitor is subject to the same economic issues. Even if there was a noticeable rise in costs to the consumer, so what? If you’re a burger fan you’re not going to stop eating burgers. You might switch from ordering a Big Mac to a lower priced sandwich, but you’re still hitting the drive-thru window.
Arizona raised its state minimum wage a couple years ago. Restaurant owners complained bitterly, one or two where we were at time were stupid enough to openly advertise they were truly assholes by tacking a surcharge on the bills and labeling it as being necessary because they were being forced to pay higher wages, but none of them wound up closed because higher labor costs destroyed them.
You don’t have to have worked in restaurants for ten years to know this, but I did, and I do.