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If the U.S. were to double the minimum wage from $7 to $15, it would make sense to invest in robotics firms, or perhaps the largest fast food chains like McDona

If the U.S. were to double the minimum wage from $7 to $15, it would make sense to invest in robotics firms, or perhaps the largest fast food chains like McDonald's. Why? Because lower-price restaurants would have a choice: dramatically raise their food prices (which would almost certainly drive inflation across the board as everyone in all industries would hopefully see raises to deal with increased costs of living) or try to minimize the hit. If the latter, this would set off an immediate price war, even if unintentional, because McDonald's especially would strive to keep their prices from changing as little as possible. Then, the smaller chains that couldn't afford to reduce their workforce and/or invest in efficiency or robotics wouldn't survive. You would see less competitive chains like Popeye's closing up on Interstate exits, and their marketshare would be handed over to the larger chains. The unintended consequences of a massive shift like that would be enormous, and it would absolutely result in a stronger national chains and probably destroy or badly harm local eateries -- especially the ones that were trying to be price competitive. Get ready to see your local small businesses under severe pressure, while profitable operations like McDonald's and Chik-Fil-A will mop up the smaller places, and this is across the board at any low-skill, low-wage places, not just restaurants.

maxerickson 5y ago
Wages are not 100% of current food prices. I don't know what they are, but it isn't 100%, which is what it would take to require doubling prices to cover doubled wages.
- skynet-9000 5y ago
  That is true, but it is why I said "nearly". The largest cost in any fast food restaurant is almost certainly labor.
  - maxerickson 5y ago
    Labor costs are obviously not nearly 100% of revenue, no one would bother operating a franchise.
    - josephcsible 5y ago
      They're nearly 100% of total costs, not of revenue.
      - maxerickson 5y ago
        Doubling prices would double (incremental) revenue.
        josephcsible 5y ago
        No it wouldn't, because with those higher prices, you'd have fewer sales. Edit: Incremental revenue? Okay, that it would double, but so what?
        maxerickson 5y ago
        Wages obviously aren't the only significant cost is all. I was being chippy with the first comment about revenue, because that's the corner the other poster decided to argue from, that wages are the most significant cost (which I combined with their earlier implication that doubling wages would nearly double prices, a statement that implies the starting wages more or less match the starting revenue).
BEEdwards 5y ago
Three things, one they are already automating so wages don't have anything to do with it. two, I love how you're carrying water and claiming they'd need to raise prices by 100% to cover a higher wage, when the CEO doesn't have share concern. https://www.restaurantdive.com/news/mcdonalds-ceo-chain-will-do-just-fine-with-higher-wages/594182/ https://www.restaurantdive.com/news/mcdonalds-ceo-chain-will... and three in Australia where the minimum wage is nearly $20 an hour, the food prices are only a little higher. https://www.aussieprices.com.au/mcdonalds-prices/ https://www.aussieprices.com.au/mcdonalds-prices/ so your concern is proven by the CEO of the company and reality to be nonsense.
- skynet-9000 5y ago
  Read my comment again. You will see that what I'm actually saying is that McDonalds and other large national chains would actually end up stronger after hiking minimum wage.
goda90 5y ago
This is a 6 year old study, but it says that raising minimum wage to $15 would increase fast food prices 4.3%. https://www.purdue.edu/newsroom/releases/2015/Q3/study-raising-wages-to-15-an-hour-for-limited-service-restaurant-employees-would-raise-prices-4.3-percent.html https://www.purdue.edu/newsroom/releases/2015/Q3/study-raisi...
- LorenPechtel 5y ago
  Only by ignoring the fact that it's not just the workers in the business itself. There will be supply chain effects also.
gbear605 5y ago
Over the last twelve years, the federal minimum wage has been constant. Over that same time period, the cost of a Big Mac has gone up by about 25%. Since 1997, the federal minimum wage has gone up by 40%. Over that same time period the cost of a Big Mac has gone up by 100%. Perhaps the relationship between minimum wage and fast food prices isn’t linear. In addition, the federal nature of the US means that we’ve had lots of different trials, and the results are that your expected result doesn’t happen in states with higher minimum wages, but only by a small amount. In addition, a whole body of scientific research has found that your expected effect doesn’t happen. Minimum wage history from https://www.dol.gov/agencies/whd/minimum-wage/history/chart https://www.dol.gov/agencies/whd/minimum-wage/history/chart. Big Mac prices from https://www.eatthis.com/big-mac-cost/ https://www.eatthis.com/big-mac-cost/ with some interpolation to match the years that the minimum wage changed.
- bombcar 5y ago
  The federal minimum wage is a distraction since so many states have higher ones.
  - gbear605 5y ago
    The prices are similarly high across the country. They’re definitely a bit higher in NYC compared to Alabama, but not at all proportional to the minimum wage. In addition, NYC has much higher costs for properties so there’s an expected difference in price.
- dv_dt 5y ago
  The big mac index was created to compare relative currency strengths, but if you can use it to get a view into the price of big macs internationally. A big mac costs €4.25 in the euro area and US$5.66 as of Dec 2020. So in nations that have better minimum wages, and much more complete safety nets (and more taxes), the big mac is actually cheaper. (maybe that reflects the lower cost of universal healthcare) https://www.economist.com/big-mac-index https://www.economist.com/big-mac-index Note there are high safety net nations both above and below the US cost of Big mac, which signals that maybe something else is afoot there. But certainly there is enough variation to dispel that unemployment benefits are correlated the cost of the big mac.
bombcar 5y ago
I'm in a relatively rural location "in the sticks" and the local businesses have been offering $15/hr or more for evenings/weekends for over four years and I assume because they still have the signs up they're not filling enough positions.
rideontime 5y ago
Are these claims based on anything but "common sense"?
neilwilson 5y ago
"Then, the smaller chains that couldn't afford to reduce their workforce and/or invest in efficiency or robotics wouldn't survive. You would see less competitive chains like Popeye's closing up on Interstate exits, and their marketshare would be handed over to the larger chains." That's sort of the point of productivity improvements. You either invest capital or you die. Exactly why should poor people prop up poor businesses with low capital depth because "what about the jobs"? Kalecki warned about this as far back as 1943. https://mronline.org/2010/05/22/political-aspects-of-full-employment/ https://mronline.org/2010/05/22/political-aspects-of-full-em...
grecy 5y ago
I always find it fascinating that nobody mentions the elephant in the room with regards to minimum wage. Instead of raising the price of goods (BigMac in this case), there is a much simpler answer - reduce profit. Given that McDonald's makes approximately $10B in profit per year [1], I think everyone up the chain will still be able to keep their mansions and multiple homes if it only makes a couple of billion in profit each year. [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros...

maxerickson 5y ago

Wages are not 100% of current food prices. I don't know what they are, but it isn't 100%, which is what it would take to require doubling prices to cover doubled wages.

skynet-9000 5y ago
That is true, but it is why I said "nearly". The largest cost in any fast food restaurant is almost certainly labor.
- maxerickson 5y ago
  Labor costs are obviously not nearly 100% of revenue, no one would bother operating a franchise.
  - josephcsible 5y ago
    They're nearly 100% of total costs, not of revenue.
    - maxerickson 5y ago
      Doubling prices would double (incremental) revenue.
      - josephcsible 5y ago
        No it wouldn't, because with those higher prices, you'd have fewer sales. Edit: Incremental revenue? Okay, that it would double, but so what?
        maxerickson 5y ago
        Wages obviously aren't the only significant cost is all. I was being chippy with the first comment about revenue, because that's the corner the other poster decided to argue from, that wages are the most significant cost (which I combined with their earlier implication that doubling wages would nearly double prices, a statement that implies the starting wages more or less match the starting revenue).

BEEdwards 5y ago

Three things, one they are already automating so wages don't have anything to do with it. two, I love how you're carrying water and claiming they'd need to raise prices by 100% to cover a higher wage, when the CEO doesn't have share concern. https://www.restaurantdive.com/news/mcdonalds-ceo-chain-will-do-just-fine-with-higher-wages/594182/ https://www.restaurantdive.com/news/mcdonalds-ceo-chain-will... and three in Australia where the minimum wage is nearly $20 an hour, the food prices are only a little higher. https://www.aussieprices.com.au/mcdonalds-prices/ https://www.aussieprices.com.au/mcdonalds-prices/ so your concern is proven by the CEO of the company and reality to be nonsense.

skynet-9000 5y ago
Read my comment again. You will see that what I'm actually saying is that McDonalds and other large national chains would actually end up stronger after hiking minimum wage.

goda90 5y ago

This is a 6 year old study, but it says that raising minimum wage to $15 would increase fast food prices 4.3%. https://www.purdue.edu/newsroom/releases/2015/Q3/study-raising-wages-to-15-an-hour-for-limited-service-restaurant-employees-would-raise-prices-4.3-percent.html https://www.purdue.edu/newsroom/releases/2015/Q3/study-raisi...

LorenPechtel 5y ago
Only by ignoring the fact that it's not just the workers in the business itself. There will be supply chain effects also.

gbear605 5y ago

Over the last twelve years, the federal minimum wage has been constant. Over that same time period, the cost of a Big Mac has gone up by about 25%. Since 1997, the federal minimum wage has gone up by 40%. Over that same time period the cost of a Big Mac has gone up by 100%. Perhaps the relationship between minimum wage and fast food prices isn’t linear. In addition, the federal nature of the US means that we’ve had lots of different trials, and the results are that your expected result doesn’t happen in states with higher minimum wages, but only by a small amount. In addition, a whole body of scientific research has found that your expected effect doesn’t happen. Minimum wage history from https://www.dol.gov/agencies/whd/minimum-wage/history/chart https://www.dol.gov/agencies/whd/minimum-wage/history/chart. Big Mac prices from https://www.eatthis.com/big-mac-cost/ https://www.eatthis.com/big-mac-cost/ with some interpolation to match the years that the minimum wage changed.

bombcar 5y ago
The federal minimum wage is a distraction since so many states have higher ones.
- gbear605 5y ago
  The prices are similarly high across the country. They’re definitely a bit higher in NYC compared to Alabama, but not at all proportional to the minimum wage. In addition, NYC has much higher costs for properties so there’s an expected difference in price.
dv_dt 5y ago
The big mac index was created to compare relative currency strengths, but if you can use it to get a view into the price of big macs internationally. A big mac costs €4.25 in the euro area and US$5.66 as of Dec 2020. So in nations that have better minimum wages, and much more complete safety nets (and more taxes), the big mac is actually cheaper. (maybe that reflects the lower cost of universal healthcare) https://www.economist.com/big-mac-index https://www.economist.com/big-mac-index Note there are high safety net nations both above and below the US cost of Big mac, which signals that maybe something else is afoot there. But certainly there is enough variation to dispel that unemployment benefits are correlated the cost of the big mac.

bombcar 5y ago

I'm in a relatively rural location "in the sticks" and the local businesses have been offering $15/hr or more for evenings/weekends for over four years and I assume because they still have the signs up they're not filling enough positions.

rideontime 5y ago

Are these claims based on anything but "common sense"?

neilwilson 5y ago

"Then, the smaller chains that couldn't afford to reduce their workforce and/or invest in efficiency or robotics wouldn't survive. You would see less competitive chains like Popeye's closing up on Interstate exits, and their marketshare would be handed over to the larger chains." That's sort of the point of productivity improvements. You either invest capital or you die. Exactly why should poor people prop up poor businesses with low capital depth because "what about the jobs"? Kalecki warned about this as far back as 1943. https://mronline.org/2010/05/22/political-aspects-of-full-employment/ https://mronline.org/2010/05/22/political-aspects-of-full-em...

grecy 5y ago

I always find it fascinating that nobody mentions the elephant in the room with regards to minimum wage. Instead of raising the price of goods (BigMac in this case), there is a much simpler answer - reduce profit. Given that McDonald's makes approximately $10B in profit per year [1], I think everyone up the chain will still be able to keep their mansions and multiple homes if it only makes a couple of billion in profit each year. [1] https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gross-profit https://www.macrotrends.net/stocks/charts/MCD/mcdonalds/gros...