What government is doing now to make higher fast-food wages impossible

Written by . Posted in Featured, Issue Watch, Media, Uncategorized

Published on August 29, 2013

CaptureWith fast food strikers making the news again today, I’m re-upping this column, which originally appeared in The Washington Examiner earlier this month.

This summer, thousands of fast food workers around the nation walked off the job, demanding to be paid $15 per hour for work that traditionally pays about half that. As Wendy’s striker Kaye Smith told NY1 recently, “I have to live with my mom … because I wouldn’t be able to support myself on $7.25, you know?”

We can debate whether her living arrangements are Wendy’s responsibility any more than they are that of New York’s landlords or grocers. Either way, Smith’s is a novel concept of unskilled jobs in America. Fast food wages have never been expected to support households on their own — nor is it reasonable to think that every job in the economy should. According to the Census Bureau, the average family income of a minimum wage-earner is over $53,000, so this appears to be something minimum wage workers already understand.

Still, the temptation among those who have never signed the front side of a paycheck — and that includes nearly all journalists — is to tackle this story without considering employers’ costs. “You make a lot of money, right? Why can’t you pay $15 an hour?”

The real question, though, is why fast food isn’t already a career track. Among many contributing factors is this one: Our government makes all hiring a bad deal, and unskilled hiring an even worse one.

If an especially generous employer wants to pay $15 per hour (about $30,000 annually) for full-time fast food chefs and cashiers, he’s going to pay more than just this above-market wage. He will also pay half his employees’ payroll taxes, federal and state unemployment insurance, workers’ compensation insurance, training, uniforms (in the case of McDonald’s, at least), and on top of that the health insurance or employer penalty that will be required by Obamacare starting in 2015.

Suddenly, each $15-per-hour employee costs at least $19.50 and perhaps as much as $25 per hour (depending on how the employer handles the health insurance issue). On the other side of the ledger, the employee gets to keep about $12 per hour after payroll, federal and D.C. income taxes, not including any contribution or payment he has to make toward health insurance.

So employers lose 40 or 50 percent in government-mandated transaction costs whenever they engage a new worker. This is a rotten deal, and a worse one if the worker’s labor is (by the definition of “unskilled”) not especially valuable. It is worse still if the market wage is arbitrarily doubled.

A related problem with the doubling of fast-food workers’ pay is that McDonalds has more reliable and more efficient options than hiring large numbers of unskilled, entry-level workers and paying such ludicrous transaction costs — and a major wage increase may make those options cheaper as well.

In both Europe and Australia, many McDonald’s cashiers have been replaced by touchscreens. Even in D.C., where McDonald’s workers still take your order (for now), retailers like CVS, Walmart and Home Depot have automated the checkout process. When the cost of hiring goes up, machines (or in some industries, foreign workers) become cost-competitive.

Four years removed from the big crash of 2008, the American economy is still barely creating enough jobs to keep up with population growth. And the next big blow has yet to land — Obamacare’s employer mandate, which adds another major expense to most full-time hires.

Meanwhile, potential fast-food workers are in high supply and short demand. There couldn’t be a worse time to demand a free lunch, let alone a Super-Sized one.

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