With $15 hourly wages, what happens to fast-food prices?
Organized union-backed protests demanding higher pay in such industries as fast food, retail and home health care have grown in the last few years -- and they've scored some notable successes. On Monday, New York's Wage Board endorsed a proposal to require a $15 minimum wage for workers in fast-food chains, clearing the way for Governor Andrew Cuomo to push through a pay increase.
One of the big questions surrounding a $15 minimum wage has been what the impact would be on employers. Some in the fast-food industry specifically have predicted that jobs would be slashed and that prices would skyrocket.
But a new study from Purdue University suggests consumers would see a minimal price hike, even when the restaurants are small and have fewer than 25 employees. Furthermore, because of available tax credits, the researchers said employers can offer health care benefits for very little cost, although an end to the credits would make the benefit expensive to offer.
The New York wage measure would apply only to fast-food companies with more than 30 locations, although many such locations are operated not by the major corporations but by smaller companies and even individual franchise owners. The International Franchise Association, a franchising trade group heavily influenced by large corporations including fast-food chains, has claimed that a "$15 minimum wage is unrealistic" and would put business owners, and the jobs at their establishments, at risk.
The study from Purdue University's School of Hospitality and Tourism Management suggests instead that the higher wages could be passed to consumers through small price increases. According to professor Richard Ghiselli and Jing Ma, a doctoral student and graduate teaching assistant, bringing employees to $15 an hour would involve a price increase of 4.3 percent, according to a university press release about the study.
If wages were increased to $22 an hour, prices would jump by 25 percent. The release claimed that an hourly wage of $22 is "what the average American private industry employee makes," according to Bureau of Labor Statistics numbers. However, according to the latest BLS data, average hourly wages for private, nonfarm employees, seasonally adjusted, were $24.95 in June 2015.
The researchers said they used data from the National Restaurant Association (NRA) for the wage analysis and information from HealthCare.gov for food workers in Indiana for the health care insurance analysis.
A 2010 Deloitte study for the NRA identified salaries and wages -- which include employee benefits and all paid amounts, including those to managers -- as ranging from 25 percent to 35 percent of total sales. Given that fast-food workers make an average of $9 an hour, according to BLS data, an increase to $15 would be a two-thirds increase.
That would suggest fast-food restaurants would need to increase revenue by between 16.5 percent and 23.1 percent to offset the higher wages.
The researchers weren't available for comment before publication to explain the difference or the assumptions they made and other factors that greater access to data might illuminate.
Whether a higher minimum wage would decrease employment is hotly debated. Some research has suggested that a 10 percent minimum wage hike would have a negligible impact on the number of jobs or the types of people being hired.
But $15 is a significantly higher jump than 10 percent above most existing minimum wage rates. Conservative think tank Manhattan Institute for Policy Research claimed that such an increase would result in a loss of 6.6 million jobs and the poor receiving only 6.7 percent of the total $52.8 billion in net income gains.
The organization said it used a methodology similar to the 2014 study from the Congressional Budget Office, which tried to determine the effects of a federal minimum wage increase to $10.10.
However, the CBO analysis was complex. The estimated reduction of jobs was a look ahead of about two years, which could include a projected number of jobs.
The CBO estimated that about 1.5 percent of 33 million low-wage workers, or 495,000, expected to be working in the second half of 2016 would be jobless because of the higher wages. At the same time, about 900,000 people would be boosted out of poverty.
Furthermore, that analysis covered the entire country and spanned all industries, rather than being selectively applied to the fast-food industry in specific urban regions with higher demand for services and greater concentrations of wealth.