No, the New Minimum Wage Won’t Wreck the Fast Food Industry or the Economy

The past decade has seen some of the most astounding price hikes and profit taking in the rich history of the major U.S. fast food companies. The numbers don’t lie.

Between 2014 and 2023, the price of all goods and services purchased by Americans rose 28.7%, according to federal data analyzed by the Roosevelt Institute, a New York-based think tank. But in the fast food sector, prices rose 46.8% during that same span. Profit markups in fast food also increased at a greater rate than at any time since the 1970s.
 

Join our email list to get the stories that mainstream news is overlooking.
Sign up for Capital & Main’s newsletter.

 
As a result, “Fast food firms have developed an increasingly large buffer between costs and prices that has better positioned them to absorb higher operating costs now, more so than in the recent past,” the Roosevelt Institute’s researchers wrote in a recent report.

One example: In 2023, the report found, the 10 largest publicly traded fast food companies (think McDonald’s, Wendy’s, and Yum brands like Pizza Hut and Taco Bell, etc.) spent more than $6 billion of their profits to buy back shares of their own stock — making fewer shares available to the public and thus increasing the value of those shares for the companies.

So, no, the new $20 per hour minimum wage for some 500,000 fast food workers in California isn’t going to break the business model. Even if all of those employees had full-time hours (nearly 40% don’t) and worked 52 weeks a year, their total in new pay wouldn’t equal the amount spent on corporate stock buybacks last year alone.

*   *   *

What has been lost in the shouting over the wage, a $4 increase over California’s statewide minimum of $16, certainly isn’t outrage. There’s been plenty of that, much of it coming from pro-business publicists and a compliant media willing to cast the issue as greedy unions versus mom-and-pop franchise owners. Their thrust is that the higher wages will mean job cuts, price hikes and some franchises closing altogether.

The truth is far more nuanced, but it mostly points in the opposite direction: Extensive research by economists has concluded that raising the minimum pay rate helps lower-wage earners, with virtually no job losses.

Two decades of study by UC Berkeley labor experts in particular are helpful here. Among other things, the Berkeley economists found that raising the minimum wage has historically resulted in a more robust economy, increased economic development in low-wage areas, reduced crime, improved health in children and even lowered government spending on safety net programs such as food stamps — all from boosting the pay of some of the state’s lowest-earning workers.

“Raising the minimum wage is a simple, direct way that we can improve the incomes of low-wage workers, pull many poor families out of poverty and pull many children out of poverty,” Ken Jacobs, co-chair of the UC Berkeley Labor Center, said in a 2021 release accompanying one of the center’s studies. “It allows us to do it in a way that’s good for the overall economy — and it’s incredibly popular among voters.”

Notably, Jacobs’ comments came during a national debate about raising the minimum wage to $15, a figure that California has since surpassed. The Congressional measure failed, and the federally mandated minimum remains stuck at $7.25 per hour, where it’s been since 2009.

All of the same threats heard over the past months — job losses, store closures, huge price hikes — were threatened during that national conversation. It’s not a new tack.

*   *   *

So, will fast food prices go up this year? Put it this way: If they do, it will be continuing a trend, not starting one.

As noted above, the major chains have been sticking it to consumers for a decade. Just over the past 12 months, while the consumer price index for all items rose 3.2%, fast food prices spiked 5.2%, according to the Bureau of Labor Statistics. The cost of buying groceries rose only 1% during that same time.

Fast food operations have also drastically scaled back their value menus in recent years, something to keep in mind the next time you hear a corporate lackey talk about how rising menu prices — the result of paying higher wages, they say — will hurt lower-income families who rely on affordable fast food.

As CBS reported, McDonald’s executives bragged about eliminating value items on an earnings call last fall, saying that even though the pricier menu was driving away lower-income customers, overall sales were up more than 8% because the remaining customers were paying so much more for their food.

And job losses? Upon closer examination, most of the predicted California-based cuts in fast food are in pizza operations, notably Pizza Hut, which announced plans to lay off more than 1,100 delivery drivers. Again, the cuts were blamed on the impending wage increase.

One problem: Pizza Hut’s plan to kill those jobs has been in the works for almost two years, ever since the mammoth chain discovered that using third-party delivery services saved it a ton of money. And all of that began only after Pizza Hut began having serious problems filling its driver delivery jobs in the post-pandemic market, as potential employees with better-paying options simply said no.

*   *   *

The true fallout of the new $20 minimum, if there is any, will bear a close watch. We may yet see individual franchisees bail out of the business, although for a McDonald’s owner that might have as much to do with their requirement to pay the parent corporation a 4% royalty fee and a 4% advertising fee — on an ongoing basis — as it does with what they pay their workers.

But demonizing those who want to begin approaching a living wage is remarkably misguided. That wage, calculated by MIT economists and used as a guide by the California state government, suggests what is required to meet minimum standards of living in a community. For a single person with no children, the figure currently stands at $26.63 per hour in Los Angeles County and $30.48 in Orange County, together home to nearly 200,000 fast food workers.

The new wage law won’t get them there. It also won’t affect the true mom-and-pop burger joints and taco stands in California since it applies only to franchises with more than 60 locations nationwide. A $20 wage won’t threaten those behemoths. It will provide some of their workers with slightly more breathing room each month — and that’s all.

Copyright 2024 Capital & Main