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Published: Sunday, 12/8/2013 - Updated: 11 months ago

Impact of fast-food workers’ wages serves up hot debate

BY STEVEN GREENHOUSE
NEW YORK TIMES
Protester Juan Navarro demonstrates in front of the counter at a McDonald's restaurant Thursday Los Angeles. Demonstrations were planned nation-wide as a part of push by labor unions, worker advocacy groups and Democrats to raise the federal minimum wage of $7.25 to $15. Protester Juan Navarro demonstrates in front of the counter at a McDonald's restaurant Thursday Los Angeles. Demonstrations were planned nation-wide as a part of push by labor unions, worker advocacy groups and Democrats to raise the federal minimum wage of $7.25 to $15.
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NEW YORK — On the heels of another round of one-day strikes on Thursday in cities nationwide, labor leaders, economists, and industry officials continue to debate the potential effects of raising wages at companies that often assert that such increases would raise consumer prices and shrink the work force.

Organizers of the fast-food workers’ nascent movement are clamoring for a $15-an-hour wage, a 67-percent pay increase in an industry where wages average around $9 an hour.

Restaurant industry officials have balked at so high a wage, saying it would raise sharply fast-food prices and reduce employment, in part by fueling automation of some jobs. They call the demand of $15 an hour a nonstarter as far as initiating negotiations.

“When you start by insisting on $15 an hour, that’s not conducive to substantive dialogue,” said Scott DeFife, an executive vice president with the National Restaurant Association.

But Mary Kay Henry, president of the Service Employees International Union, which has spent several million dollars to underwrite the nationwide fast-food strikes that began a year ago, said it was only a matter of time before the worker protests became so great that McDonald’s Corp., Burger King, and other companies agreed to negotiate.

“I think there’s growing recognition that a nerve has been touched,” Ms. Henry said. “The industry had better start to take this seriously, because this isn’t going to blow over.”

But even experts who support some increase worry that a raise to $15 an hour would have profound effects on the industry. Arindrajit Dube, an economics professor at the University of Massachusetts, Amherst, said a raise to $15 would push up fast-food prices by nearly 20 percent. With the industry estimating that one-third of its costs go to labor, he said a $15 wage would mean wage increases averaging about 60 percent, raising the cost of a $3 hamburger to $3.50 or $3.60.

Ken Jacobs, chairman of the University of California, Berkeley, Center for Labor Research and Education, differed slightly, saying a $15 wage would cause a somewhat lesser price increase, perhaps 10 percent, and adding that higher pay would save restaurants some money by leading to less turnover and higher productivity. In addition, he said, franchisees might swallow some of the increases instead of offsetting them with higher prices.

Sylvia Allegretto, a labor economist and co-chair of the Center on Wage and Employment Dynamics at the same university, said it’s unclear whether a minimum-wage bump would have enough of a ripple effect to affect consumer wallets.

“Many people have assumed that if you increase the minimum wage by X percent, the meal costs will increase by the same percent, and that’s simply not true,” she said. “There are so many other factors at work.”

The price patrons pay for a burger also reflects the cost of fuel used to deliver the meat from farm to processing center to eatery, Ms. Allegretto said. Fluctuations in the price of raw ingredients such as beef and wheat also play a part.

Michael Saltsman, research director of the Employment Policies Institute, added that menu prices aren’t set in a vacuum.

Restaurants are wary of charging more for their food, especially if dealing with the price-sensitive customers who most often frequent quick-service establishments. But if employee costs rise, “they can’t just absorb the hit either,” Mr. Saltsman said.

Stephen J. Caldeira, president of the International Franchise Association, estimated that the demand for $15 wages would lead to a 25 percent to 50 percent increase in fast-food prices.

“It would definitely hurt the consumer,” Mr. Caldeira said. “Increasing the cost of labor would lead to higher prices for the consumer, lower foot traffic and sales for franchise owners, and ultimately lost entry-level jobs.”

Within academia, the debate is fierce about how much increases in the minimum wage affect employment.

Mr. Dube has been a leading voice in arguing that a modestly higher minimum wage does not harm employment levels.

Nonetheless, he agreed that an increase as steep as the rise to $15 could hurt employment.

“Would I be concerned about possible job losses if there were a $15 minimum wage in the restaurant industry, yes, I’d be concerned,” Mr. Dube said. “There are concerns it might lead to the substitution of automation for workers.”

Several fast-food chains have cut labor costs by allowing self-service for soft drinks. And some restaurants have begun replacing counter workers with computer screens that greet customers and ask them to tap in their orders, which are relayed to the cooks.

David Neumark, an economics professor at University of California, Irvine, who has studied minimum-wage increases in depth, estimated that raising fast-food pay to $15 would result in a 5 percent or 6-percent reduction in employment.

He and Mr. Dube said they were reluctant to speculate about the effects of a $15 wage because while many studies have been done about the effects of a 50 cent or $1 increase in the minimum wage, hardly any have been done about the effects of a sharp jump to the $15 area.

Still, Mr. Neumark said, “Anyone who thinks sensibly about this should be concerned that $15 would have a big effect on employment.”

Mr. Neumark said one advantage of a $15 wage was that it would save the government money by reducing workers’ reliance on food stamps and other programs.

A study by the University of California, Berkeley, found that fast-food workers receive nearly $7 billion a year in public assistance.

Some fast-food workers say that they dream of getting a raise to $15, but would be happy to receive $12 or $13.

In some ways, the fast-food strikes parallel the Black Friday protests urging Wal-Mart Stores Inc. to pay its workers more.

Some economists say that giving raises to low-paid fast-food and retail workers would stimulate the underperforming economy by increasing their ability to spend.

But others counter that the stimulus would be negated when the raises forced restaurants and retailers to raise prices, subtracting from other consumers’ spending power.

The Los Angeles Times contributed to this report.



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