So, thousands of fast-food workers are out on strike against the national burger chains, demanding that their wages be doubled to $15 per hour. But the national chains don’t control employee wages; how much to pay their people is in the hands of local franchise owners,
Therefore, if you are one of the concerned, caring, and vastly indignant activists behind this strike, I’m here to tell you that your social-justice problem has a simple solution. Take out a loan (or put together the money from your like-minded activist friends), buy a franchise from one of the chains, and hire workers at $15 an hour.
There, that was simple, wasn’t it? You’ll make money hand over fist and demonstrate to all those eeevil corporations that they can too pay a “just wage”; they just don’t want to because they’re greedy.
Or…maybe not. If it were that simple, everyone would be doing it. The commercial landscape would be alive with virtuous workers’ collectives paying their members fat wages and thumbing their noses at top-hatted plutocrats. Why doesn’t this happen?
Because in order for you to pay a worker $15 per hour, that worker has to net you more than $15 an hour in revenue. Otherwise your business runs at a loss until it crashes and the job goes away.
But it’s actually worse than that. Employer Social Security “contributions” approximately double the costs per burger-flipper right away; other tax and regulatory burdens push it up further. To sustain $15 an hour in wages, your employees have to pull $35 an hour or more in revenue each.
That kind of revenue per employee is relatively easy to arrange in a profession or a skilled trade, or even at a really chi-chi restaurant. But we’re talking flipping burgers here, which raises two serious problems.
One is that flipping burgers is not neurosurgery. The job procedures are simple and mechanical; adding a lot of value with a human touch is hard. In truth the main reason burger joints have human employees at all (other than maybe one machine-tender) is that people like to have their food handed to them by a human being rather than catching it off the end of a conveyer belt.
The other problem is that price competition in the fast-food industry is brutal. The name of the game is fast and cheap; that means your franchise has to run on a razor thin margin. If you try to charge significantly more over your cost of the basic inputs (meat, potatoes, cooking oil, electricity) than your competitors do, your customers will desert you.
Which is why the workers’ collective scenario fails. Your social-justice intentions won’t change the cost of those inputs one bit; the only way you can generate enough revenue per hour to cover that $35 or more in cost per employee is to raise prices. A lot. At which point your customers will instantly bail out.
Franchise owners aren’t demons. What they can do is constrained by economics. The wages they can pay are effectively bounded above by the amount of revenue each employee can capture, which in turn is bounded by price competition. If that amount is low, the wages will be too, and no amount of political screaming can fix that.
This is why minimum wages kill jobs. In the U.S. of 2013, the magic threshold is abour $14.50 an hour – if an employee can’t generate that much gain, the job either won’t exist at all or will only exist illegally off the books where taxes and regulation can’t more than double its cost.
But if you’re illiterate, unskilled, or just young, you may not be able to net $14.50 per hour for an employer. In that case you get the shaft. You might be willing to work for less, but the system will “protect” you by keeping you unemployed and desperate.
How this logic applies to other low-wage service jobs – in places like (say) big-box retail stores – is left as an easy exercise.