Minimum Wage Whiners Have It Wrong


Tyler:              The question, Raymond, was: WHAT DID YOU WANT TO BE?!?

Raymond:      Veterinarian.  Veterinarian.

Tyler:              Animals.

Raymond:      Yeah.  Animals and ssstuff.

Tyler:              And stuff, yeah, I got that.  That means you have to get more schooling . . . I’m keeping your license.  I’m gonna check in on you.  I know where you live.  If you’re not on your way to becoming a veterinarian in six weeks, you will be dead.  Now run on home . . .  Tomorrow will be the most beautiful day of Raymond K. Hessel’s life.  His breakfast will taste better than any meal you and I have ever tasted.

                        —Brad Pitt as Tyler Durden and Joon Kim as Raymond K. Hessel in Fight Club


Happy Labor Day.

Those of you who tried to get a Big Mac last Thursday may have seen the impact of a wave of strikes by fast food workers demanding that the minimum wage be increased from $7.25 to $15 an hour.  At least one store in Detroit was forced to close, ironically demonstrating that Detroiters still haven’t connected the dots on the negative impacts of overreaching labor demands.

The argument, so it goes, is that these workers are simply worth more than $7.25 and it’s just not possible to raise a family and make ends meet on that wage.  And, of course, we all know the giant fast food corporations make too much money and can afford it; as one protester in Detroit put it:

“It’s a very uncomfortable lifestyle working for $7.40 at McDonald’s when McDonald’s made like $500 billion last year.”

You know it’s only a matter of time before the President and the Left seize on this as an emergency issue du jour in order to distract from Syria and the various other messes they have brought on themselves.  Washington Post resident nitwit E.J. Dionne was already gushing over the weekend about the need for more income “predistribution.” 

But let’s back up.

In point of fact, McDonald’s Corporation did not make $500 billion last year, or anything like it.  McDonald’s Corporation made $5 billion, not even good enough to crack the Fortune 100 (McDonald’s was #107), and yet that was still by far the largest profit in the food service industry that employs close to half of all those making the minimum wage. 

More importantly, however, if you’re a line cook at a McDonald’s restaurant, the chances are overwhelming that you don’t actually work for the McDonald’s Corporation that you’re complaining is so greedy.  Most likely you work at a franchise owned by someone more or less local, who’s trying to make his profit on a business model that has him selling hamburgers for between $3 and $4 apiece, out of which he has to pay not only his franchise fees, but also taxes, payroll, mandatory benefits contributions, rent, utilities, the cost of the raw materials that went into the burger, etc.  That doesn’t leave a ton of margin to play with on raising wages.

Let’s work through an example. 

Assume you have a Whataburger franchise that during the peak rush has a manager, an assistant manager, five employees working the registers and drive-thru, and five working the fryers and grill.  That’s ten employees and two managers.  Let’s further assume that all ten regular employees are at minimum wage (unlikely), and the managers are at an average of 20% above that (also unlikely).  At a minimum wage of $7.25, ten employees cost you $72.50 per hour, and the two managers cost $17.40, for a total hourly labor cost of $89.90.  If your gross margin on a $3.49 burger is 50% (and I submit that that’s likely generous), you have to sell 51.5 burgers every hour just to cover your labor costs.  Of course, you have all the other expenses on top of that, and bear in mind that when you’re open 24 hours rent and electricity cost the same even though you may go hours at a time in between sales in the middle of the night.  

When we jack up the minimum wage to $15, ten employees now cost $150 per hour.  Two managers now at $18 per hour add $36, for a total labor cost of $186/hour.  You now have to sell 106.5 of those $3.49 burgers per hour just to pay your employees.  But your rent, electricity, and other expenses didn’t decrease to offset your increased labor costs.  It becomes readily apparent that you will either have to cut back on the number of employees, raise your prices drastically, or both.  That $3.49 burger will become something more like a $7.49 burger (fries and a drink will add another $5 or so, and who’s going to be willing to pay $12-$13 for a fast food-level burger combo?) and some of those minimum wage earners will be out of a job.  That’s if the shop can survive at all.

As the President once said, that’s just math, and it doesn’t work.

Moreover, there isn’t a massive problem here making it necessary to jack up the minimum.  According to the Bureau of Labor Statistics, a total of about 3.5 million made at or below the federal minimum wage in 2012.  That figure represents all of 4.7% of the hourly wage population, and something like 2.4% of the working population as a whole.  These are not big numbers.  More to the point, however, fully half of those at or below minimum wage are between 16 and 24, and half of them are between 16 and 19.  The compression of this segment of the workforce into an extremely narrow age cohort indicates that for the relatively few earning minimum wage, that is generally not a permanent condition.  As workers gain experience, training, education, and seniority they tend to move to higher wage levels, either by moving up the ranks or by changing jobs.

And this shouldn’t surprise us, because contrary to the strikers’ verbal posturing, wages aren’t about their value as human beings, but about the value of the work they do.  It doesn’t require any education or any real skill to flip a burger; virtually anyone can do it.  If there is someone willing to do it for $7.25 an hour—and I promise you, there is—then that’s what that work is worth.  If you as an employee have in fact gained additional experience or skill such that your work is worth more, presumably your present employer or another one would be willing to pay you that.  That’s how the free market works: your work is worth exactly the wage you agree to accept and your employer agrees to pay.  If you are among the few chronically stuck at $7.25, the problem isn’t the minimum wage, the problem is you haven’t attained the education or increased skill level to make your services more valuable and thus move up the ladder.

But the minimum wage whiners don’t want to do it that way.  They don’t want to accept personal responsibility for their flat career trajectory, and they don’t want to work by mutual assent.  Instead they want to extract an artificially-inflated wage by substituting government force for the employer’s agreement.  Work is no longer worth what the laborer is willing to take and what the employer is willing to pay, but it is worth whatever the laborer says it is (enforced at the point of a federal bayonet), economic consequences be damned. 

If the “right” to a “living wage” vests someone with a claim upon a business owner wholly divorced from the actual economic value of the work that person performs—which is what a legally-mandated minimum wage does—it’s not much of a stretch then to say that that person is entitled to be paid that living wage—to take that money from the business owner—regardless of whether they in fact do any work at all.  After all, if you have a right to $15 per hour even though you only do $7.25/hour work, aren’t you equally entitled to that $15/hour for doing $5/hour work?  And if that’s so, doesn’t the same logic hold if you only do $3.50/hour work, $2/hour work, and so on all the way down to $0?

You cannot carry on an economy like this forever.  It is impossible to, in the name of “fairness” or whatever Progressive buzzword you want to use, continue to take by force from the productive and entrepreneurial and give to the unskilled and unproductive without regard for the actual economic value of their contribution.  The money to pay that artificial minimum wage doesn’t just fall from heaven.  It has to be generated in the marketplace, and if the labor costs are higher than their economic value, then sooner or later the employer is upside-down on the enterprise.

So strike if you want to.  But I submit your time would be better spent trying to acquire an education or skills that would in fact make your work worth more than you are currently making flipping burgers.    


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