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How Much Will Your Favorite Hamburger Cost After Minimum Wage Hike?

By Kerry Jackson, Pacific Research Institute

Didn’t someone say that raising the minimum wage would hurt most those it is intended to help? Yes, yes they did. And it’s been said many times. Yet here we are in the just-begun era of the $20-an-hour minimum wage and residents in the low-income district of South Los Angeles are anticipating a larger drain on their wallets.

A few days before the higher wage went into effect, the Lost Angeles Times published a story about South Los Angeles “​​bracing for bigger bills at fast-food restaurants.” One resident interviewed for the story, Roshonda Baker, “was angry about the looming price hikes,” said the Times, “which are anticipated to largely be in the range of 4% to 5%.”

“I can definitely see it taking an effect on families,” said Baker.

The story was primarily a complaint about 40% of South L.A. residents living “in a food desert.” The political left has long implied that “food deserts” are the result of a conspiracy by grocery chains and nefarious characters to deprive certain segments of our society a nutritious diet through under-investment in their communities. Research has shown that “food deserts” are a demand-side phenomenon.

“The problem wasn’t that they simply hadn’t thought to offer more wholesome items. The problem was that these items just didn’t sell,” Elizabeth Nolan Brown wrote a few years back in Reason. “You can lead human beings to Whole Foods, but you can’t make them buy organic kale there.”

But the concept resonates with the Times’ progressive readership, so we get stories such as this one.

To be fair, though, the reporter does not skip over the consequences of the higher minimum wage. He not only pays attention to the impacts of higher prices in a neighborhood where more than 190,000 of the 605,000 or so residents live below the poverty line, he notes that “f​ast-food companies are also expected to enact layoffs, turn to automation and cut back workers’ hours in an effort to tamp down the cost increases brought on by the increased minimum wage.”

So far, a number of restaurants have publicly acknowledged that they will raise prices in response to having to pay their employees government-mandated higher wages.

  • Chipotle said in February that in order to “to cover the cost of the wage increase, we would need to take a mid-single-digit price increase in California.” The chain boosted prices, by 3%, proactively last fall. But that was only the start. Fox News reported in February that Chipotle “e​​xpects to raise prices by about 5% to 9% more” – a sizable figure yet not enough to keep up with the added 15% to 20% burden in labor costs, which is maybe why the company will also introduce a 1% price hike across the rest of the country.
  • Starbucks is also hiking prices, but won’t say when and by how much. So is McDonald’s. A franchisee of the latter who owns 18 stores “raised menu prices between 5% and 7%” over the last three months “in anticipation of the new law going into effect,” says the New York Post.
  • Jack in the Box CEO Darin Harris has indicated that menu prices will be, well, jacked up by 6% to 8%.
  • Smaller companies will have no choice but to take the same route. Alex Johnson, owner of 10 franchise restaurants in the San Francisco area, who says “we aren’t these big corporations with deep pockets — we’re not Wall Street, we are Main Street,” anticipates that he will have to raise prices about 10% this year.

“There isn’t a quick-service restaurant owner in California who can easily shoulder an immediate 25% wage increase for all their employees,” says Mike Whatley, vice president of state affairs and grassroots advocacy for the National Restaurant Association.

Companies are, as expected, laying off workers – more than 1,200 delivery drivers between just Pizza Hut and Round Table Pizza. Employee vacations are even being considered for elimination.

As if they have never heard about the harmful consequences of interfering in business matters, politicians ignore the warnings and set wages, then spin the facts while they try to play the role of the hero who saved the little guy. It was entirely appropriate that the higher wage took effect on April 1, because it is truly a foolish thing to do.

 


Kerry Jackson is the William Clement Fellow in California Reform at the Pacific Research Institute.