What Happened to Fast-Food Workers When San Jose Raised the Minimum Wage?

[Omaha Steve]

http://www.sanders.senate.gov/newsroom/must-read/what-happened-to-fast-food-workers-when-san-jose-raised-the-minimum-wage

By: Eric Morath Thursday, April 10, 2014



A 25% minimum-wage increase in San Jose, Calif., didn’t cause the region’s fast-food franchises to stop hiring. But it might have caused some heartburn.

A 2012 ballot initiative, started by San Jose State University students, resulted in a $2 increase to the city’s minimum wage. Opponents of the increase said it would lead to job losses. Initial data suggests that isn’t the case.

The pace of hiring at fast-food joints and other quick-service restaurants in the metro San Jose area slowed in December 2012 and January 2013. That was after San Jose voters approved the measure in November 2012 but before the increase took effect in March 2013.

Fast-food hiring in the region accelerated once the higher wage was in place. By early this year, the pace of employment gains in the San Jose area beat the improvement in the entire state of California. Nearly half of all minimum-wage workers are employed in food service.

FULL story at link.

[madville]

1. Would like to see what happened to prices

Just doing some basic math, in this scenario they saw a 20% raise to the minimum wage. In a standard restaurant model that would equate to a 7% rise in prices to the consumer to maintain the same profit for the owner/company.

Not that big a deal IMO. A $6 value meal would need to rise to $6.42 for example, that's not very noticeable to the consumer.

[JDPriestly]

3. San Jose is Silicon Valley. Living costs are extremely high there.

How about a 1,283 sq. ft. house for $518,000?

Check it out.

http://www.zillow.com/san-jose-ca/

Rents are really high in San Jose and the area around it. Therefore the wages have to be high.

[SevenSixtyTwo]

5. So a 50% raise

would amount to about a buck more for the value meal. I would gladly pay a dollar more to see those working on their feet at the pace they do make 50% more. Worth every penny.

[Merlot]

7. Why does the owner/company need to maintain the same profit?

Right now, they're making profit based on an unfair advantage, maybe a little less profit wouldn't kill the companies. Just al title less money i the CEOs paycheck.

[madville]

10. If a franchisee owns five restaurants

And expects to make $500,000 a year off those locations, suddenly dropping it to $300,000 just to absorb higher payroll is not going to be an option.

The options are raise prices, reduce payroll, or accept lower profits. The first two are viable options to an owner and the most likely in these scenarios.

[Merlot]

12. Costco sees it differently. They pay higher wages and have a good profit margin.

There are other factors involved in higher payroll, like less employee turnover which is very costly and eats into profits. Higher wages allows the employer to choose among the best employees. Employees giving better service means happier customers. The idea that the profit margin is going to be affected by exactly the same amount as the higher wages just doesn't hold up.

[adieu]

8. But fast food joints don't get to raise their prices

Those value meals are generally priced the same all over the country. If you're charging 99¢ for a hamburger, you keep charging that 99¢.

The real reason is because all fast food places are already running on the bare minimum of workers. There are no fast food places that hire more people than needed. And that number is rather small to begin with, like 6 per store. So, they can't just drop a person to account for the additional $2/hr for the rest. In other words, it's cheaper to pay the higher wage than to not run an operable business because of lack of human resources.

And, since they're making money hand over fist, the owners can actually pay. They just choose not to.

[madville]

9. I travel quite a bit and prices vary

What's $1.49 here is easily $1.79 in another city or $2.99 at the airport. Prices can vary quite a bit for the same item from franchise to franchise or region to region.

The money has to come from somewhere, either reduced hours/manpower or higher prices are the only two viable options. Why would a business owner voluntarily reduce profits when they don't have to?

[adieu]

11. Competitive market

In a perfectly competitive market, business owners earn very little profit margin. And in a McDonald's or a Burger King, they can't even innovate. They can't decide to serve their own meal item, for example. And even if they could, being in a perfectly competitive market, the competitors can easily copy whatever innovation and do the same thing (such as when McDonalds did innovate to create those McNuggets and then the other businesses followed up with similar products).

The minimum wage is a law, so they can't fight that. The competition is a "natural law" and they can't fight that. The net result is slimmer profit margin. Oh well.

[genwah]

2. Also look at S.F. minimum wage of $10.55/hr, with polling showing support for a raise to $15/

http://www.sfgate.com/politics/joegarofoli/article/Thumbs-up-for-15-an-hour-minimum-wage-in-new-5321206.php

(Still, gentrification is killing us...)

[Helen Borg]

4. There are too may factors to know...

Too many variables changing at different levels.

[jmowreader]

6. I'd like to see numbers instead of this line graph

How this reads - without numbers it's worthless - is the fast food joints fired a lot of workers in retaliation for the vote to increase the minimum wage, then went on a hiring binge when they realized they needed those employees. Which is something they would do.