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'Bleeding' fast-food workers

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By James Sherk
Sunday, Sept. 22, 2013, 9:00 p.m.
 

WASHINGTON

Medieval doctors bled their patients with leeches. Far from improving their condition, it left them worse off.

Raising the wages of fast-food workers to $15 an hour would produce similar results for those the proposal is intended to help.

Competition forces businesses to pay workers according to their productivity. If companies pay less, their employees will jump ship to competitors. And if they pay workers more than they produce, they go out of business.

For better or worse, fast-food jobs are relatively low-productivity positions, typically filled by inexperienced workers. Most fast-food customers want a quick, inexpensive meal. They will not regularly pay premium prices for a burger and fries.

Doubling McDonald's wages would raise the company's total costs by 25 percent — well above profit margins. And raising prices would drive away customers.

If Congress mandated fast-food restaurants to pay $15 an hour, they would have to change operations to deliver the kind of productivity to justify those higher costs. That would mean replacing current workers with machines and hiring fewer, more skilled workers to maintain them.

Restaurants could do this in a variety of ways, such as using iPad kiosks instead of cashiers to take orders or installing a new, robotic burger flipper, which makes up to 400 hamburgers an hour.

At current wages, these high-tech investments make sense for only a few restaurants; if wages doubled, they would become widespread. The end result: far fewer jobs in the fast-food industry and higher pay for those who remain.

Those who consider such a trade-off worthwhile miss the economic role of minimum-wage jobs. For most workers, they are entry-level positions where they can gain experience that makes them more productive and helps them command higher pay in their next job.

Most Americans started out in jobs paying within a dollar of the minimum wage. Few stay there long. The average fast-food employee stays at his or her restaurant for less than a year. These are simply gateway jobs, the first step on a career ladder. That is why the vast majority of fast-food workers are under the age of 25.

American Samoa offers a case study of what would happen if the “living wage” lobby prevailed.

The island territory used to have a separate minimum wage because of its lower incomes. But in 2007, Congress applied the U.S. minimum wage to Samoa. For the tiny Pacific Ocean nation, this was the economic equivalent of $20 an hour.

It did not boost purchasing power, stimulate demand or raise living standards. Instead unemployment septupled to more than 35 percent.

The governor begged Congress to suspend the wage hikes, pleading, “How much does our government expect us to suffer?”

Good intentions do not repeal the laws of economics. Requiring dramatically higher fast-food wages would eliminate hundreds of thousands of entry-level jobs. This would no more help fast-food workers than bleeding them with leeches.

James Sherk is a senior policy analyst in labor economics at The Heritage Foundation.

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