Do You Support A “Minimum Wage”?

Minimum Wage – Good, Bad Or Indifferent?

Liberals lament the inability for people to live on the current minimum wage of $7.25 per hour. Let’s go back to 1965 for a moment. If in 1965, the minimum wage was $7.25 an hour instead of the 1965 minimum wage of $1.25 per hour, we never would have had $0.15 hamburgers at McDonalds. They would have been (just based upon wages) more like $1.60 a hamburger. And, low and behold if you look it up on the internet, you find McDonalds charges $1.58 for the same hamburger. The quality has declined significantly, and in the meantime, they’ve added so many items to the menu that the single burger is lost in the shuffle, and this writer suspects that it is a very small portion of their sales compared to 1965 when likely it represented 50% or more of their sales with just 4 things on the menu – hamburger, fries, shakes and soda pop.

What do you suppose caused a $0.15 hamburger to increase in price by more than 10 X’s? HERE is a breakdown, and you can see that labor is 20% of the gross business sales. If I run a fast food business today, and my cost of labor is 20% of my sales, then it is a big percentage that I am going to want to reduce as much as possible. Why? Firstly, food quality must remain competitive, so there are few shortcuts there. The government is not going to cut me any slack on my property taxes or my income taxes, so there’s no savings there. The utility company will not reduce my electric or gas bill, nor will the water company give me any kind of a discount. My insurance agent might negotiate a little bit, but any savings there will likely not amount to more than 1/4% of gross sales.

So, what’s left? Labor costs are the only way to reduce overall costs. So, how do you do that? We can see a strong push toward robotics and artificial intelligence to overcome that. If the minimum wage is $7.25 an hour, that does not include FICA (Social Security withholdings of which the employer pays half) which amounts to about 7.25% ($0.526 which we’ll round down to $0.52), Then there’s Medicare which is 1.45% or roughly $0.10. Then there is, in most cities a head tax which is a flat rate which we’ll be generous and say it’s only $0.05 an hour. Then, if someone is employed full time they must be provided health insurance (but under the Obama administration only if they work more than 29 hours a week). As a result, many people are without health insurance because employers of fast food only employ them on a part time basis. So for argument sake, we’ll not add this in. So, now we have an additional cost of $0.67 per hour bringing the minimum wage up to $7.92 an hour.

Let’s say that a McDonalds owner is open 16 hours a day. 16 X’s $7.92 = $126.92 per day per person. Over one years time, that comes to $46,252.00 for one man/woman year. Now, no McDonalds could operate on less than 3 employees at any given time and during peak time needs probably 6, so let’s average the two and come up with 4.5 man/woman years of employees X’s $46,252 = approximately $208,000 per year in labor expenses. I suspect that is low. Now, if the minimum wage is raised by 10%, which is minimal in the high inflation days we’re in, then that’s an extra $20,800 in business costs per year. Now, let’s divide the $20,800 by $1.58 (the cost of a classic hamburger), and that equals 13,173 more hamburgers that have to be sold just to break even on the minimum wage increase.

Will there be that many more customers buying that many more hamburgers? Likely not. Therefore, the only logical thing the McDonalds owner can do is to raise prices or go out of business. Raising prices is of course the most attractive and practical. Therefore even to the idiot leftist/socialists, you can see that a minimum wage raises prices. The last question is how high can prices be raised before sales slow and profits drop and the incentive to own/run a McDonalds franchise is gone?


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