Across the nation a revolution of sorts is under way. From Seattle to Atlanta the push for a federally mandated minimum wage hike up to $15 an hour is gaining momentum. Spear-headed by low wage workers in the fast food industry, the call for a new federal mandate pertaining to minimum wage requirements has spread like mayo on a toasted bun.
While demands for such an increase ( 107% jump from today's $7.25) didn't start yesterday they haven't until recently begun to reverberate as loudly off the boardroom walls of some the nations largest employers, a few of which are scrambling to re-invent there business models due to already declining revenues. Because of the increasing difficulty in the serving of not so appealing calorie counts thanks to the nations sudden interest in containing the bulge that for many decades was synonymous with Merrica!, no longer is it so much about having it our way, right away.
From coast to coast we are starting to see demonstrators take to the streets in a show of worker solidarity calling for higher wages and the general consensus appears to be that $15.00 an hour is the satisfactory target. Cities like the aforementioned Seattle have already set the stage by passing municipal level wage requirements that are far higher than federal requirements but not easily comparable to cities of similar size due to cost of living standards for the region respectfully.
The demands for mandated wage increases, while being entertained , are beginning to be met head on with resistance not just from burger giants but also blue collar style feeder industries that rely on the Ronald McDonalds of the world to keep their ships afloat. Distributors and suppliers for the fast food industry are starting to nervously attempt to gauge how big a ripple could be sent through the downstream economy should mandates find their way through Washington with seals of approval.
So is there a case for an increase without causing widespread job loss and steep cuts in spending which in turn would churn the waters and launch the ripples? According to a study conducted by market researchers at the Political Economy Research Institute at the University of Massachusetts Amherst the fast food industry could take such an increase and absorb it without any loss of employment or profit margin diversion. Lets look at some of those findings.
The current federally mandated minimum wage is set at $7.25 and has been since 2009. The Robert Pollin and Jeanette Wicks-Lim authored paper suggest a two phase increase over a five year period. The first increase to $10.50 an hour and the second increase stepping up to the desired $15.00 an hour. The study focused on the fast food industry due to the fact that 47% of full time workers that currently earn minimum wage are under the employ of that industry. That in and of itself is a tell tale number. Total fast food sales for the year 2013 equaled to $232 billion. A wage minimum increase to $15 an hour would represent a whopping 14.2 percent of sales. The profit margin for the industry sits at or below 5%. Not a lot of wiggle room there and this is something industry reps have been stating for years in response to criticisms about pay wages.
The study outlined four scenarios in which businesses could absorb the wage increases rather than instituting lay-offs.
1. The cost of increases would be offset by savings in reduced employee absenteeism. The employee would apparently have more incentive to come to work. Seems plausible right? Well a survey conducted in high wage mandate Seattle found that the opposite actually took place. A large number of the wage increase affected workers were receiving federally sponsored benefits by way of SNAP benefits and reduced rent programs before garnering their pay raises. Because their newly mandated wage bumped them out of certain income ceiling thresholds they lost eligibility to such programs. Their reaction? They requested less hours to maintain eligibility. In large numbers. Un-intended consequence for sure. And that isn't claiming that would be the effect across the board. But eye raising for certain.
2. Such wage bill increases could be absorbed through the raising of prices. We all saw the obvious coming right? Only the market will decide what it can bare, but Merrica! will only pay so much for that value meal that already isn't viewed as such a value anymore. Higher prices for smaller portions has already picked at sales revenue over the last decade.
3. Divert a larger percentage of revenue share generated by economic growth. This scenario was based on the assumption ( we all know what happens when we ass*u*me ) that the industry would maintain an average 2.3% growth rate over the five year span. The problem with that scenario besides the obvious is the annual percentage growth is not expected to be industry wide. A lot of the major players in the fast food sector are lowering their revenue forecast by an average of 1/2% point. When we speak in terms of billions , well you get the idea.
4. Reduce share of revenue allocated to higher wage staff and redistribute to lower wage staff. Also reduce profit margin forecast 1% and allocate it to lower wage ( affected) workers. The problem with this scenario is the scenario. What was just described was a whole bunch of shuffling. To re-arrange pay scales does nothing to address the issue of needing to actually generate more revenue because of increased payroll. Generating additional revenue as described before isn't in the forecast folks. Where the Chik-Fil-A's of the world are increasing their revenue forecast, other outlets are not so fortunate. The industry as a whole is probably going to remain relatively flat this year and possibly next.
It also suggested that through investing in new equipment to reduce their employment requirements relative to their overall level of operation and cutting back on other expenses relative to marketing and expansion. There you have it. Did anybody not understand the implications of that last sentence? Humans, choose your mandates wisely.
IBIS World Industry Reports tossed these numbers out there for 2013. These are average industry costs at the time this study was conducted. Percentages are of total actual revenues.
Purchases (supplies, food, etc.) 35.5%
Wages 25.4%
Facilities,Utilities 14%
Other (exp,royalties,debt) 14.1%
Profit 5%
Marketing 3%
Depreciation3%
