Friday, April 5, 2013

Thirty Grand for Flipping Burgers?

According to this story, workers at various fast food places in New York went on strike yesterday, demanding wages of $15/hour.
On Thursday, fast-food workers staged walkouts at McDonald's, Burger King, Taco Bell and other restaurants in New York City to call attention to their plight. Organizers scheduled the job actions to commemorate the day Rev. Dr. Martin Luther King Jr. was assassinated 45 years ago in Memphis, where he was supporting a strike by sanitation workers.

"It's not enough," Elba Godoy, a crew member at a McDonald's just a few blocks from Times Square, said of her $7.25-per-hour minimum wage, which helps support her extended family of seven. "They don't like [that we're out here], but we have to do it. We cannot survive on $7.25."
The rest of this post is going to sound like I have no sympathy for these folks. So I’ll start by saying that I do sympathize – I would hate to be working at those places (or anyplace) for those wages. But making unrealistic demands for wages that are totally unjustified for the skills required is not going to solve the problems these people have. That would take acquiring the skills and experience that would qualify them for better positions.

But let’s say the strikers got what they wanted, and all the folks making $7.25/hour got raises to $15 (and those making more got proportionate increases). That’s a 107% increase in labor costs for the franchisee.

Now, I don’t know what the costs are at these fast food places, but almost certainly labor is the biggest line item. Let’s say for arguments’ sake that the costs are 50% labor and 50% other (raw materials, rent, etc). That 107% increase in labor costs would mean a 53.5% increase in overall costs – and would therefore require the same increase in prices.

This site says that the average cost of a Big Mac meal in the US is $6.64. That would rise to $10.19 after the strikers got their way.

If Big Macs cost $10 (or anything close), I wouldn’t eat many and neither would most other people, I'm pretty sure. For ten bucks I can get much better burgers than McDonalds offers. And the same principle applies at Taco Bell, KFC, and similar places.

But in a world where most people don’t know about supply and demand or comparative advantage, it’s far too much to hope these folks will understand the principle of price elasticity.

They would only learn about the realities of economics when they are all unemployed because their employers shut down for lack of business. At which point it would all be the fault of heartless Wall Street – not the union bosses who filled their heads with this nonsense.

But, in any case, this isn’t going to happen. Workers have leverage against an employer when it is difficult for the employer to replace them – e.g., there are few others available with the requisite skills who are willing to take the position, and/or it would take a long time to train replacements.

These conditions don’t exist: The requisite skills consist of the ability to say ‘Do you want fries with that?’ and to screw up orders; the training period is about fifteen minutes; and I’m willing to bet that most McDonalds, Taco Bells, etc, have long lists of other applicants no less qualified than the folks they currently have on staff.

I hope the workers aren’t being conned into paying dues to these union organizers.

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