What does it cost to boost fast food wages?

  • By Roberto Ferdman The Washington Post
  • Thursday, July 30, 2015 2:26pm
  • Business

WASHINGTON — Would you pay 17 extra cents for a Big Mac if it meant the person who prepared it could earn a living wage? What about an extra 30 cents each time you ate out at any fast-food restaurant?

These are the small prices we would have to pay on average to ensure that fast-food workers around the country earned an hourly-wage of $15, according to a new study by researchers at Purdue University’s School of Hospitality and Tourism Management.

“It would vary a bit, depending on where you live, but that gives you a sense,” said Richard Ghiselli, who is the Head of the School of Hospitality &Tourism Management at Purdue University, and lead author of the study.

Ghiselli used data from both the National Restaurant Association and Deloitte &Touche to estimate how much fast-food companies would need to boost sales given varying changes in the minimum wage. Assuming the industry maintained its current profit margin of 6.3 percent — which, to be fair, is fairly slim — hiking the pay floor at fast-food restaurants to $15 an hour would mean just a 4.3 percent increase in prices.

“If we were talking about the price of gas, that would probably be headline news, but people have a very different reaction to food,” Ghiselli said. “A 4 percent increase in the price of fast food doesn’t bother people as much.”

That being said, it wouldn’t be a 4 percent increase for everyone. Ghiselli used data from the Bureau of Labor Statistics to estimate the average hourly pay of fast-food workers in the United States (roughly $10.64). Any place where workers currently make less than that, the price hike would likely end up being much more; any place workers make more, the opposite would be true.

“Someone in Lafayette, Indiana, where I live and we do pay $7.25, is going to be affected a lot more,” Ghiselli said. “And so are prices consumers will have to pay.” Someone in Chicago, on the other hand, where the minimum wage is $13, will likely see a smaller price increase. And customers in Seattle and Los Angeles, where the minimum wage is already $15, won’t see any at all.

There are, to be fair, a few limitations inherent in the researchers’ model. For one, the consequences of raising the minimum wage for fast-food workers might affect more than merely how much they make and how much consumers pay. There’s research showing that higher wages don’t necessarily lead to job cuts — and evidence that better paid low-skilled workers are a blessing for employers because they’re more productive. But branches could decide to downsize their staffs once labor is twice as expensive, especially if they prioritize keeping prices low.

There’s also the reality that it’s hard to establish what exactly a fair or appropriate wage is for low-skilled workers. Everyone should be entitled to earn a living wage, but the cost of living varies a lot depending on where you live. In New York City, life is expensive; in Lafayette, Indiana, less so. “Is it $15, or is it $22, which is what people make on average in the private sector?” said Ghiselli. “I don’t know — it might be lower. It probably depends on where you live.”

And fast-food restaurants, facing higher wages, might not raise prices evenly across their menus. McDonald’s might hike the price of french fries but barely touch the price of hamburgers; Taco Bell could decide to only charge more for Gorditas.

But Ghiselli’s model, despite its assumptions, is still a telling sign of what kind of sacrifice it would take on behalf of consumers to help a large swath of those who earn at or below the minimum wage — especially since $15, though it has gained traction as of late, is at the higher end of the minimum wage hikes being considered.

Talk to us

> Give us your news tips.

> Send us a letter to the editor.

> More Herald contact information.

More in Business

Black Press Media operates Sound Publishing, the largest community news organization in Washington State with dailies and community news outlets in Alaska.
Black Press Media concludes transition of ownership

Black Press Media, which operates Sound Publishing, completed its sale Monday (March 25), following the formerly announced corporate restructuring.

Maygen Hetherington, executive director of the Historic Downtown Snohomish Association, laughs during an interview in her office on Thursday, Feb. 15, 2024, in Snohomish, Washington. (Ryan Berry / The Herald)
Maygen Hetherington: tireless advocate for the city of Snohomish

Historic Downtown Snohomish Association receives the Opportunity Lives Here award from Economic Alliance.

FILE - Washington Secretary of State Steve Hobbs poses in front of photos of the 15 people who previously held the office on Nov. 22, 2021, after he was sworn in at the Capitol in Olympia, Wash. Hobbs faces several challengers as he runs for election to the office he was appointed to last fall. (AP Photo/Ted S. Warren, File)
Secretary of State Steve Hobbs: ‘I wanted to serve my country’

Hobbs, a former Lake Stevens senator, is the recipient of the Henry M. Jackson Award from Economic Alliance Snohomish County.

Mark Duffy poses for a photo in his office at the Mountain Pacific Bank headquarters on Wednesday, Feb. 14, 2024 in Everett, Washington. (Annie Barker / The Herald)
Mark Duffy: Building a hometown bank; giving kids an opportunity

Mountain Pacific Bank’s founder is the recipient of the Fluke Award from Economic Alliance Snohomish County.

Barb Tolbert poses for a photo at Silver Scoop Ice Cream on Thursday, Feb. 29, 2024 in Arlington, Washington. (Annie Barker / The Herald)
Barb Tolbert: Former mayor piloted Arlington out of economic brink

Tolbert won the Elson S. Floyd Award, honoring a leader who has “created lasting opportunities” for the underserved.

Photo provided by 
Economic Alliance
Economic Alliance presented one of the Washington Rising Stem Awards to Katie Larios, a senior at Mountlake Terrace High School.
Mountlake Terrace High School senior wins state STEM award

Katie Larios was honored at an Economic Alliance gathering: “A champion for other young women of color in STEM.”

The Westwood Rainier is one of the seven ships in the Westwood line. The ships serve ports in the Pacific Northwest and Northeast Asia. (Photo provided by Swire Shipping)
Westwood Shipping Lines, an Everett mainstay, has new name

The four green-hulled Westwood vessels will keep their names, but the ships will display the Swire Shipping flag.

A Keyport ship docked at Lake Union in Seattle in June 2018. The ship spends most of the year in Alaska harvesting Golden King crab in the Bering Sea. During the summer it ties up for maintenance and repairs at Lake Union. (Keyport LLC)
In crabbers’ turbulent moment, Edmonds seafood processor ‘saved our season’

When a processing plant in Alaska closed, Edmonds-based business Keyport stepped up to solve a “no-win situation.”

Angela Harris, Executive Director of the Port of Edmonds, stands at the port’s marina on Wednesday, Jan. 24, 2024, in Edmonds, Washington. (Ryan Berry / The Herald)
Leadership, love for the Port of Edmonds got exec the job

Shoring up an aging seawall is the first order of business for Angela Harris, the first woman to lead the Edmonds port.

The Cascade Warbirds fly over Naval Station Everett. (Sue Misao / The Herald file)
Bothell High School senior awarded $2,500 to keep on flying

Cascade Warbirds scholarship helps students 16-21 continue flight training and earn a private pilot’s certificate.

Rachel Gardner, the owner of Musicology Co., a new music boutique record store on Thursday, Jan. 18, 2024 in Edmonds, Washington. Musicology Co. will open in February, selling used and new vinyl, CDs and other music-related merchandise. (Olivia Vanni / The Herald)
New Edmonds record shop intends to be a ‘destination for every musician’

Rachel Gardner opened Musicology Co. this month, filling a record store gap in Edmonds.

MyMyToyStore.com owner Tom Harrison at his brick and mortar storefront on Tuesday, Sept. 6, 2022 in Everett, Washington. (Olivia Vanni / The Herald)
Burst pipe permanently closes downtown Everett toy store

After a pipe flooded the store, MyMyToystore in downtown Everett closed. Owner Tom Harrison is already on to his next venture.

Support local journalism

If you value local news, make a gift now to support the trusted journalism you get in The Daily Herald. Donations processed in this system are not tax deductible.