Hacker News Reader

Comment by jimmaswell | Hacker News Reader

The math works out fine if you think about it. Here's an example.

The costs to make a burger at McDonald's include property taxes/rent, food costs, utilities, other things, and labor. Labor is only one part of it. If a burger costs $1, and labor is 50% (very generous estimate), and minimum wage doubles, the burger now costs $1.50. Now at the end of a 4 hour shift the employee now has, say minimum wage rose from $7 to $14, $56 instead of $28. If they were going to spend that all on burgers, they used to be able to buy 28/1=28 burgers, while now they can buy 56/1.5=37 burgers.

So even with extreme examples, the minimum wage worker comes out ahead here. People who made more before can buy a bit less now but it's not as drastic as it's made out to be.

Beyond this hypothetical, here's a study that says rising wages to $15 would only increase prices by 4%. https://www.marketwatch.com/story/raising-fast-food-hourly-w...

View on HN

Not all stores are McDonalds. Walmart, McD's, etc. have the volume, logistics, and scale to absorb these wage increases. They're also very nearly monopolies in some ways - nobody else sells a Big Mac, and of course we should all be aware by now of the complications of allowing a Walmart into a smaller town, seeing what it does to small businesses.

The real impact is on the smaller burger joint that does less business and has higher costs on everything already. Now their burger - which was already more than the McD's one - is even more expensive, so fewer people go there, so profits drop, and the business owner either has to drum up business, raise prices further and hit a death spiral, or fail....

A price increase of 4% on an already-premium-priced burger isn't going to drive away all your customers. Nobody stops going to a burger place because a burger went from $13 to $13.52.

I don't really buy the 4% number in this context. I could believe it for a large enterprise like McDonalds that can absorb the cost increases by virtue of a huge, vertically integrated chain of production, but smaller businesses usually have far more middlemen in their supply chains, each of which adds overhead, along with the actual restaurant staff. Plus, it's not just the burger costing more - it's a ton of items, and in the end it may not be financially prudent to have the luxury burger anymore.

(Of course, this is me pretending that people who earn minimum wage are often financially prudent; in reality they'll just buy the burgers on a credit card and worry about it later)

If your supposition is correct, why should we, as a matter of public policy, protect the businesses that aren't efficient enough to pay employees adequately?

It's often argued that nobody can afford to, but here you seem to be assuming that it is possible, but it's important to preserve the companies that are uncompetitive.

The issue with a large increase in minimum wage isn’t that consumers may have to pay a little more for a burger. It’s that small business owners, with razor thin margins to begin with, can’t afford to pay their existing staff the new, higher wages. Therefore, they cut staff, increase automation, etc. so now you have 1 person who makes $15 per hour and 1 person who makes $0 per hour. Can you truly say this is better than 2 people each making $7.50 an hour?

In practice it's phased in gradually, and that problem doesn't happen much. Here's one look at real data.

"[I]n a new research paper by Doruk Cengiz, Arindrajit Dube, Attila Lindner and Ben Zipperer that looks at data during the period from 1979 to 2016 in 138 U.S. states and regions where minimum pay was increased[, t]he conclusion is that low-wage workers had a pay gain of 7 percent after a minimum-wage law was enacted, but there was little or no change in employment."

https://www.bloomberg.com/opinion/articles/2019-01-24/u-s-ec...

Businesses can adapt, like they do when unions negotiate better pay.

Yes, if the increase is phased in over a few years you’re right, business will adjust. But many places have implemented a large increase in one shot and it’s had a really negative impact on small businesses

I don't think you're completely wrong, although you may be exaggerating the magnitude of the effect. But this is actually a reason to support a higher minimum wage.

If you make vastly more than minimum and are a consumer of fast food, then don't you think that you will get better service from the one person making $15/hr? Plus, they're less likely to spit on the burger.

The thing about the minimum wage is that there is a market determined wage for a minimally effective employee, but if the official minimum is lower, and it generally is these days, business owners and managers will keep trying to hire at the legal minimum instead. You'd think the invisible hand, etc. but it doesn't work that way. The rule is "the law says X, so we do Y, the minimum required".

I'm aware the burger is a facile example for it. It's supposed to make people realize that these razor thin margins exist everywhere, and will all be disrupted.

4% sounds optimistic, but its good to have a canvas to paint on.

Potential bad effects from the top of my noggin:

* You've compressed the compounding growth in prices (inflation) by two years in one stroke.

* You've instantly decreased the buying power of a lot of people; worst affected are those not affected by the bump (recipients of disability, recipients of social security)

* Fun addenda: You've set the precedent for a 100% bump from the current federal rate, and its more likely to happen again, once more compressing the inflation timeline and further pressuring people that don't work a waged job.

Oh, and the reason putting pressure on inflation like this is bad is that it discourages investment, which leads to weakened economies.

It's just an example with extreme numbers to show how the math works. Gradual phase-ins over many years are how it's done in practice.

Reply on news.ycombinator.com