Monday, August 3, 2015

When We Raise Minimum Wage To $15.00 Per. Hour, What Will A Big Mac Cost?

I have asked the same question by looking at the minimum wage during the 1970's and the cost of a Big Mac at the time. I came to the conclusion that you could purchase more big macs in the 1970 after working one hour at minimum wage than today.

Now Thinkprogress.org has come up with some math to back up what doubling the minimum wage would to the labor cost of a big mac. It would raise the cost from $3.99 to $4.16 or in other words it would go up .17 cents.

For those of you that don't understand the difference between cost and labor cost, you should read up on this. If you think doubling the minimum wage will double the cost of goods consider this.
Excerpt from Thinkprogress

 If the minimum wage were increased to $15 an hour, prices at fast food restaurants would rise by an estimated 4.3 percent, according to a new study. That would mean a McDonald’s Big Mac, which currently goes for $3.99, would cost about 17 cents more, or $4.16.
The study from Purdue University’s School of Hospitality and Tourism Management also found that in order to compensate for the higher cost of employee compensation at limited-service restaurants, or those without table service or tipping, if they decided to change food sizes rather than prices, the Big Mac would shrink somewhere between 12 and 70 percent.
The price increases would be a good deal larger if the minimum wage were raised to $22 an hour, or average private sector pay: the authors found they would increase by 25 percent, raising the price of a Big Mac by about a dollar.

See the whole story

6 comments:

  1. Wish more people understood this. Thanks for posting, Tom.

    ReplyDelete
  2. Wish more people understood this. Thanks for posting, Tom.

    ReplyDelete
  3. http://www.salon.com/2015/08/04/the_7_most_dangerous_myths_about_the_fight_for_a_15_minimum_wage_partner/?utm_source=twitter&utm_medium=socialflow

    ReplyDelete
  4. Not disagreeing or agreeing but in the world of professional services (obviously not comparable to the food industry) there is a multiplier of 2 to 3 times what ever the wage is to cover overhead and profit. Therefore, a paralegal making $20 an hour may be billed out at $60 per hour. In the food services industry, labor costs are a very large component of the operational costs of doing business. McD has mastered the economics of fast food production while many mom & pop burger stands still prep and cook food the old fashion way.

    ReplyDelete
    Replies
    1. Sit down restaurants do have higher labor costs in states that let servers earn the regular minimum wage. Not the $2.13 per hour that many right to work states let waiters and waitresses make.

      What ever the cost is, your competitors will also be having to meet the same standard so it is just a mater of moving the decimal point to the new cost.

      My main argument on this subject is the fact that the doubling of minimum wage doesn't mean the doubling of prices. Only the percentage of labor in the product would double. That varies from product to product. Even so, for the most part, it would still produce more tax base and increase economic activity because the poor spend every penny they get just trying to live.

      Delete
  5. PS, great post.

    ReplyDelete

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