A series of small strikes occurred in several major cities
last week. Strikes is probably too
strong a word, since they were more like protests. The targets of the demonstrations were fast food
outlets. The demonstrators were
employees of fast food restaurants.
The object appears to be both trying to organize unions, and to protest
for higher wages. The target wage
desired was an eye-popping $15 an hour.
If by some bizarre chain of circumstances these strikers
would actually gain their chief demand, they might not like the consequences of
their “victory.” I have seen
estimates for the fast food industry that claim labor costs run from 25% to 50
% of the total cost of operation.
Doubling labor costs would require a substantial increase in
prices. Good-bye dollar menu
items.
Axiomatically, when you increase the price of a good, volume
sales for that good drop off. If
something costs more, fewer people will decide that it is worth buying. Economists call this shifting upward on
the demand curve. Now, a drop off
in demand for fast food maybe a good thing for society as a whole. With the obesity epidemic, we could all
stand to eat more salads, and fewer French fries.
A good thing for society, in this case, would be a disaster
for the fast food restaurants, and by extension, their employees. If you are selling fewer hamburgers,
you don’t need as many hamburger flippers. Hours would be cut and positions eliminated. Maybe the demonstrators don’t
care. Maybe they figure that
they’ll still be ahead, even if they work less, because of the increase in wage
rate.
The next shoe to drop would be management’s response to
higher wage rates. When the cost
of a production input rises, a prudent response would be to start working on
ways to use less of it. In Australia,
where the minimum wage is significantly higher than over here, McDonald’s is
already using touch screens for ordering, eliminating the need for
cashiers. They may bring those
over to America anyway, but higher wages improves the case for a faster
rollout. When they arrive, not
everybody protesting would survive the ensuing cutbacks.
Certainly demand for fast food workers would drop if wages
were to shoot up. But another
factor that I don’t think the protestors have considered in making their demands
is that the supply of ready workers would also increase. Anytime you increase the price paid for
something, like an hour of labor, the number of providers willing to supply
increases. Shifting upwards on the
supply curve is the exact opposite of shifting upward on the demand curve. Increasing the price offered leads to a
drop in demand. Increasing the
price taken leads to an increase in supply.
Fast food restaurants are both the entry level job and the
employer of last resort. No
education beyond the most basic level, and no special skills are required. The work is not particularly physically
demanding. Increased experience
does not benefit you in performing the job. Flexible scheduling on the part of the employee is allowed
and even expected. All of these
factors have allowed fast food employers to keep wages low. The current fast food employees are the
beneficiaries of the low job requirements. What I am saying here is that these people are working at
fast food jobs because they cannot get better positions with other firms.
If you increase wages sharply, however, lots of applicants
who would not consider fast food jobs now would give it a second look. People with better education, better
work ethic, higher capabilities.
Now ask yourself: if you were an employer, would you want to retain
employees with low capabilities when you could replace them with better
employees? Or would you begin
looking for pretexts to trade up?
I don’t know that new employees would squeeze existing fast
food workers out if they did get the big raises they’re asking for. But I’ll bet the demonstrators never
considered the possibility.
You really need to be careful what you ask for. Sometimes you won’t like it so much
after you get it.
No comments:
Post a Comment