On August 5th, Ohio based fast food chain Wendy’s held their second quarter conference call, in which they were asked how the recent push for a minimum wage increase would affect the business. The response was something that many people have been saying for some time, but certainly one that bears repeating. The first response was from Wendy’s CFO, Todd A. Penegor:
“The impact hasn’t been material at the moment, but we continue to look at initiatives on how we do work to offset any impact to future wage inflation through technology initiatives, whether that’s customer self-order kiosks, whether that’s automating more in the back of the house in the restaurant, and you’ll see a lot more coming on that front later this year from us.”
When the follow-up question centered on taking price increases over staff cuts, CEO Emil Brolick stated:
“…our franchisee will slightly likely look at the opportunity to reduce overall staff, look at the opportunity to certainly reduce hours and any other cost reduction opportunities, not just price. There are some people out there who naively say that these wages can simply be passed along in terms of price increases. I don’t think that the average franchisee believes that, and there will have to be other consequences, which is why we have pointed out that unfortunately we believe the some of these increases will clearly end up hurting the people that they are intended to help.”
This is just the latest example of what will most likely happen as the minimum wage is raised beyond a sustainable amount. The argument of “greedy capitalists should pay their employees more out of the company profits” also doesn’t help much in this scenario. The domestic profit for Wendy’s is around $120 million a year, and there are approximately 37,000 employees. If each of those employees works 2,000 hours a year, then Wendy’s could afford to pay each employee an additional $1.62 an hour (if they want run a business without making a profit…). If the minimum wage rises above $9 an hour, they will either have to raise prices or increase automation, which will reduce employee hours and ultimately employees.
The other “hidden” cost of the minimum wage increase is that most likely, more than one of these options will be taken. The most likely course of action, as eluded to by Mr. Brolick, will be to increase prices, at least slightly, while decreasing employee count and hours. Not only will those who need the increase the most be paid less through decreased hours, and possibly loss of a job, but they will then need to pay more for the things they need, because companies will need to increase their prices to cover their newly increased cost of production. Overall, increasing the minimum wage will hurt, not help, those who need it the most.
Minimum wage laws also have an amazing ability to constrict the workforce and get rid of low paying jobs, jobs that could train people and lead to higher wages. Remember the friend from high school who worked at the local gas station as an attendant? He’s a master mechanic now because he learned about cars from pumping gas and doing oil changes for minimum wage. Remember working at the local grocery store as a bagger or working as an usher at the local movie theater after school and on the weekends to save some money for summer? People can’t do that anymore, because those jobs don’t even exist now.
If the intent of minimum wage increases is to help those in lower level jobs, it doesn’t work. A better way to help those people who make minimum wage is to stop making their job a higher paying opportunity. Most companies (and the federal government) have caps that people can make at certain levels of employment. For instance, an entry level position may have a cap of earning $9.60 an hour. If you want to make more than that, you need to advance in the company, take additional training, or find another company willing to pay you more for your skills. By forcing companies to increase the pay of minimum wage employees, government is taking away an incentive to advance, and to learn. In fact, they are taking away the very vehicle that makes that learning possible: a paying job.
Chairman, Republican Liberty Caucus of Ohio