Study: Increasing Minimum Wage Led To Higher Prices at McDonald's


Customers pay the price when the minimum wage rises, according to new research.

Progressives lost their effort to include an increase in the federal minimum wage as part of the coronavirus relief spending bill that cleared the Senate on Saturday. Their goal had been to more than double the federal minimum wage from its current level of $7.25 per hour to $15 per hour.

However, a new study shows that minimum wage hikes resulted in higher prices, according to the Foundation for Economic Education.

The paper, published by the National Bureau of Economic Research, looked at what happened at various McDonald’s restaurants when the minimum wage went up.

“Our data imply that McDonald’s restaurants pass through the higher costs of minimum wage increases in the form of higher prices of the Big Mac sandwich,” Princeton economist Orley C. Ashenfelter and Czech economist Štěpán Jurajda wrote.

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After examining wage and price data from most of America’s McDonald’s restaurants, the researchers concluded there was a “full or near-full price pass-through of minimum-wage-induced higher costs of labor.”

However, they said they did not find a connection between the wage increase and the replacement of workers through the introduction of technology.

“To provide insight into this issue within the fast food industry, we study a recently developed labor-saving technology in McDonald’s restaurants: the introduction of touch-screen ordering kiosks,” the study said.

“These were available in one fifth of McDonald’s restaurants in 2017, but were available in close to three-fourths by 2019.

“Our data do not indicate that the introduction of this technology was related to minimum wage increases. This evidence is not consistent with technology introduction being a channel for negative employment effects of minimum wages.”

In reporting on the study for the FEE, Brad Polumbo noted that although it did not find a connection between wage increases and job cuts, the issue is bigger than just the wage-earner.

“If a McDonald’s cashier’s take-home pay increases 20% after a minimum wage hike, but the prices for the food and other things they spend their wages on increase by a similar amount, they aren’t actually any better off. This would happen throughout the economy, not just in fast food,” he noted.

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Rachel Greszler of the Heritage Foundation reported that a “$15 federal minimum wage would generate a cascade of unintended consequences across the U.S.”

“Childcare costs would increase by an average of 21 percent — an extra $3,728 per year for two children — and up to 43 percent, or more than $6,000, in some states,” her study reported.

“The impacts would be greatest in lower-cost areas; in Louisiana, Oklahoma, and Mississippi, costs would surge between 37 percent and 43 percent.”

Polumbo said advocates for a higher minimum wage “see only the nominal rise in workers’ weekly paychecks that a government mandated wage increase can bring. Yet they fail to see beyond that. They fail to consider the future workers who will not be hired at all and the millions of minute price increases that would largely erase nominal wage gains regardless.”

“As McDonald’s response to minimum wage hikes clearly shows, there’s no such thing as a free lunch. That’s why the ‘Fight for $15’ would hurt most the very same working Americans it’s meant to help — who’d be stuck paying more for their next Big Mac, McFlurry, or (overrated) McDonald’s french fries,” he wrote.

A CNBC report projecting the impact of a higher minimum wage said that “in about half of states, the cost of living would still eclipse earnings for workers paid $15 an hour.”

This article appeared originally on The Western Journal.

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