told you this would happen, california wage raise equals price hikes

What do you mean by communism and how is it a threat to California?

 

You charge what people will pay, end of analysis.

McD's can't "pass on" any cost whatsoever to customers. Customers have to volunteer to pay.

I am not much into fighting culture wars at all, and the chosen battleground of US fast food restaurants, while hilariously On The Nose for this country, is even more pathetic.

But I suppose if McDonald's raised prices and directly blamed it on paying employees, I would go ahead and cut them out of my life forever. I mean these places are entirely without value in the end. Within a half mile I have McD's, Wendy's, BK, Chipotle, CFA, Subway, Jersey Mike's, Jimmy John's, Taco Bell, Applebee's, Olive Garden, Guapos, and about a dozen non-chain restaurants of various stripes, and a couple dozen more that will deliver.

I still choose to pay exorbitant prices for food that is almost valueless, but if I now have to pay even more to take a side in these idiotic political hot takes I'd rather just make 20 better burgers at home for the same price. Ya'll swing it out at McDogfood's and let me know who loses worst.

 

Your comment confuses me.

Maybe I'm wrong, so please forgive my assumption, but I'm going to guess that your PA salary is considerably higher than the median per cap income of 38k in the US. If so, is your higher than median per cap income a good thing or a bad thing?

 

Indeed. What is the social benefit of fast food being the lowest possible cost? Its not like SNAP gets you any kind of hot food or its all people can afford. I believe the typical fast food eater isnt someone struggling to pay the bills.

 

This should be good haha

 

I agree with your 2nd paragraph, but the first one is dead wrong. It's simple math. Wages rise means a company's costs rise cutting into profit margins. The only two solutions are to a) increase prices passing those costs to the consumer or b) reduce costs in some other way (cheaper material, smaller workforce, etc). An increase on one side of the ledger has to either be absorbed/mitigated by the business or balanced by an increase on the other side.

That said, it hurts the big franchises a lot less than the mom and pops. Burger prices go up at McDonalds, no one really blinks. They go up at "Joe's Burgers" and they lose customers to cheaper options which brings up option c) hang an out of business sign up. Minimum wages are proven to be barriers to market entry as well.

 

That math makes two implicit assumptions:
1. Full existing capacity (i.e., the inability to serve additional customers who may exist due to additional money being paid to them by other businesses).
2. The inability to take lower profits as an equilibrium outcome.

Neither of these assumptions are terribly well supported.

Can you provide that proof?

 

By the logic in #1, why not have a $100 minimum wage? They'll be even better off. Capacity is irrelevant in this case. The price floor is still set above what the equilibrium of the market is.

I actually address #2 above. "An increase on one side of the ledger has to either be absorbed/mitigated by the business or balanced by an increase on the other side."

A business has to absorb the increase (take lower profits) or otherwise mitigate it (e.g., pass it along to the consumer, increase prices or reduce workforce)

Ask any economics professor or small business owner. It makes easier to think of a minimum wage as a "price floor". Again, the math is simple. Higher wages = higher startup costs & higher maintenance costs for a new business. Make it much harder to compete competitively with the larger established entities pricewise.

 

Maybe a necessary barrier?

 

Why? Increased competition drives down prices.

 

I am and I did. There is some evidence to back this notion, but it is far from definitive. Again, there is a demand effect and economic slack that you have to ignore to make it definitive. And that is before we get into the behavioral elements here.

 

A rising tide lifts all boats is the statement. Yes, McDonalds might have to raise their price per burger $1, but if all minimum wage workers are earning an extra $1/hour, there will be more consumers now willing and able to pay $1 more for a Quarter Pounder. It's why minimum wage hikes only have a modest effect on inflation, and doesn't really have any effect on employment. It's simple supply and demand. If the minimum wage worker has an additional $40 net on his paycheck, a $1 cost increase won't stop him from buying burgers. In fact, it might allow for more people to pay for burgers.

Mom and Pop shops have several disadvantages over large corporations. Economies of scale being the big one. The big corporation can get items from cups and napkins to meat and potatoes at lower per unit costs because they are buying in bulk versus the M&P shop. Doesn't mean M&P can't compete. They just have to differentiate. A great example in California? In and Out Burger. Cost is actually lower than McD's, but quality is no competition. In and Out also pays its employees over $19/hour in CA, and $18/hour in neighboring Arizona, where minimum wage is $15. In and Out keeps costs lower by putting all restaurants within a mile of a major freeway, and keeps quality high by ensuring all restaurants are within 300 miles of its beef source.

One thing In and Out creates is fierce loyalty. Their quality is always top notch, and many employees stay for a long time. One drawback of In and Out's strategy is it doesn't allow for fast expansion. IaO was California only until the 1990s, and today, it's only in a few western states with plans to open in Texas soon. I doubt they are sweating the CA minimum wage increase that much.

 

Because prices are not the only consideration. And specific to the fast food industry, there is no shortage of competition.

 

That's a heck of an assumption. A shortage of competition should be dictated by the market and the consumer, not the government.

 

Funny you mention the "rising tide" remark. Stumbled across the following (it's outdated, but addresses the same issue from when Obama called for a $9 minimum wage in '13). The issues and the math remain the same though.

Minimum Wages: Equal Opportunity or Barrier to Entry? | Bruce Yandle

 

Not necessarily if it is monopolistic competition. There are enough places to eat in most neighborhoods to argue near perfect competition, but that is not what we observe. Because of consumer preferences many businesses in this industry work within a monopolistic competition framework, where, to put it into basic terms, product differentiation serves to shield the business from the effect of competition. Chipotle, if it truly competes against anybody willing and able to make a burrito, would be unable to continue to raise prices. It is able to do so because their burritos are differentiated and are not subject to the same type and level of competition.

 

Is it?

There are over 197k fast food restaurants in the US. Up by over 10k from a decade ago. The market share for fast food has increased by over 40% over that same time period. I don't think it's a heck of an assumption at all.

Not a modern society in existence that runs purely on the idea that markets only be dictated by the market & consumer. Not even capitalists believe it, regardless of what they might proclaim. In a democracy, the market doesn't decide everything because real humans don't live in a market, they live in a society and that society has many other considerations beyond whether some capitalists might not be able to scrounge up enough capital to compete in a 300b dollar market if they cannot pay people something that might sniff at reasonable wages.

 

That would be a very dumb way of pricing though. Pricing is about what a consumer is willing to pay for an item not how much it costs to make (assuming that the consumer has a perceived value higher than the costs, if not, then it is not a productive venture to produce the product with some notable exceptions that go beyond the scope of this topic). Costs should only serve as a lower bound. Cost-plus pricing is not a good method for determining price.

Rules of thumb like that (and I'm not arguing they don't exist or don't influence pricing heavily) suggest limitations of the argument that this is all simple math.