Don't Bank on a Minimum Wage Hike

Without Congressional action, fast food workers have little hope of seeing wages go up.

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Azi Ebrahimi, right, demonstrates for higher wages for fast food industry workers during a one day strike coinciding with strikes at other fast food restaurants across the country, Thursday, Aug. 29, 2013, in Atlanta.

Recently, a nationwide strike by fast food workers protested the industry's low wages and demanded an increase in the minimum wage to $15 per hour. Currently, most fast food workers earn the federal minimum wage of $7.25 an hour. Full-time employees collect about $15,000 annually, which is grossly under the federal poverty line.

Last year, the federal poverty line was set at $23,283 for a family of four, which, according to the Economic Policy Institute, is one-quarter of the cost of living in New York City and one-third the cost of living in St. Louis. EPI found that in 615 cities across the country, a family with three children requires a total income of at least twice the federal poverty line to afford basic expenses such as housing, childcare, healthcare and food. The number jumps considerably if the family owns a car or wishes to send its children to college. Car insurance is a significant expenditure and college tuition continues to skyrocket.

Rita Jennings has worked for McDonald's for 11 years. The company pays her $7.40 an hour, merely 15 cents above the federal minimum wage.

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The fact that strikes occurred nationwide, including the South, implies that the current minimum wage debate has reached a tipping point. It's a "huge, huge deal" that the protests also occurred in the South, noted Dorian Warren, Assistant Professor of Political Science at Columbia University. He was quoted by Reuters stating:

The South has always been the model for low wage employment, from slavery to the Jim Crow laws, to the present. It's also the most anti-union part of the country, so the fact that workers feel empowered enough to take collective action is enormous.

There are two very clear sides to this debate: restaurants and everyone else, including governments and notable politicians.

President Obama proposed raising the minimum wage to $9 and tying wages to inflation in this year's State of the Union Address. Labor Secretary Thomas Perez also talked of raising the minimum wage, pointing to recent legislation passed by the District of Columbia City Council, which requires large retailers to pay workers $12.50 an hour, a 50 percent premium over D.C.'s current minimum wage. (That bill was vetoed by D.C. Mayor Vincent Gray.)

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To the government, a raise in the minimum wage would have the added benefit of decreasing the strain on taxpayer-subsidized social services. The Center for Budget and Policy Priorities reports that more than 25 percent of Americans earning less than $15 an hour receive one or more social services. That number would surely fall if people earned more in wages.

Beyond governments and politicians, a March Gallup Poll shows that 71 percent of Americans support raising the minimum wage. The poll also reveals fairly bipartisan support with 91 percent of Democrats, 68 percent of Independents, and 50 percent of Republicans all in favor.

Competing against the government and workers are the restaurants themselves. Restaurants are helped by the lack of unions in the industry as workers prove unable to fully mobilize themselves. Not every worker went on strike and not every city experienced a strike. Many workers simply opted to continue working and collect a paycheck even though they agreed that the wage should be increased. Some even feared being fired from their jobs if they protested.

Nationally, this is not an uncommon problem since unions are on the decline. The percentage of American workers who are union members has been consistently dropping since the 1950s when union membership peaked at 28.3 percent. Today, unions represent only 11.3 percent of workers.     

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If the fast food workers succeed and achieve tangible results, some believe that it will transform low-wage fast food and retail in the same way that the United Auto Workers and other unions transformed manufacturing during the 1930s-1950s.

However, this is a flawed expectation, as much of the reason why manufacturing regained its footing so quickly should be credited to the United States' victory in World War II and as the sole country capable of producing large quantities of necessary manufacturing. Additionally, the decrease in population led to a decrease in demand.

Restaurants would be forced to either increase food prices for consumers or cut workers in order to maintain current profit margins. Industry tracker NPD reports that restaurants face a daunting challenge navigating the post-Recession environment and resulting drop in profits because consumers are spending less.

The fact that there are more people demanding jobs is the primary reason why wages are so low. It's not because many are high school or college age since the age breakdown is fairly even, with just over 30 percent of fast food workers in each of the age groups 16-19, 20-24 and 25-54. Nor is it because of education, since many workers possess college skills. Job demand drives wages down.

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Restaurants have warned that government action forcing an increase on the minimum wage would generate a large blowback. Businesses claim they would need to cut jobs. Wal-Mart warned that it would refrain from opening three new stores in the D.C. area if Gray had signed the D.C. council's bill.

However, the strikes are unlikely to be successful. Derek Thompson wrote in The Atlantic,

The strikes would have a much better shot at inspiring a change in franchise- and corporate-level policy if fast-food chains perceived one of two threats: (a) a threat to the steady supply of food-service workers who want to be employed at any wage and (b) a threat from consumers demanding higher wages for their fast-food clerks by not buying burgers and fries at McDonalds.

In short, the fast-food workers have little to no chance at increasing the minimum wage without Congressional intervention because there remains a high demand for fast food and there are more people willing to do these jobs than there are people willing to strike. As such, there will be a continuing stalemate between fast food workers and the restaurants – one that can only be broken by an active government. However, if government action eliminates jobs and causes people to be laid off, then is it worth the effort?

Lisa Chau  is a private consultant focused on social media and cross–platform marketing. Previously, she spent five years working for her alma mater Dartmouth College, as assistant director of alumni affairs and assistant director of PR for the Tuck School of Business. She has also taught at MIT, and guest lectured MBA and undergraduate courses in e-business Strategy at Baruch College and  The New School .

Joshua Schiefelbein is a senior at Dartmouth College majoring in Russian Area Studies. He recently finished a study abroad program in St. Petersburg, Russia. He is a sports enthusiast, especially of the Cincinnati Bengals, and plans to return to St. Petersburg in order to become fluent in Russian.