Monday, January 6, 2014

The Minimum Wage and the Big Mac Index

Every year, the Bureau of  Labor Statistics (BLS) generates a report titled: "Characteristics Of Minimum Wage Workers."  According to the latest report, 1.7 million workers, or roughly 1% of the workforce, are paid the prevailing minimum wage.  The report also notes that three-fifths, or 1 million of those workers,  are employed in the fast food industry; an industry made up of a total of 4 million workers.  So, obviously, as a minimum wage job seeker, you would hope for a healthy and growing fast food industry.  That was the case until the last round of minimum wage increases that started in 2007 and ended in 2009.  In those three years the minimum wage was raised from $5.15/hour to $7.25/hour in 2009; a near 41% increase in hourly wages.


Prior to raising the minimum wage, the fast food industry was growing at a near consistent stair-step pace; adding an average of 154,000 new jobs per year (this according to data derived from an interactive chart at statista.com -- see below).  Then, in the 2007, the minimum wage was raised and the fast food industry only added 33,000 jobs; an 80% drop in the amount of new jobs being added in the previous years.  In essence, the raising of the minimum wage killed the golden goose for the very people it was supposed to help.  Of course, liberals would argue that it was the recession that hurt the fast food industry.  But that's not true.  The recession didn't hit until November of 2007; and it wasn't until April of the following year that unemployment started to rise.

The reason why raising the minimum wage hurt the fast food industry, and many other small businesses, is simply price inflation.  If price inflation is too high, many people, especially those on fixed incomes and low incomes, can't afford to buy what businesses are selling.

To that point, I need to introduce you to something called the Big Mac Index. Since 1986, the Economist newspaper has been keeping track of the average price of a Big Mac burger because it is such a pervasive international product. On February 1, 2007, just before the minimum wage increase went into effect, the Big Mac Index reflected an average U.S. price of $3.22 for America's favorite burger; up a meager 2.2% from 2006's $3.15.  Then, by July of 2008 and after two hikes in the minimum wage in 2007 and 2008, the "Mac's" price jumped to $3.57;  a near 11% rise in its price.  In 2010, after the last hike of the minimum wage took place in 2009, the burger's average price was $3.73; an 18% increase in just three years.

Now, to put this into perspective, if it cost $20 for a family of four to eat at McDonald's in 2007. By 2010 that same meal would cost almost $24 ($23.60).  For many families, that made eating at Mickey-D's and other fast food restaurants a luxury that they couldn't afford; either at all or, as often.  Tens of millions of people in this country are either in poverty; or, they live off fixed incomes; or, they are unemployed; or, their incomes are below minimum wage. For them, price inflation only means that their wallets are shrinking while a relative few of us gets a big fat raise.  Keep in mind, too, at a time when the Big Mac's price was rising by 18%, the median household income fell by almost 9%.

That's why the fast food industry is now in decline and probably why, in conjunction with other regulations being imposed by the Obama Administration, job growth and recovery has been so slow.  Raising the minimum wage again by such high percentages isn't going to help anyone in this economy.  Obama and the Democrats would better serve Americans and the minimum wage worker by forgetting the politics of raising it by big chunks ever few years to garner votes and, once and for all, index the minimum wage so it is automatically increased each year.

References:

Bureau of Labor Statistics: Characteristics of a Minimum Wage Worker 2012: http://www.bls.gov/cps/minwage2012.htm

Statistic.com: Number of employees in the U.S. fast food restaurant industry from 2002 to 2016: http://www.statista.com/statistics/196630/number-of-employees-in-us-fast-food-restaurants-since-2002/

The Economist: Big Mac Index, Feb 1, 2007: http://www.economist.com/node/8649005

The Economist: Big Mac Index, Jul 24, 2008: http://www.economist.com/node/11793125

The Economist: Big Mac Index, Jul 22, 2010: http://www.economist.com/node/16646178




1 comment:

Robert Boxer said...
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