Fast Food Strikes Ignore Technology

Original Article:

  • Author: Michael Saltsman

  • Publication Date: August 2013

  • Newspaper: The Orange County Register

  • Topics: Minimum Wage

Last week, the SEIU helped organize employee walk-outs at fast food restaurants in seven major cities, with the promise that more would follow in the future. The strikers demanded a $15 minimum wage, which represents a greater than 100 percent increase over the federal minimum wage of $7.25.

The media has portrayed these strikes as a battle between minimum wage employees and highly-paid CEOs. This may make for an eye-catching headline, but it doesn’t mesh with reality: The strikers’ beef is actually with the price-conscious customers who frequent fast food restaurants. If the unions get their way with a $15 minimum wage, they will only hasten the day when a customer (or even a computer) performs a task that used to be part of someone’s job description.

This reality isn’t immediately intuitive. A number of commentators instead focused on the obvious question: Why don’t big fast food companies like McDonald’s just raise prices? One University of Kansas student even made national news with a “study” suggesting that a Big Mac would only cost 68 cents more if the hourly wage of the people serving it was doubled.

That university student wound up with egg on his face when it was shown (by my organization and others) that he had understated by roughly half the percent of sales that McDonald’s spends on labor costs. Re-doing his numbers yields a $1.28 price increase in the cost of a Big Mac—no small amount if you’re dining at the Golden Arches a few times each month.

But even this oversimplifies the situation. Restaurants avoid price increases because they reduce sales—which in turn requires an untenable cycle of even higher prices for remaining customers followed by even fewer sales. Absorbing the increase isn’t an option, either, because single-digit profit margins mean the money’s just not there. (Even if the CEO of a major restaurant company like McDonald’s took a 100 percent pay cut, the per-hour bump in pay for employees would amount to less than one cent.)

This is why wage mandates force restaurant operators to provide the same service with fewer employees, so that customers end up serving themselves instead of being served. Today, we might bag our own groceries at a supermarket checkout or pump our own gas at the station (except in New Jersey and Oregon, where it’s against the law). Even self-service soda refills were developed as a labor-saving device.

Today, many stores are also turning to robots to do the jobs that employees would otherwise do. This isn’t science fiction: San Francisco-based Momentum Machines recently announced a new robotic burger-flipper that does the work equivalent of three full-time kitchen employees. That’s 360 burgers per hour—and there’s no SEIU to organize a walkout.

This trend toward automation doesn’t just affect the kitchen. McDonald’s has installed touch-screen ordering terminals at 7,000 European locations. Google co-founder Sergey Brin’s younger brother has even started a new company that’s selling a tablet ordering device that reduces the need for as many waiters per shift. Casual dining restaurants are experimenting with similar technology, which would reduce the need for wait staff by one-third.

These changes don’t become inevitable until the cost of service gets trumped by customer resistance to higher prices. But once the jobs are automated, that’s one less entry-level position for a less-skilled employee to work his or her way up the career ladder.

The striking employees might be well-intended, but they’re only fighting the laws of economics — and that’s a fight they can’t win.

Michael Saltsman is the research director at the Employment Policies Institute.