Should policymakers ‘like’ Facebook’s $15 minimum wage?

Original Article:

  • Author: Michael Saltsman

  • Publication Date: May 2015

  • Newspaper: Tampa Tribune

  • Topics: Minimum Wage

America’s favorite social network, Facebook, announced last week that it would require contractors and vendors who do “substantial” business with the company to pay a minimum wage of at least $15 an hour. (These businesses will also have to provide 15 paid days off.)

Advocates for a higher minimum wage were quick to trumpet the announcement as part of their campaign to force a $15 mandate on service-industry businesses. But Facebook isn’t the same as a fast-food restaurant — and policymakers would be mistaken to assume otherwise.

The Wall Street Journal, reporting on the announcement, noted that Facebook “expects to bear the cost of the new standards as vendors raise their rates.” In other words, Facebook is the customer in this situation, not the employer — and they’ve already agreed to pay the higher prices necessary to offset the cost of a $15 mandate and the associated paid leave.

It’s a decision the company can easily afford to make. According to an analysis on financial website Wolfram Alpha, Facebook earns over $200,000 in profit on average for each of its 10,000 employees on staff. That’s an astronomical sum, and it suggest that the business decision to pay the higher prices necessary for its vendors to provide a $15 minimum wage was something of a no-brainer.

Fast-food restaurants don’t have the same luxury. In fact, their customers are notoriously price-sensitive: Estimates vary, but research suggests that each 10 percent increase in menu prices causes sales to fall by roughly the same amount. Customers can always decide not to eat out as often, which is why — faced with a $15 minimum wage mandate — they won’t be stepping forward to voluntarily shoulder the cost.

Without higher prices, the business itself has little flexibility to absorb the cost of a $15 minimum wage. Although Facebook enjoys six-figure profits for each employee, restaurants typically earn four-figure profits per employee. For a part-time employee who earns the federal minimum wage of $7.25, a jump to $15 an hour would represent over $11,000 in additional labor costs — eating up the profit per employee and then some.

The economic realities force food industry businesses confronted with higher labor costs to pursue a path that Facebook and its Silicon Valley counterparts should be very familiar with: automation.

For instance, McDonald’s recently opened a new location in San Francisco where cashiers were replaced with touch-screen computers. (The global fast-food chain already made the decision to “hire” 7,000 touch screens at its European locations, where the minimum wage is higher.) It might be acceptable to the customer, but it’s service work that used to be part of someone’s job description.

Youth unemployment remains high in the bay area that Facebook calls home. Getting hired into a first job is so difficult it’s hard to imagine Facebook founder Mark Zuckerberg promoting a $30,000 minimum wage for jobseekers who can’t get hired at lower rates. His company should be praised for independently making compensation decisions that work for them — but that doesn’t make it a good idea for the rest of us.