"I'd be willing to pay an extra fifty cents so McDonald's Workers Can Make More..."
By Art Carden
Proposed hikes to minimum wages and improvements in working conditions are not free lunches, and at least part of the cost gets passed on to consumers in the form of higher prices. The reply from advocates of the higher minimum wages or better working conditions is usually something like “I’d be willing to pay an extra fifty cents (or two dollars or whatever) so workers can have a decent wage.” But what are the unseen costs of the benefits we seek to confer upon others?
We travel a lot and we have three small children, so I think we’re fairly frequent fast food customers. Knowing that we can rely on consistent quality in the food (decent but not great) at McDonald’s or Chick-fil-A combined with iPhone apps that help us locate restaurants with playgrounds frees up time and energy we can devote to other things.
Let’s assume we eat fast food four times a month and that doubling the wages paid to fast food workers would raise the prices of what we’re buying by 5%. Note that I am making these numbers up for the sake of the example; my guess is that 5% is too low, but it will work for the sake of the example.
Our last fast food receipt shows we spent $26.84 at Chick-fil-A in Dothan, Alabama. Five percent of that is about $1.35. Multiplied by 48 fast food trips over the course of a year, it’s about $65. That’s $65 that isn’t providing an income or funding investment elsewhere. The easy-to-see benefits to one group (fast food workers) are the privation of others.
We’re blessed to have an income such that $65 won’t break us, and we’re also not so price sensitive that we’re going to make a big change the frequency with which we visit Chick-fil-A and McDonald’s to save $65. However, there are a lot of fast food consumers for whom $65 is a pretty big deal and who probably are sufficiently price sensitive that they will make noticeable changes in their behavior in response to the higher prices.
We might also see substitution within the fast food category, as well. Healthy foods like salads and fruits, for example, are normal goods (consumption increases as income increases), and a 5% increase in prices at fast food restaurants lowers customers’ real incomes. On our aforementioned stop at Chick-fil-A, my wife and I got salads, and we got fruit cups instead of fries with the kids’ meals. I think the fruit cups cost a little extra, though I can’t tell from the receipt. Let’s assume they do. Again, we’re blessed with an income sufficient that we’re probably going to stick with salads and fruit cups even if the price is a little higher. At the margin, there are some people who will be induced by the reduction in real income caused by the price increase to opt for the cheaper sandwich/fries/soft drink combo meals rather than salads and fruit cups. A quick Google turned up this representative Chick-fil-A menu; if you teach intermediate micro, this might be a fun way to explore income and substitution effects.
$1.35 added to an almost $27 bill won’t create a great hardship for a lot of us. We make a big mistake, though, when we dismiss the added cost as something we can all handle or that we should all be willing to pay. As Henry Hazlitt put it so memorably,
The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.
I’m willing to believe that higher wages at McDonald’s might make some people better off (though I’m not fully convinced, as I explained in my last Forbes article). It’s important to recognize that we’re not giving them free lunches. Their windfall gains will be someone else’s windfall losses.