The Corner

Economy & Business

How McDonald’s Responds to Minimum-Wage Hikes

Yesterday I had a piece about the debate over whether minimum-wage hikes decrease employment. Toward the end, I pointed out that this isn’t the only important question here. For example, we also should want to know who pays for a higher minimum wage — business owners or customers? — and how much of a minimum-wage hike the government will take back by cutting benefits for, and collecting additional taxes from, the folks who get raises.

There’s an interesting new study that touches on some of these concepts. It looks at how McDonald’s restaurants throughout the U.S. have responded to minimum-wage hikes in recent years.

Some of the results are good for minimum-wage advocates. For example, the hikes don’t seem to drive McDonald’s establishments out of business. And while the chain has been ramping up its use of touch-screen ordering kiosks in recent years — a fifth of the restaurants had them in 2017, rising to almost three-quarters two years later — this rollout doesn’t seem to be correlated with minimum-wage hikes.

But there’s a hitch, too: Consistent with previous research on the restaurant industry, the authors report “near-full price pass-through of minimum wages.” This means a minimum-wage hike doesn’t just come out of the pockets of those evil exploitative capitalists who own McDonald’s restaurants; instead, it overwhelmingly comes from McDonald’s customers. It’s basically a fast-food tax, which is regressive, because the poor spend a bigger share of their income on fast food than the rich.

Now, to be sure, if McDonald’s workers are poorer than McDonald’s customers — which they presumably are, though some McDonald’s workers are second earners or teens from middle-class households — this will still redistribute income downward. But it’s hardly a clean transfer from the rich to the poor, and don’t forget the government will take a cut of the raises too.

As I concluded my piece yesterday:

My own view is that if we think people should be paid more, we should subsidize their wages with tax dollars. At least that way we’ll know who’s paying and who’s benefiting before we set the process in motion, we won’t single out the customers and employers of low-wage workers for punishment, and we won’t risk throwing people out of their jobs.

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