On Aug. 29th, labor-backed walkouts targeted fast food outlets in over a dozen major American cities from coast to coast, including Detroit. They were demanding a more-than-100 percent increase in the minimum wage to $15 an hour.
The protestors target their rhetoric at restaurant management. But this isn’t accurate. In reality, the employees on the picket lines are fighting a war with price-conscious customers. If they get their way with a $15 minimum wage, they will only hasten the service industry’s move toward automation and self-service, where the customer (or even a computer) performs a task that used to be part of an employee’s job description.
The labor-aligned protesters are butting up against some basic economic realities of the service industry. Fast-food restaurants, along with other labor-intensive businesses such as grocery stores, gas stations, and retail outlets, keep just a few cents in profit from each sales dollar after paying for food, labor and other expenses. In other words, a $15 wage mandate — which would add over $15,000 a year to the cost of each full-time minimum-wage employee — can’t just be absorbed.
This leaves employers with one of two unpleasant options: Raise prices, or reduce costs. But higher prices to offset a wage hike of this magnitude aren’t realistic — imagine how you’d respond if the 99-cent menu became the $2.99 menu. Instead, restaurant operators have to provide the same service with fewer employees.
This means that customers end up serving themselves instead of being served by an employee. For example: 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 at fast-food restaurants were developed as a labor-saving device.
In other cases, a robot can be “hired” to do the job instead of an employee. The technology is already here. 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, with no strikes, benefits or wage demands.
At current labor costs, Momentum’s burger-flipper pays for itself within the first year. But at $15 an hour for an employee, the investment would pay off in a matter of months.
This trend toward automation doesn’t just affect the kitchen. In 2011, McDonald’s announced it was installing touch-screen ordering terminals at 7,000 European locations, where the minimum wage is higher — making the cashier position effectively obsolete. California Pizza Kitchen, Chevys Fresh Mex and other table-service chains are experimenting with computer terminals that let customers order and pay at the table, with minimal service from a server required.
These changes don’t become inevitable until the cost of service gets trumped by customers’ desire for low 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 — no small concern given that teen unemployment has been above 20 percent for the past five years.
Those teens, along with other entry-level employees, will be the first to feel the unintended consequences of a $15 minimum wage. However well-meaning the striking employees in Detroit and elsewhere are, the fact is that they’re only fighting the laws of economics — and that’s a fight they can’t win.
The protestors target their rhetoric at restaurant management. But this isn’t accurate. In reality, the employees on the picket lines are fighting a war with price-conscious customers. If they get their way with a $15 minimum wage, they will only hasten the service industry’s move toward automation and self-service, where the customer (or even a computer) performs a task that used to be part of an employee’s job description.
The labor-aligned protesters are butting up against some basic economic realities of the service industry. Fast-food restaurants, along with other labor-intensive businesses such as grocery stores, gas stations, and retail outlets, keep just a few cents in profit from each sales dollar after paying for food, labor and other expenses. In other words, a $15 wage mandate — which would add over $15,000 a year to the cost of each full-time minimum-wage employee — can’t just be absorbed.
This leaves employers with one of two unpleasant options: Raise prices, or reduce costs. But higher prices to offset a wage hike of this magnitude aren’t realistic — imagine how you’d respond if the 99-cent menu became the $2.99 menu. Instead, restaurant operators have to provide the same service with fewer employees.
This means that customers end up serving themselves instead of being served by an employee. For example: 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 at fast-food restaurants were developed as a labor-saving device.
In other cases, a robot can be “hired” to do the job instead of an employee. The technology is already here. 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, with no strikes, benefits or wage demands.
At current labor costs, Momentum’s burger-flipper pays for itself within the first year. But at $15 an hour for an employee, the investment would pay off in a matter of months.
This trend toward automation doesn’t just affect the kitchen. In 2011, McDonald’s announced it was installing touch-screen ordering terminals at 7,000 European locations, where the minimum wage is higher — making the cashier position effectively obsolete. California Pizza Kitchen, Chevys Fresh Mex and other table-service chains are experimenting with computer terminals that let customers order and pay at the table, with minimal service from a server required.
These changes don’t become inevitable until the cost of service gets trumped by customers’ desire for low 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 — no small concern given that teen unemployment has been above 20 percent for the past five years.
Those teens, along with other entry-level employees, will be the first to feel the unintended consequences of a $15 minimum wage. However well-meaning the striking employees in Detroit and elsewhere are, the fact is that they’re only fighting the laws of economics — and that’s a fight they can’t win.
