A $15 U.S. Minimum Wage: How the Fast-Food Industry Could Adjust Without Shedding Jobs. Issue 3 (2nd July 2016)

• Record Type: Journal Article
• Authors: Pollin, Robert; Wicks-Lim, Jeannette
• Is Part Of: Journal of economic issues. Volume 50:Issue 3(2016)
• Page Start: 716
• Page End: 744
• Publication Date: 2016-07-02
• Subjects: fast food restaurants -- low-wage workers -- minimum wage; J38 -- L81; Economics -- Periodicals; Economics; Économie politique -- Périodiques; Economie; ECONOMICS; ECONOMIC POLICY; Periodicals; 330.05
• DOI: 10.1080/00213624.2016.1210382
• Languages: English
• ISSNs: 0021-3624

Abstract

Abstract: We consider the extent to which U.S. fast-food businesses could adjust to an increase in the federal minimum wage from its current level of $7.25 an hour to $15 an hour without having to resort to reducing their workforce. We consider this issue through a set of simple illustrative exercises, whereby the US raises the federal minimum wage in two steps over four years, first to $10.50 within one year, then to $15 after three more years. We conclude that the fast-food industry could absorb the increase in its overall wage bill without resorting to cuts in their employment levels at any point over this four-year adjustment period. We find that the fast-food industry could fully absorb these wage bill increases through a combination of turnover reductions, trend increases in sales growth, and modest annual price increases over the four-year period. Working from the relevant existing literature, our results are based on a set of reasonable assumptions on fast-food turnover rates, the price elasticity of demand within the fast-food industry, and the industry's underlying trend for sales growth. We also show that fast-food firms would not need to lower their average profit rate during this adjustment period.