Debating the effects of a $15 fast food wage

Steven Greenhouse
Demonstrators outside a McDonald's restaurant near New York's Times Square as part of a nationwide protest of fast food workers December 5, 2013.
Stan Honda | AFP | Getty Images

As fast-food workers plan yet another round of one-day strikes on Thursday in cities around the country, labor leaders, economists and industry officials continue to debate the potential effects of raising wages at companies that often assert that such increases would raise consumer prices and shrink the work force.

Organizers of the fast-food workers' nascent movement are clamoring for a $15 an hour wage, which would mean a 67 percent pay increase in an industry where wages average around $9 an hour.

Restaurant industry officials have balked at so high a wage, saying it would sharply raise fast-food prices and reduce employment, in part by fueling automation of some jobs. They call the demand of $15 an hour a nonstarter as far as initiating negotiations.

(Read more: $15 minimum wage means layoffs: White Castle exec)

"When you start by insisting on $15 an hour, that's not conducive to substantive dialogue," said Scott DeFife, an executive vice president with the National Restaurant Association.

But Mary Kay Henry, president of the Service Employees International Union, which has spent several million dollars to underwrite the fast-food strikes around the country that began a year ago, said it was only a matter of time before the worker protests became so great that McDonald's, Burger King and other companies agreed to negotiate.

"I think there's growing recognition that a nerve has been touched," Ms. Henry said. "The industry had better start to take this seriously, because this isn't going to blow over."

But even experts who support some increase worry that a raise to $15 an hour would have profound effects on the industry. Arindrajit Dube, an economics professor at the University of Massachusetts, Amherst, said an increase in pay to $15 would push up fast-food prices by nearly 20 percent.

With the industry estimating that one-third of its costs go to labor, he said a $15 wage would mean wage increases averaging around 60 percent, raising the cost of a $3 hamburger to $3.50 or $3.60.

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Ken Jacobs, chairman of the University of California, Berkeley, Center for Labor Research and Education, differed slightly on the effects, saying a $15 wage would cause a somewhat lesser price increase, perhaps 10 percent, and adding that higher pay would save restaurants some money by leading to less turnover and higher productivity per worker. In addition, he said, franchisees might swallow some of the increases instead of totally offsetting them with higher prices.

Fast-food street protest
Fast-food street protest

Stephen J. Caldeira, president of the International Franchise Association, estimated that the demand for $15 wages would lead to a 25 percent to 50 percent increase in fast-food prices. "It would definitely hurt the consumer," he said. "Increasing the cost of labor would lead to higher prices for the consumer, lower foot traffic and sales for franchise owners and ultimately lost entry-level jobs."

Within academia, there has been a fierce debate about how much increases in the minimum wage affect employment.

Professor Dube has been a leading voice in arguing that a modestly higher minimum wage does not harm employment levels. Nonetheless, he acknowledged that an increase as steep as the rise to $15 could hurt employment.

(Read more: Hunger strike? US fast food workers set to walk out)

"Would I be concerned about possible job losses if there were a $15 minimum wage in the restaurant industry, yes, I'd be concerned," he said. "There are concerns that it might lead to the substitution of automation for workers."

Several fast-food chains have already cut labor costs by allowing self-service for soft drinks. And some restaurants have begun replacing counter workers with computer screens that greet customers and ask them to tap in their orders, which are relayed to the cooks.

David Neumark, an economics professor at University of California, Irvine, who has studied minimum wage increases in depth, estimated that raising fast-food pay to $15 would result in a 5 percent or 6 percent reduction in employment.

He and Professor Dube said they were reluctant to speculate about the effects of a $15 wage because while many studies have been done about the effects of a 50 cent or $1 increase in the minimum wage, hardly any have been done about the effects of a sharp jump to the $15 area.

(Watch: Fast food workers and a living wage)

Still, Professor Neumark said, "Anyone who thinks sensibly about this should be concerned that $15 would have a big effect on employment."

He said one advantage of a $15 wage was that it would save the government money by reducing workers' reliance on food stamps and other programs. A study by the University of California, Berkeley, found that fast-food workers receive nearly $7 billion a year in public assistance.

Fast food sector wage rises need 3 key ingredients: Pro
Fast food sector wage rises need 3 key ingredients: Pro

Thursday's one-day strikes are planned for 100 cities, and will include Boston, Denver, Detroit, Los Angeles, New York and Washington. The organizers say that there will be protest activities in an additional 100 cities and that thousands of fast-food workers will walk out. Industry officials insist that few workers will go on strike and that most of the protesters will be union or community activists.

Some fast-food workers who participated in a one-day strike in August say that they dream of getting a raise to $15, but would be happy to receive $12 or $13.

For the movement's strategists, the big question is how to achieve their $15 goal. One option being debated is to push for referendums or city council measures that require restaurants and retailers to pay at least $15 an hour—similar to the recently approved referendum in SeaTac, Wash., requiring that workers at the international airport there be paid at least $15 an hour.

Ms. Henry, the service employees' president, said the movement hoped to persuade McDonald's and other companies to require franchisees to pay $15 an hour. To help the franchisees afford that, she said, the chains might agree to have their franchises pay them lower fees.

But Mr. Caldeira bridled at requiring a $15 wage. "It would put folks out of business," he said.

(Watch: Doubling minimum wage a mistake: Economist)

Ms. Henry responded: "In our 90-year history as a union, I've never seen a time when workers got a wage increase that put people out of business. It's in our interest to make sure we secure our employment, not to reduce employment."

In some ways, the fast-food strikes parallel the Black Friday protests urging Walmart to pay its workers more. Some economists maintain that giving raises to low-paid fast-food and retail workers would stimulate the underperforming economy by increasing their ability to spend. But other economists counter that the stimulus would be negated when the raises forced restaurants and retailers to raise prices, subtracting from other consumers' spending power.

"The real problem with the economy is there aren't enough people working," said David French, a senior vice president at the National Retail Federation. "There's been a lot of growth of jobs in the retail and service sector. It's been one of the bright spots. Why then should the policy response be to create fewer jobs? That's a bizarre remedy to a crushing problem."

—By Steven Greenhouse of The New York Times