By Daniel Kvist
After three years of campaigning, New York’s fast food workers are getting exactly what they wanted: A $15 an hour minimum wage. But while workers cheer and business owners jeer, the long-term effects of the increase are harder to determine.
Tunç Özelli, a professor at New York Institute of Technology and holds a Ph.D in economics, acknowledges that many economists don’t endorse higher minimum wages, but emphasizes that he is one of few who does.
“I think McDonald’s realized the publicity is just bad for them. When you’re the second-biggest employer in the country, and your employees don’t like you because you underpay them, that’s a really bad advertisement. It always amazed me that they thought they could continue on that path. You can’t have that many people running around saying, ‘Don’t come here.’ It doesn’t work,” Özelli said. He continues saying that: “It will be interesting to see if these mandated wages in fast food will pull up wages in other sectors.”
The wage boost comes as a result of Gov. Andrew Cuomo’s decision to assemble a Wage Board, which has the power to set a new minimum for the fast food industry’s 200,000 workers in New York without the approval of the state legislature. The Wage Board’s decision is a victory for the Service Employees International Union, which has poured millions of dollars over the past few years into campaigning for a $15 minimum wage nationwide. The new minimum wage is set out to reach $15 per hour by 2018 for workers in the city, and 2021 for upstate workers.
Back in June, Dunkin’ Brands CEO, Nigel Travis, told CNN’s Poppy Harlow that $15 an hour was “outrageous.” However, McDonald’s, which has been struggling financially resulting in the ouster of its CEO in January, has been more supportive of increasing wages. In the spring, the new CEO, Steve Easterbrook, raised the minimum wage at company owned stores by $1, arguing to the WSJ that: “Motivated teams deliver better customer service; and delivering better customer service in our restaurants is clearly going to be vital part of our turnaround.” The increase does not affect franchise stores, however, which make up the majority of McDonald’s restaurants; and at the company’s annual meeting this summer, Easterbrook admitted to investors that a $15 minimum wage made franchise owners nervous.
Although the minimum wage targets fast food chains with more than 30 outlets nationwide, full-service restaurants expect that they will be indirectly affected as well. “All restaurants, at some level, compete in the same labor pool. Full-service restaurants will have to lift their wages even higher to retain the top talent in the back of the house,” said Kevin Dugan, a spokesman for the New York State Restaurant Association. “The extent to which the wage hike will actually impact customers, however, is still hard to predict,” said Dugan. He adds that in places where large wage increases have started to take effect, prices have risen, but so far there’s no solid indication of how those changes have affected sales.
New Yorkers who don’t work in fast food stand to benefit indirectly, however. The higher wage could also foster competitive salary increases throughout the hospitality and retail industries to avoid a drain of workers who will suddenly find fast food jobs more attractive. Gov. Cuomo has already announced that state workers would also receive a minimum wage increase to $15 per hour.
But is the wage hike all positive and good news? Not quite. There may be job losses. Standard economic theory says that when you raise the price of something, you will get less of it. Logically, this should hold for employment, too. There is serious disagreement over just what level of a minimum wage increase would lead to serious job loss.
“There’s no question that the minimum wage represents a trade-off. On one hand, it does lift incomes. On the other, the higher it is the more marginal workers will be priced out of the market. Those include teenagers seeking their first paid jobs, the poorly educated or handicapped, and people living in areas with chronically low productivity,” Özelli says. “The weight of evidence now shows that increases in the minimum wage have had little or no negative effect on the employment of minimum-wage workers, even during times of weakness in the labor market.” Özelli goes on to say that: “A minimum-wage increase could have a small stimulative effect on the economy as low-wage workers spend their additional earnings, raising demand and job growth, and providing some help on the jobs front.”
Some workers will undoubtedly benefit. For those workers who remain employed, the benefits will be enormous. According to the New York State Department of Labor, the average pay of a McDonald’s worker is $9.01. A full-time McDonald’s worker could potentially see $12,000 more income per year, assuming his/her hours aren’t cut.
But since in many cases, McDonald’s is operated based on a franchise model, the new mandatory pay increase will take a toll on small business owners. Even small business owners that are not subject to the fast food wage increase, may start to feel pressure to boost their pay to compete for workers. Franchise owners are particularly upset with the wage increase. Even though it only applies to workers at company-owned restaurants, franchisees worry that they will be pressured to raise wages too.
“I think we will be looking at quite a few McDonald’s’ closing,” said 1st assistant store manager, Michael Cebon, at the 401 Park Ave S location. Cebon would not further comment on the issue, but added that not everyone would benefit from the wage hike, and that the losers would be the franchise owners.
Cebon is not the only one who is concerned, in fact, several franchise owners, throughout the country, have protested over the past year. In response to the protests, McDonald’s has warned that wage increases would force franchisees to raise menu prices. But in Denmark, for example, McDonald’s employees make more than twice what they do in the US. In Denmark, McDonald’s workers, over the age of eighteen, earn more than $20 an hour, and the price of a Big Mac is only thirty-five cents more than it is in the United States. Many economists say a direct comparison between the US and Denmark is unfair because Denmark has a much higher cost of living. In a WSJ article from September this year, a survey shows that a person from Copenhagen has to work 20 min. in order to afford a Big Mac, whereas in New York, one would “only” have to work 11 min. According to the Economist Intelligence Unit’s report from February, 2015, Copenhagen is ranked 8th on the list of most expensive cities to live in – New York is ranked 22nd.
Not everyone is skeptical of the wage hike. Brittney Delaney, 33, who works at McDonald’s on West 26th. Street and 8th Ave., and earns $8.90 per hour, says McDonald’s has polished its image in communities through outlets like Ronald McDonald House Charities. She noted the company’s “I’m lovin’ it campaign.” But she said that company spirit doesn’t extend to employees making burgers and fries. “We can’t pay our rent or heating bill with “lovin,'” Delaney said a mother of two. Speaking of her children she added: “They need clothes and food; and it is impossible to make that happen with my current salary.” Delaney said she has to work two jobs in order to provide for herself and her kids. She couldn’t tell when the new wage increase would benefit her, but added that she couldn’t wait to see the increase on her paycheck. “It definitely means that I can quit my other job, and dedicate more time to my kids,” Delaney said.
Another McDonald’s employees, Veronica Sanchez, 28, and Delaney’s colleague, shares her excitement for the wage increase. “We have waited for this for a very long time; and hopefully working at McDonald’s will now no longer be frowned upon,” said Sanchez who has no interest in leaving the company now that the increase is so close. “I can almost see the increased paycheck, and it makes me very excited.” Sanchez doesn’t have a family to raise like Delaney and so has different priorities adding: “I dream of all the new clothes I’ll be able to buy. [My boyfriend] treats me well, but I’d rather spend my own money. It makes me feel empowered.”
The McDonald’s employees are, however, facing threats. As it has been seen in multiple service industries already, McDonald’s is now rolling out self-service kiosks in restaurants across the US that allow customers to order and pay for their food without ever having to interact with a human. New Yorkers that have visited the West 23rd and 5th Ave. McDonald’s, may have noticed that there are three self-service kiosks. Customers don’t have to interact with the cashier, only when they pick-up their order a few minutes later.
Silvia Marnon, 53, a grandmother from the Bronx, who works part-time in the McDonald’s located on West 23rd and 5th Ave. for $8.75 an hour, pointed out the scars where fry baskets had seared her forearms. “At least they listened to us,” she said, referring to the board. “We’re breathing little by little.” When asked about how she felt about the new self-service kiosks, she just shook her head and said: “We wanted the increase, but with that we also have to work harder, so I’m not surprised they find other ways to save labor costs.” Marnon is not afraid of loosing her job, but expresses a concern for the future of the chain. “I honestly don’t know what McDonald’s can do other than listen to its employees. It’s a struggle for all businesses, not only the fast food industry,” Marnon added.
The touch-screen technology is meant to speed up the ordering process and give people more control over customizing their food, while reducing opportunities for human error. Some people suspect that the technology is also meant to eventually replace staff as McDonald’s franchisees start to worry about rising labor costs. The fast-food chain denies that.
Pat Harris, a Chicago based spokeswoman for McDonald’s, says that a real person will still take orders. “It gives the customer more options when ordering food. In large busy cities, where lines will be long during lunch hours, it adds value to the overall experience we [McDonald’s] give our customers.” When asked about whether or not the self-serve kiosks were installed to replace workers, Harris added: “This is merely our response to a recent customer survey.”
Easterbrook has called the kiosks news a “conversation starter” and argues that the self-serve kiosks frees up McDonald’s employees so that all lines are shorter.
But chatter among observers accuses the chain’s employees of not being “careful what they wished for,” with critics arguing online that the self-service kiosks are just a corporate response to the pay raise. Michael Giandrea, a twitter user, questioned McDonald’s about the self serve kiosks: “This has nothing to do with cities forcing them to pay unskilled workers $15 per hour???” Another user, “Concerned Citizen,” adds that it leads to: “Fewer opportunities to enter the workforce for the poor.” This statement is supported among many other users, but “guynextdoor” stirs up the conversation with: “You guys thought they would just roll over and pay $15 an hour?” There is a long debate happening on Twitter, where on one side we have those who think that McDonald’s employees should have seen this coming, and on the other hand those who sympathize with the chain’s workers.
Whether they got what they asked for or not is true, McDonald’s workers are definitely not out of a job, because someone still has to cook and serve the food. When a robot can do that, then we’ll have a problem.