Productivity Matters More Than The Minimum Wage

As you may have heard, a bunch of fast food employees in various major cities have initiated a one day strike.  The strikers are calling for a raise of their wage up to $ 15 an hour, based on a 'study' that was released not too long ago showing the cost impacts to be minimal for major fast food franchises.  Naturally the fast food employees seized on this report and ran with it.


I am sure that there is a plethora of posts, comments and observations about how foolish trying double or triple the minimum wage would be.  While McDonald's and other fast food giants would not be impacted greatly, at least according to the study, little consideration is given to these other factors:

• Most businesses are small business. According to 2008 census information, of the 6 million or so employer firms, firms that have individuals other than just the business owner on the payroll, about two thirds of those businesses have less than 10 employees. Raising the minimum wage will put pressure on these smaller business and could lead to businesses either cutting hours, not hiring or eventually shutting down shop entirely.

• The affect that the minimum wage has on very low skilled and untrained labor, particularly youths under 18. Almost half of all minimum wage jobs are worked by individuals under 18.  Raising the minimum wage has, statistically time and again, been shown to have a negative effect in youth employment. This is important considering that many entry level youth jobs are fast food jobs that teach basic skills that can be applied to slightly more advance jobs later on.  Think of working the cashier at a fast food joint and then becoming a teller at a bank.

• That the positive effects of raising the minimum wage on the economy, I am assuming here since there is still vigorous debate on whether or not raising the minimum wage benefits the economy, is temporary at best.  Eventually costs will have to reflect the change in wages, unless there is a productivity increase with a positive delta greater than the increase in costs.

This last point is very important.  Talk about GDP per capita, median wages and all that stuff is fine but it is only piece of the puzzle.  The largest driver in the raising of our standards of living has been the tremendous productivity increases we have had since the industrial revolution.  As the Captain says, time is more important than money, and while he is referring to the time you have on this earth, the concept is equally applicable to industry.

In the 1950 a gallon of milk cost $ .82 which would be the equivalent to $ 7.82 today.  In 2013 a gallon of organic milk, for all those individuals who detest Monsanto, is just under $ 6.  That is a $ 1.82 cheaper, and while that might not seem like much, that is a 23% decrease in price.  That translates to more money that can be used elsewhere and a better standard of living.

The more efficient we are the less something costs and the less something costs a lower price is needed to cover our costs and make a profit. Increases in productivity and efficiently, more than anything, have been responsible for the increases in our standard of living.  Entire industries have resulted trying to increase productivity further still, computing, and entire industries would have never come into being without out the extra disposable income that results from increased productive, high end mass market fashion.

If people really want to make working for McDonald's earn a  'livable' wage, then they should focus on the efficiency/productivity side of the equation since it will lower costs to make items more affordable. This will, of course, be lost on most people.