Should Low-Wage Restaurant Workers Be Paid More?

[Gabriela]

A study recently released here: http://www.purdue.edu/newsroom/releases/2015/Q3/study-raising-wages-to-15-an-hour-for-limited-service-restaurant-employees-would-raise-prices-4.3-percent.html

Study: Raising wages to $15 an hour for limited-service restaurant employees would raise prices 4.3 percent

July 27, 2015  

 

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WEST LAFAYETTE, Ind. - Raising wages to $15 an hour for limited-service restaurant employees would lead to an estimated 4.3 percent increase in prices at those restaurants, according to a recent study.

Researchers from Purdue University's School of Hospitality and Tourism Management also examined the impact of limited-service restaurants offering health-care benefits and found that, due to current tax credits in the Affordable Care Act, there would be a minimal effect on prices at limited-service restaurants with fewer than 25 full-time employees.

Limited-service restaurants are what many consumers refer to as "fast-food restaurants," where there usually is no tableside service and no tipping.

The study says increasing wages to $22 an hour, which the Bureau of Labor Statistics says is what the average American private industry employee makes, would cause a 25 percent increase in prices.

The current federal minimum wage is $7.25 an hour, which also is the standard in Indiana. Some states and cities across the United States, including Illinois, Michigan and Ohio, have raised the minimum wage to more than $8 an hour. In the past two years, fast-food workers across the nation have gone on strike or had demonstrations calling for (living) wages to be increased to $15 per hour, the study says.

"We wanted to find out what happens if food-service employees' wages go up to $15 an hour and what happens if you take it to $22 an hour," said Richard Ghiselli, professor and head of the School of Hospitality and Tourism Management. "Health-care benefits are a little more complex. We did an analysis based on information at the time we started the study (2013). There were tax credits available then. With those tax credits available, giving full-time employees health insurance shouldn't affect businesses that much. When those tax credits expire, then it changes."

Employee turnover in the foodservice industry led to the study, Ghiselli said.

"Turnover has been one of the more troublesome problems to manage in the foodservice industry. In 2013, franchised establishments experienced a turnover rate of 93 percent," he said. "People often hypothesize that if you raise pay and offer benefits, turnover will go down. I don't think we answered the question of whether that reduces turnover, but the study showed that if you raise pay and offer health insurance, prices will go up."

Ghiselli said the study's results were close to what he expected and that there could potentially be other effects of raising wages and offering health benefits.

"There were no surprises. We thought prices would go up. We just wanted to know how much they would go up if you raise pay and offer health insurance," he said. "The other way to look at this if you don't want to raise the prices is to examine the impact on product size. As expected, a hamburger would be much smaller."

Data from the National Restaurant Association, taken from across the United States, was used in the study to determine the impact of higher wages on prices. To determine the price impact of offering health-care insurance to limited-service restaurant employees, Ghiselli said researchers obtained information from HealthCare.gov, based on the typical portrait of food-service employees in Indiana.

The study, which was co-authored by Jing Ma, a doctoral student and graduate teaching assistant in the School of Hospitality and Tourism Management, was published recently in the Journal of Foodservice Business Research. 

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ABSTRACT

The Minimum Wage, A Competitive Wage and the Price of a Burger: Can Competitive Wages be Offered in Limited-Service Restaurants?

Richard Ghiselli, School of Hospitality and Tourism Management at Purdue University; Jing Ma, School of Hospitality and Tourism Management at Purdue University

The purpose of this paper was to examine the effect that higher wages and health-care benefits have on costs and prices in limited-service restaurants. In order to compensate for higher wages, prices would have to increase between 4% and 25% and/or product size would have to be scaled back between 12% and 70%. With tax credits that are available in the next few years, the Affordable Care Act will have minimal effect on limited-service restaurants with few than 25 FTEs. The extent to which higher wages and more benefits will help ameliorate turnover must be balanced with the cost of turnover and the potential effect on sales. 

 

Also discussed here: http://www.cbsnews.com/news/with-15-hourly-wages-what-happens-to-fast-food-prices/

 

If this study is right, I think the rise in prices is totally worth it.

Edited July 30, 2015 by Gabriela

[Benedictus]

Yes, I think pay should go up. People should have a pay that offers respect to them as a person and provides them with the dignity to live. People, who work hard in these labor intensive jobs, should also be able to access adequate worker protections and benefits. People aren't 'free' in reality if they are low paid by their employers and the public, who exploit them for cheaper goods/services. Many people are really slaves to these conditions, only free in theory and not in practice.

Customers are often expected to raise up the terrible pay of employees anyway by providing tips, especially in the US, and this adds to the costs they incur on the bill anyway. If pay was increased, and was more stable, costs may increase slightly but there would be less burden on customers to tip so much in the longer term. The wage stability would likely reduce staff turnover and the potential for staff exploitation in the longer term.

[veritasluxmea]

I've been waitressing tables since I was eighteen and started as a barita last year. I'm hope to work my way up to bartending by the time I'm 21. 

No, I don't think pay minimum wage in general should go up, for reasons stated in the article. 

Customers are often expected to raise up the terrible pay of employees anyway by providing tips, especially in the US, and this adds to the costs they incur on the bill anyway. If pay was increased, and was more stable, costs may increase slightly but there would be less burden on customers to tip so much in the longer term. 

Staff turnover has very little to do with pay and very much to do with the type of people who are hired- personalities, and the stage in life those sorts of people are at (young and looking for a quick buck and the next party). They're not looking for a career here. Pay might keep someone at a tough job with people they hate longer, if it's spectacular pay, like if you're bringing home 100-200 a night in tips- but it's very stressful for them, and they will leave before a year is out, I can guarantee it. That's why Hooters has a very high turnover rate despite the amazing cash money you get each night. People will accept and work hard at low-paying jobs with a culture and people they actually like, and they tend to settle there. Eventually a low paying job might reluctantly prompt someone to look for a side job, maybe even a new job if they have too, but trust me, turnover has everything to do with staff relationships, job atmosphere, and how happy they are there, and not much to do with pay. 

I don't think the wage will matter to tips- customers will always feel the pressure to tip just by your presence and the culture we live in. Actually people assume I'm paid MORE than I actually am and they still feel the pressure of social conventions to tip (I've had conversations with customers who want to know how much I'm paid and they usually guess a dollar higher). 

Anyway, most the the benefits are just estimation. Why risk higher prices and expensive living, something we know will happen, for benefits that are speculative at best? 

[Anomaly]

As usual, there's more to the story.   Reading the article, note that the sell price increase is reduced because the added labor cost is offset by Government subsidies.    That takes tax money away from other things like subsidized childcare.   We don't have a bottomless pool of money to spend indiscriminately.   Teenagers and college students don't require the same help as one on their own.  Some low wage jobs are tools for people to learn and practice a work ethic. In a way, it can remove incentives to be a worthwhile employee.  Business owners are people too and they don't suffer running a business just to pay others.  If it was easy, everyone would run businesses.  

[Ice_nine]

We don't have a bottomless pool of money to spend indiscriminately.  

Can't the fed just print more money? I thought that's how things worked.

 

[Benedictus]

I've been waitressing tables since I was eighteen and started as a barita last year. I'm hope to work my way up to bartending by the time I'm 21. 

No, I don't think pay minimum wage in general should go up, for reasons stated in the article.

If you were in that work for a few decades constrained by circumstances you probably wouldn't say the same thing. In reality, thousands and thousands of people are on low pay and it's not just young people and students. Women often suffer the most from poor pay as the years go on. Women, who tend to be the ones most affected by low pay and working part time, also suffer after taking time out for children or caring. They get a raw deal when trying to reenter work as the costs tend to increase as they get older, whilst wages mostly stagnate. This is why many end up in work poverty and any children they have suffer. If they are single, for whatever reason, it's even worse. Having a low wage , if it isn't matched to allow them to live, is immoral as far as I'm concerned. Business is not the victim - many of the most rich profit makers still don't raise wages and give workers good benefits. Many would have people on zero contracts working for tips alone if they could.

In terms of tips -  tipping should be 'extras' on top of a good wage, not a replacement. A server, for example, shouldn't have to rely mostly on the mercy of tips to live in the 21st century! As pay levels increase tipping practices often change, Europe is a prime example of that. Customers should expect that the staff that deal with them are paid well and that they aren't being served by someone living in wage poverty.

As usual, there's more to the story.   Reading the article, note that the sell price increase is reduced because the added labor cost is offset by Government subsidies.    That takes tax money away from other things like subsidized childcare.   We don't have a bottomless pool of money to spend indiscriminately.   Teenagers and college students don't require the same help as one on their own.  Some low wage jobs are tools for people to learn and practice a work ethic. In a way, it can remove incentives to be a worthwhile employee.  Business owners are people too and they don't suffer running a business just to pay others.  If it was easy, everyone would run businesses.  

The government has money for corporate pay outs and stuff though. The dry pot for stuff soon has money when the government needs a war or to prop up a regime somewhere. One of the richest countries always playing poor in the face of the poor. 

People shouldn't have to work at low pay, even if to build experience. Everyone deserves a basic dignity in pay. If the age development and career skills issue is key then have age tariffs that increase pay as they advance in skills and experience. Is the employer out of pocket from providing the experience? Unless they provide resources or costly training then why should a person be forced to work for less?  Why should people earn peanuts, even if it's for experience, when the work benefits the employer at a scale in excess to that of the employee.   It's an unfair power balance from the start in most cases and this idea of choice is a false one.  Basic pay is a wide issue and not just about young people. It also isn't about those who think bad pay is OK because in a few years they'll leave that sector and move onto better things. That's privilege talk as far as I'm concerned.

The real wider issue is about structural and ongoing social problems, work poverty and slave labor of people. The US has some of the highest crime, prison numbers, community disunity, inequality and poverty in the developed world! It amazes me that people won't address some of the causes because it may cost them something. If things carry on I think many will lose more in the long run as oppressive systems only run for so long. This article is a drop in the ocean example of the wide problems out there on the ground with the social and economic systems at play.

[Nihil Obstat]

If tips are bad and/or predatory practices by restaurant owners, could those same arguments not be applied in a similar way to commission work?

[Benedictus]

If tips are bad and/or predatory practices by restaurant owners, could those same arguments not be applied in a similar way to commission work?

Tipping isn't bad per se. Neither is giving a bonus a bad thing etc. It just shouldn't be used in place of a good basic wage as a starting point. Any practice whereby a person earns a low wage, if any at all, whilst relying on precarious 'top up' assistance is far from ideal. As low wage earners tend to have less economic and social support (even no health benefits, pension etc) so the practice is basically poverty labor. On the whole those on chronic low wages don't have asset rich relatives or similar to see them good either.

[Credo in Deum]

It's really only a matter of time until the cost of living surpasses the $15.00 minimum wage.  Plus I don't find myself burdened to tip anyone so I really do not see why increasing minimum wage to $15.00 is going to help me. Also what's stopping these employees from moving up the food chain and being managers at McDonalds?  Furthermore in the business world who does this really hurt?  My guess is it's small businesses since big corporations have the money to replace their $15.00 an hour workers with capable kiosks. 

 

[little2add]

The average nurses aide earns $11 an hour plus benefits, sometimes    If she is lucky    

  A nursing aid  Is skilled labor with tremendous responsibility,  i'm sorry but a 16  year old working part time as a  fast food worker is overpaid by receiving minimum wage.   

 Paying  anyone more money for an unskilled position such as fast food is ridiculous 

 A nurses aide on the  other hand  is severely underpaid  in comparison to a fast food worker  

 If anyone deserves a better pay scale its not  Burger flippers 

[Gabriela]

Just to clarify: These people only studied fast-food restaurants, not restaurants with waiters.

Also, let's not forget that the entire CST tradition, for as long as it has existed in the papal encyclicals, has argued that it is a sin and a crime to pay any worker a non-living wage.

Edited July 31, 2015 by Gabriela

[Benedictus]

The average nurses aide earns $11 an hour plus benefits, sometimes    If she is lucky    

  A nursing aid  Is skilled labor with tremendous responsibility,  i'm sorry but a 16  year old working part time as a  fast food worker is overpaid by receiving minimum wage.   

 Paying  anyone more money for an unskilled position such as fast food is ridiculous 

 A nurses aide on the  other hand  is severely underpaid  in comparison to a fast food worker  

 If anyone deserves a better pay scale its not  Burger flippers 

Lots of people should have pay increases. But saying someone should deserve to earn bad pay because someone else on bad pay is better than them? Really? No solidarity between poorly paid workers? No wonder some sectors can easily play people off against eachother and so easily walk all the way to the bank laughing.

Just to clarify: These people only studied fast-food restaurants, not restaurants with waiters.

Gosh, even worse.

Also, let's not forget that the entire CST tradition, for as long as it has existed in the papal encyclicals, has argued that it is a sin and a crime to pay any worker a non-living wage.

[Nihil Obstat]

 

Tipping isn't bad per se. Neither is giving a bonus a bad thing etc. It just shouldn't be used in place of a good basic wage as a starting point. Any practice whereby a person earns a low wage, if any at all, whilst relying on precarious 'top up' assistance is far from ideal. As low wage earners tend to have less economic and social support (even no health benefits, pension etc) so the practice is basically poverty labor. On the whole those on chronic low wages don't have asset rich relatives or similar to see them good either.

So then you would disagree in substantially the same way with fully commission work?

[Tab'le De'Bah-Rye]

Yes, I think pay should go up. People should have a pay that offers respect to them as a person and provides them with the dignity to live. People, who work hard in these labor intensive jobs, should also be able to access adequate worker protections and benefits. People aren't 'free' in reality if they are low paid by their employers and the public, who exploit them for cheaper goods/services. Many people are really slaves to these conditions, only free in theory and not in practice.

Customers are often expected to raise up the terrible pay of employees anyway by providing tips, especially in the US, and this adds to the costs they incur on the bill anyway. If pay was increased, and was more stable, costs may increase slightly but there would be less burden on customers to tip so much in the longer term. The wage stability would likely reduce staff turnover and the potential for staff exploitation in the longer term.

People still can choose to tip a lot if the service is good.

The average nurses aide earns $11 an hour plus benefits, sometimes    If she is lucky    

  A nursing aid  Is skilled labor with tremendous responsibility,  i'm sorry but a 16  year old working part time as a  fast food worker is overpaid by receiving minimum wage.   

 Paying  anyone more money for an unskilled position such as fast food is ridiculous 

 A nurses aide on the  other hand  is severely underpaid  in comparison to a fast food worker  

 If anyone deserves a better pay scale its not  Burger flippers 

People have different interlect, why punish those that are slow? Did you think of that?

[Benedictus]

 

So then you would disagree in substantially the same way with fully commission work?

It depends on the commission system used and the sector! It is setup differently in various sectors.  In some countries it is also illegal to use commission in certain sectors, financial services would be one. Although that's more about managing risk to capital than any concern about staff.