Corporate Greed, Not High Wages, Causes High Prices

In the '80s, at the beginning of the Reaganomics destruction of the middle class, pundits wrung their hands over the greedy CEOs paying themselves 40 times what their lowest-paid workers earned.

Today that gap is 200 times, and those same pundits are wringing their hands over workers wanting a tiny slice of the massive productivity and profit gains that have gone solely to the obscenely rich.

Erik Loomis at LGM:

This is a good discussion on the bogus connection between higher minimum wages and higher prices. The real issue leading to higher prices are CEO salaries and corporate profit margins, not a slightly higher minimum wage.

Chipotle is just the latest company in the city to claim labor costs as the reason for price hikes. It sounds logical. Wages go up 10%, prices of menu items go up 10%. It’s fair, right? But Chipotle co-CEOs Steve Ells and Monty Moran’s earnings in 2014 were $28.9m and $28.2m, respectively. Ells also brought in around $42m in stock options in 2014, yet prices must go up because the lowest paid workers received a $1 raise? This is yet more evidence that executive pay and corporate profit margins must be maintained, at the expense of minimum wage workers.

It doesn’t make sense considering Chipotle’s growth in both sales and profits over the past year. The company saw a 47.6% increase in profits to $122.6m, while sales were up 20.4%, to $1.09bn. Yet, with the company wanting to maintain specific profit margins, prices go up, even when they don’t have to.

Ells and Moran saw their own personal pay increase 15% year-to-year, according to Chipotle’s own reporting – that’s millions of dollars – but sadly, minimum wage debates over the past year have highlighted how companies, from Chipotle to McDonald’s to Walmart, just can’t afford to give their workers a living wage.

Ells and Moran could easily have taken a pay cut, or frozen their income for the year, but instead Chipotle spokesman Chris Arnold was clear about what the company wanted:

California, and San Francisco in particular, has a high cost of doing business. In San Francisco, for example, our occupancy costs are about double the Chipotle average as a percentage of sales, and our menu prices there are right around the average for Chipotle restaurants around the country, so increases to wages can have a greater impact than they might elsewhere.

Of course, people largely blame higher prices on lazy workers, supporting the CEOs destroying this country’s middle class in order to buy another ivory backscratcher.

Bryce Covert at Think Progress:

If the minimum wage were increased to $15 an hour, prices at fast food restaurants would rise by an estimated 4.3 percent, according to a new study. That would mean a McDonald’s Big Mac, which currently goes for $3.99, would cost about 17 cents more, or $4.16.

The study from Purdue University’s School of Hospitality and Tourism Management also found that in order to compensate for the higher cost of employee compensation at limited-service restaurants, or those without table service or tipping, if they decided to change food sizes rather than prices, the Big Mac would shrink somewhere between 12 and 70 percent.

The price increases would be a good deal larger if the minimum wage were raised to $22 an hour, or average private sector pay: the authors found they would increase by 25 percent, raising the price of a Big Mac by about a dollar.

The study notes that it doesn’t take into account the costs of turnover or any savings gained from higher wages. “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,” Richard Ghiselli, professor and head of the School of Hospitality and Tourism Management, said in a press release. In 2013, the turnover rate for franchises was 93 percent, and it can cost $4,700 per worker who leaves. A previous study found that for every 10 percent increase in the minimum wage, turnover drops by 2.2 percent, and a $15 wage would come with $5.2 billion in savings for the fast food industry.

That study also found that between the extra money from higher prices, savings from lower turnover, and greater overall economic growth, the fast food industry could easily cover the increased costs of having to pay a $15 minimum wage without reducing any jobs and still have money left over. Other research has found that all employers could react to higher minimum wage costs in the same way — through savings from reduced turnover, higher prices, improved efficiency, and increased demand — and therefore avoid layoffs.

Real world evidence also supports the idea that fast food would deal with higher wages without cutting jobs. In the face of a planned minimum wage increase in Georgia and Alabama, for example, fast food restaurants were going to respond by raising employees’ performance standards. A major review of all the available research on how minimum wage increases impact job growth found that it’s close to zero, and state-level reviews found that those that have raised wages over recent decades haven’t hurt job growth.

The research showing that the fast food industry has ways to cope with a $15 minimum wage comes as workers in that industry, who have staged widespread strikes over the past three years demanding they be paid at least that much, have experienced recent victories. San Francisco, Seattle, and Los Angeles have raised their minimum wages to that level, while fast food workers across the state of New York notched a recent victory that means they will likely be guaranteed that minimum. A $15 minimum wage proposal has even reached Congress.

If the minimum wage had kept pace with productivity gains since 1968, it would be $20 per hour.  If it had kept pace with the increases in corporate profits and CEO pay, it would be $25 per hour.

And to make up for the theft of our pay for the last 40 years, minimum wage should be $50 an hour, with those earning more but still less than the lowest-paid CEO getting proportionately more.

Yes, that's how out of whack wages and corporate profits have gotten.