Growth is slowing at some of America’s fast food favorites thanks to the misguided wage experiment being conducted in cities and states across the nation, including at Domino’s Pizza, Wendy’s and McDonald’s. With New York, California, and now Washington, D.C. enacting $15 minimum wage mandates, these national chains may be the first, but certainly won’t be the last, businesses adversely impacted by these arbitrary minimum wage hikes.
Shares of Domino’s Pizza shrunk nearly seven percent since the end of April – a decrease that can be attributed at least in part to increased labor costs. Domino’s stores in New York City, for example, saw the minimum wage for fast food workers rise from $8.75 to $10.50 an hour at the beginning of the year, and will face an increased rise to $15 an hour by the end of 2018.
These massive increases over such a shortened timeframe are clearly going to hurt Domino’s bottom line. But it’s not just owners of Domino’s stocks that will suffer, but low-skilled, low-wage workers that will be hurt the most.
On the company’s April earnings call, Domino’s CFO Jeff Lawrence credited the increase in labor costs with the decline in profits. He told shareholders that in light of the increased minimum wage mandates, managers will have to get by with fewer employees, and be “more efficient about managing labor hours.” He also indicated the company will need to focus on emerging technologies to drive efficiencies, which could mean Domino’s might follow in the footsteps of fast-food burger chain Wendy’s, who recently announced they would be utilizing self-ordering kiosks and mobile ordering to limit the amount of workers needed to run the store – thanks to California and New York’s passage of a $15 minimum wage.
They are not alone. McDonald’s CFO Kevin Ozan discussed in January how higher labor costs were leading to sinking profits as well, and indicated he too is exploring options to limit the deleterious effects.
Economists have long warned that the adoption of higher minimum wage policies wind up hurting the very people they are intended to help. And not just through reduced hours or technologies taking over workers’ roles, but also through increased prices for many goods and services. Many Americans turn to fast food when they are in search of a quick and inexpensive meal – or an affordable way to feed their family. Who do you think will be impacted the most when the costs for these meals rise? Moderate-income consumers on fixed budgets, who make up the majority of fast-food restaurants’ customer base to begin with.
In fact, the Heritage Foundation constructed a simulation model using data from the average fast-food restaurant’s income and expenses, and determined that a $15 minimum wage for fast-food workers would force restaurants to raise prices by 38 percent to offset the increased costs, and that total sales and hours worked would both fall by 36 percent. It’s economics 101: when the costs of inputs like labor go up, less of it will be demanded – and industry can and will adapt, in this case, potentially away from human labor through the use of new ordering technologies.
These harmful policies, while they may sound good on paper, will cost good American jobs, and by the millions. An issue brief produced last summer authored by Douglas Holtz-Eakin, former Congressional Budget Office (CBO) director, calculated – using the same model that the CBO employs when it advises Congress – that the loss of jobs should the United States enact a national $15 an hour minimum wage would reach 6.6 million. And that estimate is in the middle of the road compared to other studies out there, some of which predict nearly triple that figure.
It’s time to step back and let the free market work. Major companies, like Walmart and Target, have voluntarily increased their wages well beyond the federal minimum – without union bullying or a national movement. Progressive labor activists, in their shortsighted efforts to remain relevant and enhance dues to organized labor, are going to wind up crippling our economy and cratering our job market. “Fighting for $15” might make a catchy slogan today, but does not make for realistic policy tomorrow.
Stephen DeMaura is the President of Americans for Job Security.