Raise in Wage to $15 would not increase McDonald's Prices

[GHook93]

At least according to this Forbes 'economist.' Is he right or wrong? I am skeptical, but then again in North Dakato the starting wage at McDonald's is $15 and the prices are LESS than they are in Chicago (where wages are a minimum wage)!

The author's argument is that McDonald's would have to stay competitive and thus would reduce staff and move more toward automation.

The Real Change In The Cost Of A Big Mac If McDonald's Workers Were Paid $15 An Hour: Nothing - Forbes
The Real Change In The Cost Of A Big Mac If McDonald's Workers Were Paid $15 An Hour: Nothing
A rise in production costs do not affect the cost of goods, aka, a Big Mac? In what universe did you get your economics degree? Supply and demand may deter [...]Tim Worstall, ContributorMy economics degree? The LSE. Where they did indeed teach us that companies price at the maximum whatever their production costs. For that’s how to maximis [...]Julie Monroe Would it not matter where the increase in pay came from?Tim Worstall, ContributorIt does indeed matter whether the pay raise is at Maccy D only or across the board. If it’s only at McDonald’s then it’s as above. They can’t raise their p [...]Michael Stein @Tim Worstall: I think it’s a bit more complex than you make out. Big Macs and Whoppers and Wendy’s hamburgers are not perfectly substitutable products, be [...]Tim Worstall, ContributorIndeed it is more complex than I make out. You point out one of the subtleties well in your comment.satwood The comments in this section make me lose all faith in mankind. C’mon people!The author never stated that increased production costs have no effect on the [...]55 comments, 7 called-out Comment Now
Follow Comments Following Comments Unfollow Comments Comment Now Follow Comments Following Comments Unfollow Comments I will admit to having been amused at the error strewn Huffington Post piece which insisted that doubling the wages of McDonald’s workers to $15 an hour would have only a minimal effect on the price of a Big Mac or the dollar menu. Clare O’Connor here at Forbes describes what went on. My amusement isn’t at the errors in the calculation, nor in the way that it was subsequently re-reported. We all make errors at times and the important thing is what one then does: just as Mother always said, ‘fess up and try not to do it again. On which point everyone has acted excellently.

My amusement rather is about the fact that a doubling of, or a halving of, or any other change in, the wages of McDonald's MCD -0.43% workers will have absolutely no effect whatsoever on the price of a Big Mac or the dollar menu. For prices are not set by the cost of production of something, but by the supply and demand for that item.

“Doubling of labor costs will simply increase a fast food restaurant’s incentives to adopt technology like this. And if fast food wages doubled everywhere it would spur the development of these technologies even faster.

The obviousness of this point is demonstrated by the way in which Apple AAPL -1.42% gets its kit manufactured in China. There’s, as we all know, some 250,000 people working at Foxconn to make all that shiny shiny gadgetry. They’re paid $400 to $500 a month to do so. If all that manufacturing were done in the US people would be being paid $2,000 to $3,000 a month for the job: but there would be many fewer of them and many more machines.

 

[AmazonTania]

McDonalds have increased their prices for surging commodity cost. Why would it be any different for wages?

 

[Immanuel]

In theory, I would agree. However, if we artificially raised the wages of McDonald's employees (and only McDonald's in this industry) then the employees of Jack-in-the-Box, Wendy's, Burger King etc. will start seeking employment at McDonald's. Eventually the wages at these other joints will creep up to compete and the prices of a Burger anywhere will increase to compensate the risk-takers. It may take a few months, but eventually it will happen.

Immie