Hike likely in minimum wage - and fast-food prices

Down in Washington, lawmakers are scrambling to raise the minimum wage. Down at your local fast-food restaurant - or the neighborhood breakfast/doughnut shop - proprietors may soon be raising the price of your scrambled eggs to pay for the increase, which is increasingly expected to become law. ``If Congress raises the minimum wage from $3.35 to the $4 range, the fast-food and restaurant industry will probably raise its prices somewhat. We're talking about a 2 percent to 3 percent increase,'' says David Calabro, a food-industry analyst with Fidelity Investments in Boston.

But that does not mean, says Mr. Calabro, that the price of all fast-food products would go up that much. More likely, he says, the increase would be spread among a broad range of goods. At McDonald's, for example, that might mean a little extra cost for French fries, a little extra for a Big Mac, and so on.

A price increase ``is not a positive for the fast-food industry,'' says Barry Ziegler, an analyst with Tucker, Anthony & R.L. Day Inc., a brokerage. ``It is a source of increased cost, all along the food line. But certainly, because of the recent drought in much of the United States, food prices for many items will go up anyway. So in that sense, consumers might be more receptive'' to modest price hikes resulting from an increase in the minimum wage.

Currently, some 5 million Americans earn the minimum wage of $3.35 an hour - a level most American workers would immediately reject if suggested as part of a job offer. Yet, the wage has enabled scores of untrained, unskilled, or younger people, and some women, to get jobs, while setting a uniform national standard by which hourly pay scales can be gauged.

Yet the wage has not been raised since 1981, and proponents of an increase argue that one is overdue. Critics, mainly within the business community, contend that an increase would drive up labor costs and endanger the jobs of many unskilled workers, as businesses cut employment to pay for an increase.

Either way, a new element has been added to the political equation. Vice-President George Bush, seeking to hold on to the votes of Reagan Democrats, many of whom are union members, has indicated his willingness to accept an increase in the minimum wage, provided the law recognizes a substandard ``training wage'' for new workers. Although liberals tend to oppose a two-tier wage, the fact that many Republican lawmakers now support an increase has substantially improved the possibility of a compromise, congressional aides say.

Ironically, the issue of the minimum wage has been largely overtaken in the very industry that hires so many young people and women - the fast-food and restaurant industry.

``McDonald's average wage for hourly workers is around $4.40 an hour,'' Mr. Ziegler says. ``If that's the average, some establishments are higher, some are lower. But if the minimum wage is increased, the feeling is that it would have little impact on McDonald's costs. Price increases could be spread along a lot of products. ``An increase would not be a positive,'' he adds.

At places like Dunkin' Donuts Inc., says Ziegler, the effect of a hike in the minimum wage would presumably be modest, since many of the franchises are ``owned by second- or third-generation immigrant families'' that tend to employ family members.

Laurie Lively, an analyst with Oppenheimer & Co., is skeptical about the enactment of a minimum-wage bill this year, given time constraints on Congress. But even if a bill is passed next year, she says, it would most likely not take effect until Jan. 1, 1990, thus not adding to labor costs in the immediate future.

Some analysts, in fact, believe a more significant ``labor'' issue has been overlooked in the controversy over the minimum wage.

``The big issue,'' says Calabro at Fidelity, ``is over labor availability. Many chains are concerned that they won't have enough workers on hand during the next decade.''

Thus in the New England region, he says, ``supply has dictated wages,'' with the lack of available workers pushing hourly wages well above the existing minimum wage.

Throughout the US, restaurant industry sales have been sluggish, a pattern that Ziegler thinks will continue into next year. Still, he expects that the industry will show real growth of about 2.4 percent in 1989.

You've read  of  free articles. Subscribe to continue.
QR Code to Hike likely in minimum wage - and fast-food prices
Read this article in
QR Code to Subscription page
Start your subscription today