A Battle for the Wages

In the raging national debate over raising the minimum wage, franchise businesses come up a lot. The franchising industry is where you’ll find fast-food restaurants paying a teenager $7.25 an hour for 12 hours a week, and with that, tons of objection to a mandatory wage hike. 

But the majority of minimum wage earners in the U.S. are not teenagers, but rather adults who don’t make a living wage. That’s what makes this such a hot-button issue that touches on equality, worker’s rights and even the nature of capitalism itself. 

1851 Franchise spoke to Matthew Yglesias — Vox co-founder, author of economic and political blog Slow Boring and “One Billion Americans,” and one of the best economic pundits and “explainers” of his generation — to figure out how a minimum wage hike might play out for the franchising industry. Yglesias also shared insights on how small business owners can make their voices heard on this important issue. 

1851 Franchise: Do you think we’ll see legislation around wage increases soon, and what form would it take? 

Matthew Yglesias: I think that there probably will be a minimum wage increase soon. Increasing the minimum wage polls extremely well. All the Democrats are for a minimum wage increase and several Republicans have already come to the table with ideas that involve a wage increase. Trying to connect that to the COVID-19 relief bill freight train didn’t work. Politically, Congress still needs to hash out some disagreement among themselves, but there are clearly over 50 senators who think that $7.25 is too low. 

1851: The National Restaurant Association says the wage increase would cause layoffs and would hurt an industry that’s already been devastated by COVID-19 and pandemic lockdowns. How do you expect it to play out for small businesses?

Yglesias: I think the specific thing you note about how difficult the pandemic has been for restaurants is part of the reason why attaching the wage increase to a COVID-19 relief bill didn’t work. If the economy is looking better 12 months from now, the argument for an increase gets stronger. 

A large increase in the minimum wage is a big deal for the foodservice industry. Small business owners think about it personally: “What if I had to double how much I pay my entry-level staff? That would be disastrous.” But if you look at the data, the reason why businesses tend to ride out minimum wage hikes just fine is because everyone has to increase pay, not just you individually. You see adjustments on different marginal prices go up, real estate value might go down. There will be less turnover in the store because the job becomes better. You’ll get more applicants, so it’s possible to adjust staffing. But, doubling the wage in the middle of the pandemic would be very challenging. 

1851: What do you think the effective advocacy has been for raising the wage?

Yglesias: People really believe the economy needs to work better for everyone, including people with less formal education. Yet, there continues to be a fair amount of skepticism about the government. One reason the minimum wage hike is so appealing is it does what most voters want — it helps people who are struggling, and doesn’t require you to have faith that some new government agency will do something. The enforcement is simple, and we’re familiar with the minimum wage. Ballot initiatives to raise the wage have gone through in Florida and Missouri — places that are quite conservative. 

Fundamentally, the electorate believes that full-time workers should not be living in poverty. Right-of-center economists have a lot of technocratic ways to address that, but there’s never been a political motivation to achieve those standards. 

1851: So the Earned Income Tax Credit, for example, would help workers keep more of their wages without raising the minimum wage, but nobody is out marching for an increased EITC. Is that what you mean? 

Yglesias: Not just that nobody is out marching for an EITC increase, but that the Employment Policies Institute, which is mostly restaurant people, always says that we should increase the EITC. But, when Republicans were governing and passed a major tax reform in 2017, they didn’t pass an updated EITC. They didn’t deliver the thing that the industry said is its preferred way of accomplishing a real wage increase for workers, so now you end up with Democrats doing things their way, which I agree is less industry-friendly. But, if the business-friendly party doesn’t deliver, eventually the less business-friendly party will.

1851: I’ve never spoken to a small business owner who wouldn’t like to pay their workers more, but they all say their hands are tied by other costs and commitments. What would effective advocacy for small business owners worried about wage hikes look like? 

Yglesias: I think the question is: Can small business owners show they are advocating for other solutions? Are they not just raising an objection, but offering a real thing? When was the last time you as a small biz owner contacted state legislators and asked them to create a state wage subsidy? What have you actually done? The failure to do that, to find other ways of delivering for low-income people, has created a situation where you’re now squeezed between advocates that have captured the public imagination and your need to balance your books at the end of the year. 

1851: What is this going to do to the price of Big Macs? 

Yglesias: I don’t know exactly! You probably know better than me. They tend to go up. Restaurant prices are sensitive to the cost of labor, particularly where real estate is cheap. In lots of markets, and around where I live, rent is the dominant factor, and you may see the adjustments happen in that dimension. But where labor is a dominant cost, you’ll see lots of more expensive food. 

1851: Is there an equality factor at play here? Will this hurt some groups and help others?

Yglesias: Everybody would have to adjust to higher wages, but ultimately people who have higher margins and lower labor costs wind up better off. If Dems want to get rid of the sub-minimum wage for tip workers, that will become very challenging for people doing table service. Some of the newer fast-casual restaurants, where you’re selling better stuff, works better. Anyone who is on the cutting edge of kiosks, the things that reduce the labor intensify of the product are going to benefit, as is anyone who is good at being flexible. Nobody likes to change up how their lineup functions, but when you see the big costs, people will make changes.

1851: Do you see a higher minimum wage as an incentive to cut jobs in favor of automation? 

Yglesias: I think it’s probably true that it pushes you towards more labor-efficient models. Whether that’s good or bad across the whole economy is an open question. It seems like it’s pushing the pace of innovation in the economy. If businesses are moving productivity forward, that can be a good thing. The biggest franchisors will have the advantage there because they can quickly roll out kiosks, but the smaller ones can be nimbler. I think it’s definitely true that a minimum wage increase raises the benefits of finding ways to do automation. 

1851: You joked about raising the minimum wage to $100 an hour before, thoughts on that now?

Yglesias: At a certain point, you’re just talking about inflation. If you have a $100 wage then everyone’s wage goes up everyone's price goes up. I think it’s a fun thought experiment to think about, not a super-practical suggestion.