A $15 minimum wage for fast food workers would raise the price of a Big Mac by 17 cents

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The conservative warning that minimum wages are guaranteed to destroy consumer purchasing power by forcing businesses to raise prices doesn’t hold up under academic scrutiny, according to a new study from Purdue’sSchool of Hospitality and Tourism Management.

Per the study, raising the minimum wage for fast-food workers to $15 would cause a small but incredibly modest uptick in prices — an increase that would be more than offset by the increase in disposable income that workers would have.

From The Washington Post‘s write-up of the study:

[Researcher Richard] Ghiselli used data from both the National Restaurant Association and Deloitte & Touche to estimate how much fast food companies would need to boost sales given varying changes in the minimum wage. Assuming the industry maintained its current profit margin of 6.3 percent — which, to be fair, is fairly slim — hiking the pay floor at fast food restaurants to $15 an hour would mean just a 4.3 percent increase in prices.

If that increase were applied universally across McDonald’s menu, the price of a Big Mac would go up by a whopping…17 cents.

The effects of a $15 minimum wage would, of course, vary by location, as wages are typically higher in major metropolitan areas than they are in smaller towns. The paper estimated the average price increase based on the current median wage in the fast food sector ($10.64 per hour), but obviously a store currently paying its workers an average of $9 per hour would raise prices more than a store that pays $12 per hour to respond to a $15 minimum wage.

Burger and fries via Shutterstock

Either way, the data suggest that businesses would be able to handle a significant minimum wage increase without being forced to raise prices to uncompetitive levels. What’s more, the claim that employers would respond to a higher minimum wage not with price increases, but with employment cuts, is tenuous at best. Businesses require a certain number of employees to operate, making it more difficult to adjust employment than it is to adjust prices in response to changes in wage laws.

As I’ve written before, the case for raising the minimum wage for fast food workers instead of everyone is political and economic at the expense of moral. If McDonald’s workers are entitled to a living wage, why aren’t workers at Gap? That said, the fast food sector employes roughly half of our country’s minimum wage workers, suggesting that the biggest area of opportunity for wage growth — short of congressional action that will never happen — is in the fast food sector on the state and local level.

And there economic arguments against doing so are becoming less compelling by the day.

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