Topix Underground

"...Fast-food restaurants in California are laying off workers to prepare for the $20 minimum wage hike..."


"..This isn't how math works. People don't actually employ more workers than is required to prepare and sell the food they can sell.

If you keep your prices the same and do the same amount of business and cut too many people you crash out and die when when you can't deliver an acceptable product or experience and you either lose business until you can keep up or hire and recover.

Accepting a newer lower level of business isn't a great option because

A) Some of your prices are fixed like rent or sticky and don't decline as fast as your gross income

B) Your existing investment and debt are the same but your rate of return on that is semi permanently reduced if you can't acquire new business

What actually happens is that prices go up. Increased price decreases quantity demanded. Lets consider how much it ought to go up. We'll calculate it per $1000 for easy math and we'll start with 2022/2023

It's normal to spend about 30% or 300 of our 1000 on labor. Prices have already in the last year gone up substantially in the last year alone. If we look at prices at major chains they have gone up 39–100% in the last 10 years MUCH faster than inflation.

https://fox59.com/news/national-world/prices-at-these-fast-food-chains-increased-the-most-in-10-years/

The next component we ought to look at is the CA minimum wage. It's $16 and the truth is its hard to get anyone but children and drug addicts for minimum. You are also going to need people like managers and shift supervisors who are going to want at least a few bucks over minimum. Lets ignore that. The most your spend on labor is going up is 25%.

Lets consider the lay of the land. Your a fast food manager. You've jacked up your prices up 10% in the last year alone. You are grossing $1100 instead of $1000 and your laborers want $420 instead of $300

Do you downsize your business and accept a permanent cut in profit while your rent and electricity go up?

Do you blame the minimum wage and jack up prices another 5% knowing everyone else is doing the same adjudging that the quantity demanded wont change much now making $1155 - 420 and making more than you did in 2022/23.

The actual challenge with fast food is market saturation and the fact that its the business of choice for high school drop outs and recovering drug addicts who haven't ruined their credit rating yet not minimum wage.."