Employees in the fast food industry, before anything else, know that they aren't going to make lots of money. Employers in this part of the restaurant world are in business to provide convenience at low prices rather than creativity or elegance. The wages they offer are a reflection of this. Yet the Service Employees International Union and an allied New York-based nonprofit coalition, Fast Food Forward, are bent on boosting these workers' wages in dramatic fashion. Last Thursday, August 29, the day after the 50th anniversary rally of the 1963 March on Washington, these activists led walkouts and demonstrations in dozens of cities in hopes of winning a $15 an hour minimum wage and union recognition for fast food employees. The nearly year-long campaign claims to seek justice. Yet if successful, the likely result would be higher unemployment or at least underemployment.
Union Corruption Update this February and again last month analyzed in detail the growing phenomenon of nonprofit groups known as "worker centers." These nonunion organizations, now numbering 200 or more across the nation, engage in union-style organizing and picketing at nonunion work sites, but in ways off-limits to unions under federal law. Because these centers can rouse activism from among hard-to-reach populations, especially Third World immigrants of limited English-speaking ability, unions see them as potentially useful fronts and sources of potential members. In some instances, unions form these centers. The Organization United for Respect at Walmart, for example, from the start has been an adjunct of the United Food and Commercial Workers; Restaurant Opportunities Centers United (ROC) is a project of UNITE HERE; and Working America is a front for the AFL-CIO. In each case, a nonunion organization tries to organize workers, but without playing by union rules.
Fast Food Forward, the driving force behind the fast food restaurant walkouts, is a major participant in this network. The group, based in New York City, operates as a branch office of the Service Employees International Union (SEIU) all but in name. It scored a major public-relations success last November during the Thanksgiving/Black Friday weekend by persuading employees at dozens of local Burger King, KFC, McDonald's and Taco Bell outlets to walk off their jobs for a day. The intent was to raise pay and benefits for an estimated 50,000 fast food workers throughout New York City. Fast Food Forward mobilized another one-day strike by about 400 workers at 70 restaurants on April 4; at least three establishments closed their doors due to lack of manpower.
SEIU President Mary Kay Henry expressed support for the strikers in a prepared statement:
People who work for large, profitable corporations like those in the fast food industry should be paid enough to afford basics like housing and groceries for their families. But the reality is that hundreds of thousands of fast food workers need food stamps and other help from public assistance and private charities just to tread water in this economy.
Fast food workers, like workers at Walmart and workers in airports, are taking a brave step forward together to call for a living wage and a voice at work so they can lift themselves out of poverty and contribute more to the entire economy. We all stand to gain when workers can better afford to drive the economy forward.
Fast Food Forward isn't just a front for the SEIU; it's also a rebirth of sorts of the radical nonprofit network, the Association of Community Organizations for Reform Now, or ACORN. Founded in 1970 in Little Rock and based for most of its 40-year existence in New Orleans, ACORN during its peak years had more than a thousand chapters in the U.S. and elsewhere representing some 400,000 dues-paying members. The group won a large dose of unwanted notoriety, well-documented by Union Corruption Update during the course of 2008-10. Rep. Darrell Issa, R-Calif., led his own investigation in 2009, concluding ACORN had been structured as a criminal enterprise, hiding financial dealings via a complex web of subsidiaries and affiliates. Soon after, spurred in part by web postings of embarrassing hidden-camera sting operations, Congress voted to cut off appropriations to the group and its subsidiaries. In 2010, ACORN leaders came to the decision that they would be better off if they cut their losses and formally disbanded.
The Service Employees International Union, which represents more than 2 million workers, long had worked with ACORN. Some 30 years ago longtime ACORN President Wade Rathke founded SEIU Local 100, which represents thousands of workers in Arkansas, Louisiana and Texas. And about that time ACORN activists in Chicago founded SEIU Local 880, a health and home care workers union that eventually grew to at least 75,000 members in the Midwest; the local several years ago renamed itself SEIU Healthcare Illinois Indiana. On September 30, 2009, when ACORN fast was becoming a liability to their faithful, then-SEIU Secretary-Treasurer Anna Burger, testifying before a subcommittee of the House Financial Services Committee, stated: "SEIU has…cut all ties to ACORN." Formally speaking, that was true. But this looked like a case of "plausible denial." The union in recent years had been routing sizable sums of money to various ACORN affiliates, which in turn had been moving these funds among related operations. Often these groups shared the same mailing address, so as to frustrate investigators. It had all the appearance of money laundering.
ACORN may be gone, but many of its key operatives are still on the case. And they know the value of rebranding. A number of former ACORN chapters across the U.S. have reorganized under new names. Arguably most important among them is New York City's operation, which sometime around early 2010 morphed into New York Communities for Change (NYCC). Old ACORN habits, however, are hard to break. The mailing address for NYCC – 2-4 Nevins Street, 2nd Floor, Brooklyn, NY 11217 – is identical to that of another organization, the Fast Food Workers Committee. Whatever this "committee" does, it's fair to say that it functions as an alter ego of NYCC. That raises the question: Where is NYCC getting its money? If you guessed the Service Employees International Union, go to the head of the class. SEIU listed on its most recent U.S. Labor Department LM-2 financial reporting form that it provided $2,447,126 for NYCC to cover "support and organizing." The United Federation of Teachers, New York City's affiliate of the American Federation of Teachers, contributed $353,881 during August 1, 2011-July 31, 2012. A Washington, D.C.-based monitoring group, the Center for Union Facts, argues that the Fast Food Workers Committee is simply Fast Food Forward under an assumed name. In effect, it's a front for a front. And fronting these days is an activity with lots of growth potential.
Worker centers best can be understood as the overlapping of union activism and street activism. And in the fast food industry, unions have found a ripe target. It's an industry projected to reach $191 billion in domestic revenues in 2013. The largest firms, such as McDonald's, Wendy's/Arby's Group and Yum! Brands Inc. (owner of the KFC, Pizza Hut and Taco Bell brand names), are publicly-traded corporations, answerable to shareholders. Their top executives, under pressure to show a profit – and they do – are amply compensated. Yum! Brands CEO David Novak, for one, received a combined roughly $50 million in total compensation during 2010-12. Union membership at such firms is virtually nonexistent, especially in major cities, where work forces increasingly consist of first-generation Hispanic and Asian immigrants with little formal education or English-speaking ability.
Not even the most skillful public-relations spinmeisters will claim the fast food industry offers haute cuisine. The term "fast food" is pretty much self-explanatory. Menus are limited; service orders are taken by non-tipped counter employees; the food takes a short time to prepare and serve; and workplace procedures are standardized and enforced by company headquarters. In other words, these are not the kinds of places where creative budding restaurateurs and chefs want to wind up. It's where they start out – if they work there at all. But these features offer two supreme advantages from the standpoint of the consumer: They provide convenience and low prices. And that means revenues.
Low prices, however, require low operating costs. And given that labor makes up roughly a fourth of a restaurant's operating costs – it's a rule of thumb – management is perpetually looking to economize in that area. People who apply for jobs at such restaurants know they're not in it for the money or the prestige, whether or not they seek a career in the restaurant industry. They're in it to gain work experience and pay household bills. The work is high-speed, high-pressure and low-paying. How low? According to the employer rating site, Glassdoor.com, the average pay for a cashier at McDonald's is $7.69 an hour; for a crew member at Taco Bell it's $7.76 an hour. Overall, workers in food preparation earn $8.78 an hour, according to the Bureau of Labor Statistics, fast food workers make $8.80 an hour. And the raises, barring promotions, are modest at best. This compensation isn't enough on which to raise a family, even outside higher-cost urban areas. Not that there is much of a wage premium there either. According to the New York State Department of Labor, the median hourly wage for food service and prep workers in New York City is $8.90. Sizable numbers of workers are expressing frustration lately.
Labor activists are using this latent anger as the raw material for building cadres for achieving a $15 an hour minimum wage. Jonathan Westin, a former ACORN organizer who heads NYCC and Fast Food Forward, has great optimism about the possibilities. Sounding much like a union true believer, he explains:
For so long, a lot of labor and other folks have avoided these industries because they were too low wage, too hard to organize, and now our economy has become an economy of mostly low-wage service jobs. It was the same thing when they were organizing factories in the early 1900s. They organized those factories and lifted an entire segment of the population into the middle class. This could happen here. We could lift an entire segment of the U.S. population out of poverty and into the middle class.
Stephen Lerner, a longtime SEIU activist who was an architect of that union's Justice for Janitors campaign nearly 30 years ago, believes that one-day walkouts can be an effective tool for fast food workers to obtain raises and union recognition. "The old strike," he notes, "you used to go out and stay out until you win. But the workers now are so angry and mistreated, and the way you express that is through short-term walkouts." This campaign has spawned a host of ad hoc groups such as Low Pay Is Not OK, Stand Up KC, Raise Up Milwaukee, Fight for 15, Rally for 15, Flint-15, Central American Resource Center, MassUniting, and Atlanta Jobs with Justice. All are willing to step up the aggression level to achieve their goal of a $15 an hour minimum fast food wage.
But this is easier said than done. To be effective, a strike, at least a lawful one, has to cause major disruptions in sales and profits of the targeted employer(s). That would require weeks and even months of staying off the job. And the fast food industry, by its nature, has high rates of employee turnover. From an unsatisfied worker's perspective, it's easier to find work somewhere else. If strike organizers resorted to unlawful activity, from creating nuisances on parking lots to blocking building entrances to physically threatening replacement workers, their most likely achievement would be to get people arrested.
The most realistic way Fast Food Forward and similar worker centers can achieve even a partial victory is through a hike in the federal minimum wage, now $7.25 an hour. Several times this year, including during his State of the Union address, President Obama has called upon Congress to raise the minimum to $9 an hour. Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., have gone further, co-introducing in March the Fair Minimum Wage Act of 2013 (H.R. 1010). The measure, based on a section of last year's Senate proposal, the Rebuild America Act, would: 1) raise the federal minimum wage to $10.10 an hour in three steps of 95 cents each; 2) index the minimum to rises in the cost of living; and 3) raise the minimum wage for tipped workers from $2.13 an hour to 70 percent of the full minimum. Labor Secretary Thomas Perez also is taking an advocate's role in the wake of last Thursday's one-day multi-city walkout. "For all too many people working minimum wage jobs," he remarked, "the rungs on the ladder of opportunity are feeling further and further apart."
Yet there are certain considerations that enthusiasts are overlooking. First, states and localities have the authority to set a minimum wage above the federal level. And they use that authority, too. At present, 18 states plus the District of Columbia have enacted rates exceeding the federal rate, with Washington State having the nation's highest at $9.19 an hour. Among local jurisdictions, the City of San Francisco currently leads the way at $10.55 an hour. Second, in recent years only about 3 percent of all American workers have been paid the minimum wage. According to Bureau of Labor Statistics data, most are secondary wage earners within a given household. And a clear majority of these households are above the poverty line. Roughly half of all minimum wage employees are under the age of 25 and half are over. Yet even among the older half, about a fourth voluntarily work part-time and only a third are full-time, full-year employees. Third, employers are likely to reduce their work crews, especially those in full-time positions, in response to a sharp rise in the minimum wage. In other words, the intended beneficiaries – unskilled workers – would pay the highest price of if the minimum wage for fast food employees increases from $7.25 to $15 an hour. This last factor requires extensive detail.
Understand that what the unions and their worker center allies/fronts seek amounts to a wider application of the "living wage." Living wage laws can be seen as supercharged localized versions of the minimum wage. Labor activists and allies have been promoting them for years as an economic redistribution tool. The City of Baltimore was the first out of the starting gate in 1994, and since then, at least 140 cities, counties and school districts have enacted their own living wage ordinances. Typically they mandate an hourly wage that is: 1) set well above the federal minimum, usually anywhere from 50 percent to 150 percent higher; 2) tied to a measurable threshold of poverty for a family of four; and 3) limited in application to private-sector firms under contract with, or receiving business assistance from, a public entity. Many living wage laws also mandate health benefits.
As the living wage is an aggressive extension of the minimum wage, its economic impact, for better or worse, will be aggressive as well. It follows, then, that the impacts of the minimum wage are a good gauge to estimating those of the living wage. So one asks: What are the impacts of the minimum wage?
Through the decades, empirical researchers generally have found a negative correlation between the minimum wage and entry-level employment, especially among teenagers. A 1982 paper by Charles Brown, Curtis Gilroy and Andrew Kohen, for example, surveyed the published literature on the subject, concluding that a 10 percent increase in the minimum wage reduced teen employment by about 1 to 3 percent. During the next decade, Brown (University of Michigan), updated the study and found that of two dozen studies published during 1970-91, 19 of them recorded a percentage drop in teen employment in response to a minimum wage increase. Economists Donald Deere (Texas A&M), Kevin Murphy (University of Chicago) and Finis Welch (Texas A&M), using various data sets from 1979-94, found even when controlling for time elapse and seasonal effects, teenage employment and the minimum wage move in opposite directions. The authors concluded: "Not only is there clear evidence that past minimum wage increases have reduced employment, particularly among teenagers, but the signs also suggest that a further increase in the minimum to $5.15 would have a much greater impact on teenage labor cost, and thus on teenage employment, than any of the recent increases."
Arguably the most cited criticism of the minimum wage has come from David Neumark, a labor economist formerly with Michigan State University and currently with the University of California-Irvine, and Federal Reserve economist William Wascher. The pair back in 1992 published an article in the Industrial and Labor Relations Review based on state panel observations during 1973-89. They concluded that teenagers and young adults (ages 16-24) overall exhibited a slight decrease in employment in response to the minimum wage. In a 2006 paper for the National Bureau of Economic Research, Neumark and Wascher concluded from their review of more than 100 separate recent studies: "(T)he preponderance of the evidence points to disemployment effects." The two also published a paper in 2011 for the Industrial and Labor Relations Review, "Does a Higher Minimum Wage Enhance the Effectiveness of the Earned Income Tax Credit?" concluding from 1994-2007 state-by-state data that the minimum wage reduces employment.
In all fairness, there have been studies concluding that the employment impact of the minimum wage either has been negligible or even positive. The most frequently cited is an analysis by Princeton University economists David Card and Alan Krueger appearing in the September 1994 issue of the American Economic Review, the results of which were included in their 1995 book, Myth and Measurement: The New Economics of the Minimum Wage (Princeton University Press). Card and Krueger's study is especially significant because it focused on the fast food restaurant work force. The pair surveyed more than 400 establishments in New Jersey and eastern Pennsylvania, before and after an increase by the State of New Jersey of its minimum wage from $4.25 to $5.15 an hour went into effect on April 1, 1992 (workers in Pennsylvania, which did not raise the minimum wage, represented the control group). The conclusion:
Relative to restaurants in Pennsylvania, where the minimum wage remained unchanged, we find that employment in New Jersey actually expanded with the increase in the minimum wage. Furthermore, when we examine restaurants within New Jersey, we find that employment was higher at restaurants that were forced to increase their wages to comply with the law than at those stores that already were paying more than the new minimum.
This study proved enormously influential. Even President Clinton cited it in his 1995 State of the Union Address. But was it definitive? Evidence suggests it fell a good deal short. In the first place, the percentage of teenaged males in the labor force already had been declining for years in both states as well as in the U.S. as a whole by the time New Jersey had raised its minimum wage. Moreover, the Card-Krueger data were obtained from telephone surveys rather than actual payroll records. This led to frequent imprecision on the part of respondents regarding the time frame of employment.
More recent studies also have concluded that minimum wage hikes are benign. Economists Arindrajit Dube (University of Massachusetts-Amherst), T. William Lester (University of North Carolina) and Michael Reich (University of California-Berkeley) in 2010 published a paper based on restaurant industry data from matched contiguous counties across state borders. They concluded that state minimum wage laws have no detectable effect on employment. Dube and Reich the following year published an article with Sylvia Allegretto (University of California-Berkeley) which reported the same result. "Put simply, our findings indicate that minimum wage increases – in the range that have been implemented in the United States – do not reduce employment among teens." Yet as David Neumark and Cal-Irvine graduate student J.M. Ian Salas explained in a lengthy paper released this year for the Washington, D.C.-based Employment Policies Institute (EPI), these studies "are flawed and give misleading answers." Neumark and Salas conclude: "Neither study makes a compelling argument that its methods isolate more reliable identifying information."
The living wage, given its nature, ought to adversely affect entry-level employment even more than the minimum wage. In 1999, EPI published a study by economists George Tolley (University of Chicago), Peter Bernstein (DePaul University) and Michael Lesage (RCF Economic & Financial Consulting) on the impact of a proposed (and eventually passed) living wage ordinance before the Chicago City Council. The proposal, analyzed during 1996, called for a 79 percent hike in the minimum wage for employees of city contractors that receive municipal tax breaks. The ordinance, concluded the authors, would cost the city nearly $20 million a year, with more than 20 percent of this to be spent on administrative costs of enforcement, and would result in at least 1,300 lost jobs. Labor costs of affected firms would rise by $37.5 million. And David Neumark in 2002 published a monograph for the San Francisco-based Public Policy Institute of California, How Living Wage Laws Affect Low-Wage Workers and Low-Wage Families (see pdf). The author, having surveyed living wage laws in cities across the country, concluded that while wages of low-income workers rise, overall employment among low-skilled workers falls. "These disemployment effects," Neumark wrote, "counter the positive effect of living wage laws on the wages of low-wage workers, pointing to the tradeoff between wages and employment that economic theory would predict." Indirectly, he also found, these ordinances also reduce the incentives for cities to contract with private entities, thus increasing municipal employment. Public-sector unions are at the forefront of local living wage campaigns because they know their bargaining power would be enhanced.
No one study, however sound in design or execution, can prove definitively whether something works or doesn't work. Whatever the issue, from free trade to global warming, no conclusion is so "obvious" as to be granted immunity from a reality check. All researchers face built-in limitations, especially in the data-gathering process. Issues surrounding minimum/living wage laws are no exception. But the weight of evidence would lead an open-minded observer to conclude that a $15 per hour minimum wage, in lieu of any corresponding improvements in worker productivity, would cause a good deal more harm than good. There are reasons to believe this especially holds true for the fast food industry.
First, employment will fall. Face it: A rise in the federal minimum from $7.25 to $15 an hour would be enormous – more than 100 percent. Most of the fast food industry operates on tight profit margins and their top management is under perpetual pressure to meet shareholder expectations. No matter how efficient employees are, there are only so many ways to squeeze more efficiency out of them, short of naked and illegal exploitation, to make that wage worth it. If faced with paying $15 an hour (or more), restaurant management will have every incentive to cut back on staffing, hire fewer new workers and cut back on full-time workers, especially with the Affordable Care Act's health insurance mandates fully kicking in. According to the National Restaurant Association, when the minimum wage last was increased in 2007, almost 60 percent of all restaurants raised prices, more than 4 in 10 reduced employee hours, and more than a quarter postponed plans to hire new employees.
Second, forcing fast food restaurants to pay $15 per hour would push wages higher at somewhat more upscale restaurants. If McDonald's, Burger King, Wendy's and the rest started paying all their employees at $15 an hour, a whole lot of employees at moderately-priced family-style establishments with much wider menus, such as Applebee's, Chili's and TGI Fridays, would be demanding at least that amount or, in absence of such a raise, seek employment at the "fast food" establishments. And they are likely to have takers. A 1995 report by the Joint Economic Committee of Congress, among other things, concluded that increases in the minimum wage can trigger a labor substitution effect in which employers replace less-skilled with more-skilled workers. University of Chicago Nobel Laureate economist Gary Becker explained several years ago: "A rise in the minimum wage increases the demand for workers with greater skills because it reduces competition from low-skilled workers. This is an important reason why unions have always been strong supporters of high minimum wages because these reduce the competition faced by union members from the largely non-union workers who receive low wages."
Third, and arguably most importantly, fast food restaurants, especially in and around major cities, are hiring unskilled immigrants to do the work. From their perspective, this makes sense. Immigrants aren't likely to complain about being poorly paid, especially if they are in this country illegally. And their rate of turnover is likely to be substantially lower because their life possibilities are fewer. An ambitious and literate native-born high school or college student isn't likely to see work at these kinds of restaurants as more than an opportunity to make quick money and acquire experience to cite on a resume. Those thinking long-term will apply for management trainee positions as soon as possible, not remain as short order cooks or counter help. By contrast, Hispanic and Asian immigrants, especially if female and not here legally, aren't as upwardly mobile. In a real sense, the latter workers have come to assume the role of long-term teenagers. It's hardly a coincidence that trade groups such as the National Restaurant Association and the International Franchise Association, though strongly opposed to a $15 an hour minimum wage, are boosters of the massive immigration amnesty/surge bill passed by the Senate this past June. An unlimited supply of Third World workers, for them, means an abundance of potential employees willing to accept a wage and benefit package that most native-born would deem too low. As for meeting household budget shortfalls, say immigration enthusiasts, there are food stamps, Medicaid, housing subsidies and the Earned Income Tax Credit. Such benefits, of course, come courtesy of the general taxpaying public. Research has shown that public benefits usage by low-skilled immigrants with children is substantially higher than it is by the general population. Few things are quite as expensive these days as cheap labor.
Unions and their worker center partners are oblivious to this reality. They prefer to believe that immigrants of limited education, English-language fluency and American acculturation are the future of unionism. That's why they are working with ethnic activists and big business, especially the U.S. Chamber of Commerce, to promote immigration "reform" legislation whose most enduring by-product would be an acceleration of America's transformation into a "majority-minority" nation, a large portion of which would be permanently dependent upon public benefits. The notion that high levels of unskilled Third World immigration are beneficial to unions, and America, is dangerously naïve. I explained as much in an NLPC Special Report (see pdf) in 2006. The campaign by organized labor, especially the SEIU and Fast Food Forward, to supersize fast food worker wages to at least $15 an hour is misguided on any number of levels. Entry-level workers, fast food restaurant customers, and taxpayers will pay a high price.