The cheeseburger economics of the minimum wage

When talking about raising the minimum wage, opponents sometimes claim that a higher minimum wage will raise the prices of goods, especially in labor-intensive industries like restaurants. This is sometimes accompanied by a jab such as “enjoy paying $20 for a cheeseburger.” However, when actually analyzing the prices of cheeseburgers — specifically Big Macs — Oklahomans already pay more than diners in some of our neighboring states with higher minimum wages. While raising the minimum wage will likely result in extremely modest price hikes, the cost of labor is only one of many factors that go into business owners’ pricing decisions. Raising the minimum wage will not make burgers unaffordable but will be a crucial support to our low-income families and state economy as a whole.

We pay more for Big Macs than some of our neighboring states — and countries — with higher minimum wages

Despite living in a state that’s tied for having the lowest minimum wage at $7.25 per hour (the federally mandated minimum), Oklahomans pay the second-highest price for Big Macs out of all our neighboring states, according to a 2021 analysis from Restaurant Business Online. While there will be price fluctuations between individual markets, a spot check of prices found that when comparing Oklahoma City Big Mac prices to prices in metro areas in our four neighboring states with higher minimum wages, OKC residents pay more for Big Macs than three of them. In Little Rock, Arkansas, where the minimum wage is $11 per hour, you can get a Big Mac for 50 cents cheaper than in Oklahoma City. In Denver, Colorado, which has the highest minimum wage of our neighboring states at $12.32 (indexed to inflation), the cost of a Big Mac is only 20 cents higher than OKC. Even in Denmark, where McDonald’s workers are paid approximately $22 per hour on average- —  three times Oklahoma’s minimum wage — they pay approximately 9 cents less for Big Macs on average than Tulsa residents do. While none of these price differences should be interpreted to mean that the minimum wage has no effect on fast food prices, it clearly demonstrates that a higher minimum wage alone is not enough to cause the price of Big Macs to skyrocket.

Research on association between minimum wage and prices shows price increases are modest

What is the relationship between minimum wages and prices? Different studies find different estimates of the exact price impacts of raising the minimum wage, but they generally conclude that any price increases will be modest. The Federal Reserve Bank of Boston found that a 10 percent increase in the minimum wage (73 cents in Oklahoma’s case) would increase overall prices (counting all goods, not just fast food) by 0.3 percent. Following this math, if Oklahoma were to raise the minimum wage to $12 per hour (an approximately 66 percent increase), we would pay about 2 percent more for Big Macs ($5.19 compared to $5.09). 

A Purdue University study, which looked at the minimum wage’s impacts on fast food prices, found that raising the minimum wage to $15/hour would increase prices by 4.3 percent. Translating this into state Big Mac prices, this would mean Oklahomans would pay $5.31 per burger if we were to adopt a $15/hour minimum wage. 

Measuring food prices specifically or overall price level?

Source

Measuring food prices specifically or overall price level?

Raising the minimum wage to

Percent increase in minimum wage

Original price of Oklahoma Big Mac

Estimated price of Oklahoma Big Mac with raised minimum wage

Boston Fed

Overall

$12/hour

66%

$5.09

$5.19

Purdue University

Fast food

$15/hour

107%

$5.09

$5.31

University of Leicester

Overall

$12/hour

66%

$5.09

$5.22

University of Leicester

Food

$12/hour

66%

$5.09

$6.43

On the high end of the estimates, a 2004 literature review from the University of Leicester looking at both overall price increases and food price increases found that raising the minimum wage by 10 percent would increase overall prices by at most 0.4 percent and food prices by no more than 4 percent. Applying the impacts on food prices to a minimum wage increase to $12 per hour would mean that the overall costs of goods and services would increase by less than 3 percent, and the price of a Big Mac would increase by about 26 percent to $6.43. While this is a noticeable increase, it is the upper limit out of all the studies included in the literature review and therefore represents the most severe possible increase. As the author notes: “The overall reading of the above evidence on price effects, together with the evidence in the literature on wages and employment effects is that the minimum wage increases the wages of the poor, does not destroy too many jobs, and does not raise prices by too much.”

Raising the minimum wage will be a lifeline to our low-income families with little impact to our wallets

The-cost-of-goods-and-services-has-increased-by-almost-a-quarter-since-2009-via-Oklahoma-Policy-Institute

While raising the minimum wage would not likely be a big deal to financially stable Oklahomans, it would be a lifeline to the one in three Oklahoma workers earning less than the living wage for a single person, as well as more than half of fast food workers, who are paid so low that they must rely on public assistance. Since the minimum wage was last raised in 2009, the prices of goods and services have increased by 24.2 percent. Setting a minimum wage that helps families sustain themselves would support our state’s belief in the dignity of work. Currently, our unwillingness to adjust the minimum wage means we as taxpayers end up paying more in public assistance and have worse mental and possibly physical health outcomes as a state. Increasing the minimum wage would strengthen our communities and allow low-income Oklahomans to thrive. And given the pandemic’s outsized impact on low-wage workers, this is a decision Oklahoma lawmakers should make sooner rather than later.

ABOUT THE AUTHOR

Josie Phillips joined OK Policy in June of 2020 as a policy intern and transitioned into a policy Fellowship with a focus on labor and the economy in August 2021. She graduated from the University of Oklahoma in 2020 with a double major in Economics and International & Area Studies along with a minor in Spanish. While she has dabbled in working with various non profit organizations and a political campaign, her most treasured experience before entering the public policy field has been her time volunteering with the Women’s Resource Center, a rape crisis center and domestic violence shelter in Norman, Oklahoma. On the side, she enjoys reading, constantly listening to music, and having loud opinions on the internet.

2 thoughts on “The cheeseburger economics of the minimum wage

  1. Josie, McDonald’s pays more than the minimum. The starting pay in OKC and Tulsa is $9/hour, according to Glassdoor.com, and it’s about the same in Dallas. Topeka is lower, at $8.54. The labor cost may not be the biggest part of a Big Mac price, but it’s enough to motivate McDonald’s to spend millions of dollars to automate its drive-through lanes, which will un-employ some folks who may now be happily working for the low pay plus free food and tips and other benefits including insurance and tuition assistance.

  2. Using a popular item within a product line by a company that sells millions of units per year is not an accurate reflection in the overall scope of this consideration. The affects will be realized much higher at single local eateries with a smaller reach. These locations will disproportionally receive the most significant difference.

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