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Could QSRs survive a $15 minimum wage?

A $15 minimum wage wouldn’t be cheap for the country’s quick-service restaurant chains. But at least according to one study, operators can make the wage work without resorting to staff cuts or smaller profits.

According to the study, by a group of economists at the University of Massachusetts-Amherst, an increase in the federal minimum wage would cost U.S. fast-food restaurants an additional $30.7 billion in extra salary.

But, the study says, restaurants could survive such a hike without sacrificing jobs or profits, through a combination of higher prices, higher sales and lower turnover.

The study comes from the Political Economy Research Institute, a think tank with a goal “to make workable science out of morality.” Its studies have included ranking the nation’s worst corporate polluters and has done some work on living wage issues.

And any study on the minimum wage and its impact should be taken with a grain of salt. The results of those studies tend to vary, and this would be a big, national increase. 

The potential impact of a higher minimum wage is a matter of intense debate. As of January, 29 states have minimum wages above the federal minimum, according to the National Conference of State Legislatures, and voters in four states approved ballot measures to increase their minimum wages and a fifth, Illinois, did so as an advisory measure.

The PERI study looks at how restaurant companies could handle a $15 minimum wage — not whether such a wage would actually lead to job losses. It analyzed a scenario in which the federal minimum moves to $10.50 an hour within one year, and to $15 an hour three years later.

Suffice it to say, doubling wages would be huge, given that QSR workers generally don’t make much more than $15. Wages would go up by $30.7 billion in that scenario, according to the study, from $52.3 billion to $83 billion. That increase would represent 14.2 percent of the $232 billion in QSR industry sales in 2013.

It’s difficult to generate profits when one of your biggest cost lines goes up like that.

But the study also says the industry would save a total of $6.7 billion through lower turnover. A $15 minimum wage would mean a 29 percentage point reduction in turnover from the QSR sector’s generally awful 120 percent turnover rate.

It also estimates that a combination of higher sales through economic growth and price increases would generate $39.5 billion in additional revenue that it says would be more than enough for the industry to retain its 5 percent profit margin — without any decrease in employment.

The study did factor into a predicted decrease in demand if prices were to increase 3 percent a year over five years.

Restaurants are big targets for protesters pushing for a higher minimum wage because the industry employs 47 percent of workers who earn at or below the federal minimum of $7.25 an hour, according to the study.

Pressure to increase wages is an important topic to restaurant operators because theirs’ is a labor-intensive industry. About 24 percent of QSR sales go to labor costs. That’s about double the rate of labor costs for retail food outlets, according to federal data.

That’s where many customers would go if they think the prices at restaurants have grown too rich. And operators worry that higher labor costs would force them to raise prices and thereby reduce demand — which could lead to profit pressures and staff cuts. 

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