Big Mac Attack

In the face of walkouts by fast-food employees, and negative publicity over the “budgeting advice” provided by McDonalds to its workers, opponents of a higher minimum wage have  gone into high gear, warning that jobs will be lost and prices will rise precipitously if the minimum wage is increased.

What–they ask in ominous tones–would a Big Mac cost if the workers preparing and serving it made 15.00 an hour?

As it happens, we know the answer to that.

The Economist Magazine created and maintains a “Big Mac Index,” making it possible to compare the price of Big Macs in different countries with different wage scales. In Australia, where the minimum wage is 15.00 and the minimum wage for fast food workers is, for some reason, slightly higher–on July 1st, the fast food rate went up from $17.03 an hour to $17.98 an hour–a Big Mac costs 70 cents more than it does in the U.S.

Salvatore Babones is a senior lecturer in sociology and social policy at the University of Sydney in Sydney, Australia, and an associate fellow at the Institute for Policy Studies in Washington, D.C.. As he explained in a recent interview, 

What you get for that in Australia is you get to go to a fast food restaurant where you know that everybody behind the counter has full health insurance, everyone behind the counter gets a really good wage, they’re treated well, and they have, you know, options in life…

What about the argument that raising the minimum wage necessarily means fewer jobs?

There’s a theory that raising the minimum wage will result in fewer jobs. And that theory seems to make intuitive sense, that when wages are higher, you know, people hire fewer people. And in isolation that would be true. There’s an assumption economists like to make called ceteris paribus, which means all other things remaining equal, this would happen.

 But all other things are never equal. For example, if you raise the minimum wage, people make more money. That’s the first thing that’s not equal. As people make more money, they spend more, they pay more in taxes. The entire character of the economy changes.

As Babones points out, study after study confirms that no matter how “intuitively” persuasive the argument that raising the minimum wage will depress employment, it is an argument that has no empirical support. In the real world, it doesn’t work that way.

Interestingly, Australia was also the only rich country to dodge the Great Recession.