Sacramento Chick-Fil-A Raises Minimum Wage to $17 Without Force of Government

Image: CNN Money

Before discussing the news regarding Chick-Fil-A, lets back up to a more recent event in which Seattle raised its minimum wage from $9.47/hour to $11/hour in April 2015, and to $13/hour in January 2016. The National Bureau of Economic Research came out with a study in June 2017 which concluded the effects of the wage increases:

“Our preferred estimates suggest that the Seattle Minimum Wage Ordinance caused hours worked by low-skilled workers (i.e., those earning under $19 per hour) to fall by 9.4% during the three quarters when the minimum wage was $13 per hour, resulting in a loss of 3.5 million hours worked per calendar quarter. Alternative estimates show the number of low-wage jobs declined by 6.8%, which represents a loss of more than 5,000 jobs. . . The reduction in hours would cost the average employee $179 per month, while the wage increase would recoup only $54 of this loss, leaving a net loss of $125 per month (6.6%), which is sizable for a low-wage worker.”

In other words, the study concluded what basic economic theory tells us, which is that when you artificially increase the price of labor, which is a fixed cost, then one of three things happens: (1) the employer allows the costs to eat up more of their profits (2) the employer lays off workers to mitigate the losses or increases prices (3) the employer will refuse to hire any more workers to prevent costs from rising further, which is still motivated by the first point. The second and third points are also much more probable than the first.

In layman’s terms, these costs are inevitably dispersed, and more often than not at the expense of the worker, as the employers and customers happiness will always take precedent over the employees.

Those on the left are always the first to claim that business owners are greedy and only care about making profits, but are dumbfounded when these same business owners maintain their profits at the expense of their employees. It would be a miracle if they ever followed their own logic, especially when the empirical evidence contradicts their intentions.

Fast forward to today, and we find a Chick-Fil-A owner from Sacramento, California that will raise the minimum wage of his store to $17 beginning June 4th. The article quoted a spokesperson who stated “Chick-fil-A restaurants are individually owned and operated. . .wage decisions are made at the local level,” so when assessing the owner’s decision I’ll mention as a personal note that they are free to do whatever they want to do. The problem, however, is that influence comes with responsibility, and it would be a travesty for other chains to attempt this hike without first considering that Sacramento is a wealthy city, though not completely above average.

Also take into consideration that the per capita income of individuals living in Sacramento was $32,896 according to data from 2016, meaning that a full-time worker that works an average of 2,080 hours per year would earn a little over $15/hour after taxes, while the minimum wage in Sacramento is currently set to $11/hour before taxes for businesses who employ more than 25 workers; it’s supposed to rise a dollar a year till it reaches $15/hour in 2022. We just noted that on average workers already make that amount with the minimum wage in place, and it’s also forgotten how much money is lost in wages due to the income tax alone. $17 will result in a bigger paycheck, but it will also result in more taxes paid, nevertheless the higher prices paid come checkout time.

Overall, this will be an interesting case study for the realm of economics to observe. We will revisit this when more data becomes available in the future, and for this single business alone the owner may be able to stay afloat given how much revenue they bring in,  but if more Chick-Fil-A’s follow this trend then based on past experience we can expect  less workers to be hired, or that many will be laid off or see a decline in their wages.