Something’s not so fresh over at Subway.
How would you see the impact of a potential federal minimum wage increase? Are you concerned at all that the federal minimum wage could go up?
DeLuca: I’m not concerned. I know our stores owners are concerned.
When I started in the business, the minimum wage was $1.25. I’ve seen an enormous number of wage increases. Basically it applies evenly to everyone in the business. This increase would impact Subway plus every other competitor so it would not put any brand at a particular disadvantage. It might have a slight impact on consumers because what’s going to happen is a wage increase will happen and all the restaurant owners will have to recoup that somehow, usually through a price increase. It might make eating out at restaurants have a little bit less competitive advantage compared to supermarkets.
Over the years, I’ve seen so many of these wage increases. I think it’s normal. It won’t have a negative impact hopefully, and that’s what I tell my workers. I always have whenever we come across these things. I personally think that if I were in charge of the government, I would index the minimum wage to inflation so that way everybody knows what they can count on. The employees know they’re going to get increases on a regular basis. The management knows that they’re going to have to pay a little bit more with inflation. It just seems much more sensible and fair to me. I don’t know why it hasn’t been done like that. I would do it that way because in the long, long run it’s going to approximate the change in inflation.
Is this guy for real?
Fred DeLuca sounds like he’s ready for government work with the way he talks about the minimum wage.
Taking increased costs first, DeLuca concedes that the consumer will get the short end of the stick on the deal because prices will have to increase to offset the increased minimum wage. Sure, let’s mandate salaries of $10.10 per hour for sandwich artists — just be prepared for $8.00 Footlongs!
I wrote about the fact that so many who obsess over increasing the minimum wage tend to ignore the fact that price increases will offset (if not worsen) the amount of goods that a dollar can buy. If you increase the minimum wage by 30%, but the costs of goods goes up by 30%, the wage earner will be no better off. What happens when the cost of goods goes up by more than 30% when wages go up by only 30%? Wages should be increased as a function of productivity. If one is more productive and generates more value for his employer, wages should either go up or the worker should be able to make more at a competitor. Of course, the left never wants the poor to leave that socioeconomic status, which is why they advocate for an increased minimum wage rather than policies which permit employers to create jobs which pay more than minimum wage.
Indexing minimum wage to inflation is a terrible idea because government policies stoke inflation. Although the CPI is relatively “stable” (i.e., less than 2%), the costs of food, fuel, health care, and education (four staples for Americans) all have risen more than what the CPI might indicate over the last decade. Are we ready for a $20 minimum wage and the costs associated with that?
The other issue with raising the minimum wage is that it doesn’t just increase the costs for minimum wage earners–it increases costs for everybody. Someone who earns $10.00 an hour now (which is several dollars over minimum wage) will get a ten cent wage hike but will face increased costs of greater magnitude.
Now, some might not be sympathetic to people like Warren Buffett paying $8.00 for a footlong sub as opposed to $5.00. He can afford it, right? Well, yes. But this leads us to a second problem with minimum wage hikes. They can be used to keep smaller competitors out of the market.
So Subway wants to ensure that labor costs go up for small biz.I’m shocked that a large entity would use policy to push out new entrants.
— Amy Otto (@AmyOtto8) May 9, 2014
The CEO of Subway, a restaurant corporation that is as big as McDonald’s, thinks that increased costs will affect all restaurants equally? That’s economic illiteracy (whether it’s willful or not).
Big competitors absorb costs better than small competitors because they have more revenue than small competitors. I wrote a post not too long ago about how we need more banks, not fewer (much to Matt Yglesias’ chagrin). Dodd-Frank sets barriers to entry and makes it more attractive for banks to consolidate, creating fewer banks that are larger. Making the cost of doing business more expensive in the restaurant business, for example, discourages new entrants to the industry because the costs of doing business (at some point) become prohibitive. Established market participants with dedicated customer bases who are forced to raise prices (along with their competitors) will be able to compete, at the expense of the consumer.
PFoL contributor Loren Heal says it best when he says that a minimum wage is essentially outlawing work agreements below a certain pay level. I’ll go a step further. The minimum wage is simply the government creating barriers to entry into the workforce. If this was two competitors colluding, it would be illegal under anti-trust laws. Since the government is involved, it is permitted.
In sum, we should focus on reducing regulations to permit businesses to hire folks at higher wages in response to increased, organic demand and productivity. Wages which increase in this manner are better wages.
And, as always, free markets are better markets.