In fast food, there’s no such thing as a free lunch

In fast food, there’s no such thing as a free lunch

Fast food strikes, unions, and the minimum wage

Media outlets report that fast food strikes organized by the Service Employees International Union (SEIU) will hit 100 cities Thursday. Stories about the strikes are sympathetic to fast-food workers: a grandmother supporting her unmarried daughter and her child is tired of working for minimum wage and has gone on strike three times before. New York City fast food workers are the lowest paid occupation in the city. The message is clear: they need more. They deserve more. It’s not fair.

In other words, to each according to their needs.

Mothers used to tell their children, “Life isn’t fair: get over it.” Today some still do. Others go on strike. Which route will produce success in the longer term?

Adam Smith famously explained the operations of the marketplace by writing that he did not rely on the charity of the butcher or the baker for his daily food. Instead, they worked in their own interest (and that of their families) to produce a good product at a price people will pay. The buyer works in his own interest to get the best deal he can. They meet in a voluntary exchange that satisfies both parties. The market thrives on balancing competing interests to produce mutually agreeable outcomes.

Extend that to a business which requires employees. The butcher wants to increase the volume of his business so he hires someone to help him. Why can he afford to do that? Because he makes a calculation that the employee and help him sell additional product the value of which is equal to or greater than the salary he will pay out. There’s always a risk that it won’t work out. The employer is compensated for that risk by the inducement of profit.

To the socialist, that is somehow “unfair.” They believe that the only value is that produced by the employee’s labor. It’s called the labor theory of value and it ignores the fact that the employer—in this case the butcher—contributes his own skills, tools and equipment to the bargain. Yes, the employee does contribute his labor, but the butcher contributes more than just the salary.

The same dynamic plays in the fast food industry currently under attack by the SEIU.

Fast food jobs are entry-level jobs. People are hired for those jobs with little or no skills. The employer trains the employees. If the employee does well, he or she has learned important job skills that can be transferred to other jobs. Just as the butcher has contributed more than just a salary to his employee, so also the fast food employee has received more than just a salary.

In a free market, salaries are based on the knowledge, skills, and experience of the worker. An entry level job pays the lowest wage because it requires the least amount of all three. The socialist looks at a moment in time and says, “This is unfair.” But the employment relationship wouldn’t last unless both parties were getting something out of it.

Salaries in a free market are also based on supply and demand. When a lot of workers compete for a few jobs, the value of their labor goes down. In essence, they’re competing with each other for scarce jobs. This is no truer than in the Obama economy where the workforce has been shrinking to historically low levels not seen since the Carter administration in the late 1970s.

Why is all this talk about a $15 per hour minimum “living wage” all wrong?

First, because when government and unions step in to “fix” one part of the employment equation, then other parts of the equation will change to compensate. No one will stay in business long by operating at a loss, so the increased wage may mean fewer employees. Perhaps there will be more automation or self-service. Perhaps the business will try to pass on the cost to consumers. Perhaps the business will simply close its doors.

Secondly, no one is in business to provide a “living wage.” They are in business to provide a product at a price that sells. A “living wage” is completely in the eye of the beholder. If working in that situation is not what people want to do, they are free to quit. The grandmother who is tired of working for minimum wage is free to go out and find another job. That’s not just a platitude—that’s reality.

Collective bargaining in itself is not a bad thing—as long as the employer is free to accept or reject the bargain. Unions have relied on government coercion to make their “bargain” stick and that’s not fair.

Those going on strike Thursday, if successful, may be surprised when their hours are cut or some are let go. They will also find that a big chunk of their increase has been taken away in the form of mandatory union dues.

As mothers also used to say, “There’s no such thing as a free lunch.” Even in the fast food industry.