Home > Income Distribution, Microeconomics > People Respond to Incentives: Burger Flippers Edition

People Respond to Incentives: Burger Flippers Edition

Lately fast food workers in several cities have been protesting for higher wages. For some reason, they seem to have settled on $15/hour as a reasonable wage. Many are paid the current minimum wage of $7.25/hour.

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Some of my students, thinking about equity, will say this is well-justified. They might argue that they should be paid more, and that they are being exploited unfairly by their employers. Others will disagree.

No matter what one thinks about the fairness of the wage, I’d like to ask my students to consider these protests in light of one of the ten principles of economics we studied this week: people respond to incentives.

Suppose the workers’ protests are effective and somehow fast food companies must now pay all their workers $15/hour.

This will change incentives. Most people are focusing on the change to the employers’ incentives: by raising the cost of labor, the employees may hire fewer worker, or automate more.

But what about the benefits side of the equation?

Let’s suppose:

  • Many, many  people who are not currently interested in working for a fast food company now work in other companies for $10, $12 or $14/hour.
  • We can safely assume they do not work in fast food because they have more skills than most fast food workers and will work in the companies that will pay them for their higher skill level.

If the wage for fast food workers is changed to $15/hour, which kind of employee will fast food companies hire? The ones currently employed for $7.25? Or will they find themselves suddenly faced with many workers from other industries–more skilled than their current workforce–happy to work for a fast food company now that the wage is $15?

What will happen to the current protesters? Will many of them lose their jobs to more qualified people who–now that the wage is $15–are happy to work in fast food?

I wonder how many of these protesters have thought of the possibility that their victory–should they win–might change the incentive for other workers to compete for their jobs?

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