Fast food Strike - Assignment Example

On the other hand, increasing the minimum wages may spur productivity since companies that pay higher wages experience low employee turnover due to the efficiency wages. Furthermore, some jobs cannot be automated (McArdle, para 4). It is possible to raise the minimum wages without much disemployment effect, but doubling or raising by 50 percent to $ 10.50 an hour The article asserts that the timing of the minimum wage increases is important since the labor market is currently weak, inflation is low and McDonalds’ customers are price-sensitive thus any increase in wages will lead to increase in the products thus leading to a decline in sales.

The article identifies that a big hike in minimum wages will affect the overall payroll of the industry since a hike to $ 10.50 represents a 44 percent increase from the current federal minimum wage of $ 7.50 an hour. A 100 percent hike in wages will translate to about 25 percent for the affected businesses since other employees in senior positions will also demand wage increases. Furthermore, very few fast-food franchises have profit margins of about 25 percent due to high competition in the industry and value-conscious consumers thus it is impossible to absorb the huge hikes in labor cost (McArdle, para 6).

The article assert that current studies on minimum wage are short-term, since restaurants have a higher fixed investment component comprising of equipments thus higher labor costs may limit the opening of new restaurants in the future. The author is of the idea that efficiency wage concept is misunderstood since higher employee retention and output is influenced by the wage differentials in the industry, respect for employees and labor market competition. The author finally clarifies that lower wages may not necessary lead to increase in economic productivity since compensation rates outpaced productivity in mid-20th century, and the productivity levels have been increasing to