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Limited productivity gains of 10% are why minimum wage hasn’t risen

Xun Yao Chen

Why fast food strikes and proposed wage increases don't matter (Part 4 of 10)

(Continued from Part 3)


Technology has always been an important part of any business. The development of credit cards, debit cards, cash registers, and inventory control software have all helped companies grow their profits by increasing the quality of customer service and turnovers while reducing costs.

Some argue that an increase in productivity over the past 40 years should translate to higher wages. We also found it odd that productivity growth has risen tremendously, while labor compensation has lagged—that is, until the Heritage Foundation, a think-tank in the District of Columbia, offered a pretty interesting perspective. Despite rising productivity, productivity within the fast food business has barely risen since the 1960s. As a result, compensation has not risen. Undoubtedly, working at McDonald’s today isn’t much different from the old days. To put it differently, you could say companies have little incentive to increase productivity due to an abundance of cheap labor, which could be tied to bigger problems in the U.S. education system and labor market.

McDonald’s is testing smartphone orders

But things are changing. McDonald’s is testing a mobile order and payment system that would also allow customers to make premium or customized burgers. Over the past few years, we’ve seen companies like CVS and other supermarkets like Shaw roll out self-checkout machines. Physical retail stores are also seeing a different competitive landscape because of the cheaper values that Amazon provides (and now even faster than before).

Retail stores won’t just be setting inventories and processing payments in the future. Those who want to keep their jobs will require more valuable skills in marketing and sales. If an order can be processed at a low cost with tablets or machines, it will be.

US Employment to Population Ratio by Gender & TOTAL

Sluggish employment

Despite positive numbers lately, the U.S. employment-to-population ratio, which reflects the number of people employed based on the entire labor force population, is at a 20-year low. The rate for males is near a record low. If minimum wages rise, the move will only accelerate the adoption of these technologies. Those who end up keeping their jobs will earn more as labor productivity increases. But expect unemployment to rise.

As economists often say, every recession will destroy certain businesses and every expansion will create new ones. While it’s necessary to adjust the minimum wage to the inflation rate, raising the minimum wage won’t solve the fundamental problems of the labor market and the U.S. education system facing people stuck at minimum wage.

For more information on the fast food industry, minimum wage, and unions, continue on in this series to read the earlier articles that Market Realist published in September: Fast food companies pay near minimum wage, yet high wage expense.

Continue to Part 5

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