What 5 Cents on a Big Mac Would Mean for Hospitality Workers

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Yesterday was International Fast Food Day.  It started in the US where workers in the fast-food industry are staging protests nationwide, seeking a $15 per hour wage (the Federal minimum wage is $7.25 but President Obama is seeking an increase to $10.10 per hour while states and local governments have a higher minimum levels).

The protest has spread internationally and is expected to take place in 80 cities in more than 30 countries, from Dublin to Venice to Casablanca to Seoul to Panama City.

Fast-food workers are some of the lowest paid workers in the Irish economy with poor working conditions.  Average weekly earnings in the Accommodation and Food sector (we don’t have official data for the fast-food sector) were a mere €321 per week in the final quarter of last year.

Unite, using EU data, showed that our hospitality workers are some of the worst paid in the advanced European economies (see Table on Page 18 here).

Their conditions have deteriorated since the start of the recession.  Average weekly earnings in the whole economy fell by 4.6 percent since 2008; in the Accommodation and Food sector, they fell by 7.7 percent.  The low-paid are even more so.

With the minimum wage frozen since 2007, the revamped Joint Labour Committees having less powers than previous (e.g. they can’t negotiate Sunday premiums) and the cost of living, especially rents, rising, hospitality workers are under increasing pressure.

It is often said that since the hospitality sector is so labour-intense, wage increases would have a major impact on costs but this is over-stated.  It is true that wages (and for the purposes of this post I will use Accommodation and Food sector data unless stated otherwise) make up a high proportion of turnover.  They make up approximately a third of total turnover which is high.

However, a wage increase for the lowest paid in this sector would have only a minimal impact on prices but would have a major benefit to the workers, to businesses reliant upon their spending, the economy as a whole and the Exchequer.  Let’s do out some numbers – and this is a very approximate estimation based on one sector.

The CSO data suggests that if every hospitality employee (and this would include managers and professionals in the sector) were to receive a €1 per hour pay increase, it would cost the sector €160 million in personnel costs.  Sounds like a lot but it makes up only 2 percent of turnover.

In other words, to keep all things equal (profits, investment, etc.) prices would have to rise by 2 percent to make up the wage increase.

To put that in perspective, a Big Mac that costs €3.50 would now cost €3.57 – an extra 7 cents.  That’s the price of paying a better wage.

However, the actual cost would be much less.  That’s what would happen if every employee – including managers – were paid a €1 increase.  What would happen if that wage increase was concentrated among the lowest-paid in the sector with small increases up the income distribution?

Dr. Tom Healy, Director of the Nevin Economic Research Institute has provided a breakdown of the median wage by decile (i.e. by 10 percent of employees).  He has kindly sent me on the data.  Here is the breakdown.

 

As the above shows, 10 percent of hospitality workers earned less than €8.71 per hour; nearly a third of workers earned less than €10 while half of all workers earned less than €11.51 per hour.

This data comes from 2009 (it’s the latest available).  If anything, the situation in the lower income levels has probably deteriorated given that the Joint Labour Committees were struck down by the High Court, leaving wages to fall towards the minimum wage.

Using this data, let’s assume a €1 increase for the lowest 40 percent paid, with smaller increases for higher levels (75 cents for the fifth decile, falling to 25 cents for the top decile).  What would the impact be on prices?  1.3 percent.

The cost of a Big Mac would rise from €3.50 to €3.55.  5 cents.  That’s the difference.  Of course, this only holds for a pay increase in this sector alone – but such increases throughout the economy directed at the low-paid would not see a significant additional increase.

The benefits throughout the economy would be meaningful.

  • Almost all that wage increase would be spent (the low-paid don’t save very much).  That’s a benefit to businesses depending on domestic demand – even the restaurants which are paying the increase.
  • This increased demand could result in higher employment – which would further increase demand:  even higher turnover for domestic businesses.
  • The Exchequer would benefit through higher tax, PRSI and USC revenue and, where employment increases, lower public spending on unemployment payments.
  • Then there’s that little matter of social equity.  Over 30 percent of one-income households are officially categorised as ‘deprived’.  Increasing wages throughout the hospitality sector would help lower that dismal state of affairs.

Of course, we’re not going to get back on the road to recovery-for-all through pay increases alone.  We need an end to austerity, higher economic and social investment; we need real growth in the real economy.  But wage increases are a crucial ingredient and the most socially equitable and economically efficient place to start is with those on the lowest wages.

So that’s what is at stake.  5 cents for a Big Mac – a pay rise of €1 per hour for the lowest paid.

That’s one of the best deals you could get in the economy.

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