f something seems too good to be true, it probably is. Unfortunately, many journalists did not remember that when covering a new report claiming that $15-an-hour wages would raise fast food prices only 4 percent.
A closer look shows that the study underlying the report had major methodological errors. More serious analysis shows that $15-an-hour wages would raise fast food prices by over a third—at least until stores automate work currently done by humans.
The study, by Purdue University economists Richard Ghiselli and Jing Ma, has made quite a splash. The Washington Post covered it extensively, concluding that the higher wages for fast food workers would add just 17 cents to the cost of a Big Mac. Local papers have covered it, too. ThinkProgress argued that the study undercuts arguments against $15-an-hour fast food wages. If the study were accurate, it would be hard to argue with them.
However, Purdue’s report offers a case study in why journalists should consult multiple sources before going to press. Simple back-of-the-envelope calculations show that the Purdue results are impossible.
Labor accounts for a quarter to a third of the average fast food restaurant’s costs. Currently, wages in the fast food industry run around $9 an hour. Going to $15 an hour means increasing pay by over 50 percent. Prices would have to rise by at least one-sixth (50 percent multiplied by one third) to cover the base-wage increases. Of course, those price increases would drive some customers away, so restaurants would need to raise prices again. But as a baseline, prices would have to rise by at least one-sixth.
http://dailysignal.com/2015/08/08/s...ok&utm_medium=social&utm_campaign=thffacebook
A closer look shows that the study underlying the report had major methodological errors. More serious analysis shows that $15-an-hour wages would raise fast food prices by over a third—at least until stores automate work currently done by humans.
The study, by Purdue University economists Richard Ghiselli and Jing Ma, has made quite a splash. The Washington Post covered it extensively, concluding that the higher wages for fast food workers would add just 17 cents to the cost of a Big Mac. Local papers have covered it, too. ThinkProgress argued that the study undercuts arguments against $15-an-hour fast food wages. If the study were accurate, it would be hard to argue with them.
However, Purdue’s report offers a case study in why journalists should consult multiple sources before going to press. Simple back-of-the-envelope calculations show that the Purdue results are impossible.
Labor accounts for a quarter to a third of the average fast food restaurant’s costs. Currently, wages in the fast food industry run around $9 an hour. Going to $15 an hour means increasing pay by over 50 percent. Prices would have to rise by at least one-sixth (50 percent multiplied by one third) to cover the base-wage increases. Of course, those price increases would drive some customers away, so restaurants would need to raise prices again. But as a baseline, prices would have to rise by at least one-sixth.
http://dailysignal.com/2015/08/08/s...ok&utm_medium=social&utm_campaign=thffacebook