Labor-aligned agitators at New York Communities for Change launched their “Fast Food Forward” campaign last week, staging walkouts at chain restaurants across the city and demanding a $15-an-hour minimum wage — more than double the current minimum.
Across the country, a different type of progress made news: San Francisco-based Momentum Machines has invented a robotic burger-maker that does the work equivalent of three full-time (human) kitchen employees. That’s 360 burgers created per hour with no complaints about wages, and no walkouts.
What New York’s service-sector unions and their allies don’t realize is that their fight is no longer with management — it’s with technology. And it’s a fight they can’t win.
We’ve all grown used to self-service options that were once part of someone else’s job description. Today, we might bag our own groceries at a supermarket check-out, or pump our own gas at the station (except in New Jersey and Oregon, where it’s outlawed). Even self-service soda refills at fast-food restaurants were developed as a labor-saving device.
The real driver behind these changes isn’t consumer preference, but businesses’ profit margins.
Labor-intensive businesses like grocery stores, gas stations and restaurants get by on the narrowest of margins, generally keeping 1 cent to 3 cents in profit for each sales dollar they get from the customer. Most of the rest goes to cover expenses like payroll and the cost of food.
Misguided policymaking at the federal, state and local level has created tremendous pressure on wages. The federal minimum wage rose 40 percent in just three years this past decade, and 28 states hiked their own minimum wage above the federal level in the five years before that. We now have health-care and paid-leave mandates, too.
When labor costs rise as a consequence of public policy, a low-margin business either has to raise prices to offset it or find some way to lower costs elsewhere. Since customers are price-sensitive, businesses often opt for cost-saving changes that substitute customer self-service for employee full-service. (This is how we got to a world where you clean your own table at Burger King.)
If New York City’s service-sector unions succeed in more than doubling the base wage in the city’s fast-food industry, one of two things will happen: Either the price of a hamburger will rise, or the number of employees it takes to cook that hamburger will fall.
Momentum Machines reports that a typical fast-food business spends $135,000 a year on labor costs. That’s plainly a low-end estimate, but even at that rate, Momentum’s burger-flipper pays for itself within the first year. With a $15-an-hour fast-food wage, it could pay for itself in a matter of months.
This trend toward automation doesn’t just affect the kitchen. Last year, McDonald’s announced it was installing touch-screen ordering terminals at 7,000 European locations, making the cashier position effectively obsolete. California Pizza Kitchen, Chevys Fresh Mex and other national table-service chains are experimenting with similar terminals that let customers order and pay at the table, with minimal service from a server required.
These changes don’t become inevitable until labor costs get out of hand. New York City’s service-sector unions might enjoy the media coverage that comes along with an employee walkout and a $15 wage demand, but they’re doing nothing more than speeding their own demise.
Michael Saltsman is a research fellow at the Employment Policies Institute.