Today I came across a story that apparently has been around for a few months about a fast food restaurant in Dearborn Heights, MI called Moo Cluck Moo where they pay their starting employees an astounding $12.00, soon to be $15, per hour. Needless to say this has brought cries from many that are variations on “See, you greedy corporate fat cats, you can pay a living wage and make money!” (Of course none of these people state clearly how much a “living wage” is or who gets to decide it.)
So I wondered: Is this business a model for the future of the fast food industry or is it an exception that proves the rule that minimum wage is harmful to the young and inexperienced?
Moo Cluck Moo is a new business in the Detroit area which opened in April of 2013. It was founded by two friends whose idea was simple: offer good food, made from quality ingredients, targeted to working people. And offer better wages, roughly two times the local minimum wage of $7.40. They felt that by offering the best wages they would reap the benefits much as Henry Ford did successfully in the automotive industry nearly 100 years ago.
So far their model seems to be working. They claim to be on track to do $700,000 to $800,000 in sales and are able to pay the bills out of cash flow, meaning they are making at least a little profit. There is no telling what the future holds; new business failures are common and restaurants are notoriously difficult to run profitably, but the low rents in Dearborn Heights help. Time will tell if their strategy pays off.
So who exactly is getting these great paying, entry-level jobs? You cannot call them young or inexperienced. As Lissa Kryska of the Michigan Daily put it:
The people they hire are skilled and experienced with food and, well, they work hard.
When Moo Cluck Moo opened, they advertised on Craigslist for employees and received 60 to 70 applications for their 12 positions, from which they chose the best. For example, one employee, apparently not a manager, is described in the same article by Lissa Kryska as having been a manager at both Wendy’s and McDonald’s. (Manager pay at McDonalds is roughly the same as the pay at Moo Cluck Moo at $13 per hour for Assistant Managers and $20 per hour for Managers, on average.)
Companies all have to choose the strategy they feel will be the most profitable for them, allowing them to stay in business and hopefully expand, as McDonald’s has and Moo Cluck Moo hopes to do. Will they generally hire the young and inexperienced, as McDonald’s and most large fast food chains do, or will they pay more to have skilled workers, as Moo Cluck Moo does?
If you choose the latter, you cannot avoid these questions: Where do those skilled workers come from? and what would happen to that pool of skilled workers if the minimum wage priced the unskilled workers out of the job market? When the government artificially sets a minimum wage above the market level they deprive those who do not have the skills to warrant that wage of the chance to learn them, as the Moo Cluck Moo employee noted above obviously did.
It is clear that Moo Cluck Moo is proof of the idea that a minimum wage is harmful to the young and inexperienced rather than a model for the future. Moo Cluck Moo, and other restaurants that offer higher wages, rely on the experience employees gain by working in jobs that offer lower starting wages, such as those provided by McDonald’s. If those lower paying jobs did not exist, neither would the pool of skilled employees these better paying businesses rely upon.
Interesting article. My thought is, how does Moo Cluck Moo prove anything about the minimum wage? Moo Cluck Moo ignores the minimum wage completely. It’s not asking that the minimum be raised, it’s simply deciding to substantially pay above it. The minimum wage is only relevant to this story in that it provides a yard stick to how much over Moo Cow Moo is willing to pay above what they legally have to pay.
I strongly doubt many companies will follow suit – so the young and inexperienced will still be taken on at the like of McDonalds as they are at present, for minimum wage. All the minimum wage ensures in this case is that they’re still not paid below a certain amount – Moo Cow Moo doesn’t affect that at all.
Trainees who gain experience could remain where they trained – at McDonalds for sake of example – or they might well apply to Moo Cluck Moo to capitalise on their experience. To retain their staff, in that case, maybe MacDonalds will have to increase their own pay levels to their experienced staff, but surely that’s just how the market works.
I can’t see the MCMoo model being a threat to young trainee employment. The inexperienced entry-level workers will still be taken on at McDonalds at minimum wage because they still provide value to that company – they’re not at a catering college – they’re working.
But if McD’s did get tired of taking on trainees who are simply going to move on to higher paid jobs elsewhere once trained, yes I suppose you could argue they may stop taking them on entirely. But…
then where would McDs get a large percentage of their frontline workforce from without paying more? I don’t for one second believe that McDonalds take on the inexperienced over the experienced as an exercise in altruism. Without hiring trainees, they would have to shift to hiring experienced staff at entry level and therefore start competing with Moo Cluck Moo on wages.
For arguments sake, though, if McD’s did stop taking on the young and inexperienced, you would eventually come to a point when the likes of Moo Cluck Moo would have to take on inexperienced staff at entry-level themselves. They may be able to sustain that model at their present wages, it’s hard to tell – maybe they would end up having to lower their wages for trainees. But even in that scenario, Moo Cow Moos’s strategy still does not prove anything about the minimum wage and certainly not that it is harmful to employees as far as I can see.
Thank you for your comments.
I will restate the question I was trying to answer in the post more fully in hopes of making my point more clearly.
Does the fact that Moo Cluck Moo pays a starting wage of $15 per hour serve as “proof” that fast food companies can pay a higher wage but are simply too “greedy” to do so, and so a new minimum wage, a living wage, should be enacted to force them to do so? Or does it show that minimum wage laws are harmful to the young and inexperienced?
My contention is that the Moo Cluck Moo story illustrates the second option. Moo Cluck Moo chooses to hire the most skilled and experienced employees they can by offering high wages, relying on the productivity of such workers to make their profit. Those employees learned their skills by working for companies that choose to offer lower wages, which offset the lower productivity of the unskilled labor.
Imagine what happens if all fast food restaurants are forced via minimum wage to pay $12 per hour as some demand (i.e. New York City fast food workers). Would the female employee I mentioned in my post have been employable by McDonald’s at this wage rather than the $7.75 which appears to be the current average? It is possible but I think unlikely. Thus she would never learn the skills to advance and eventually become a manager and then move to a company that gave her the flexibility in her schedule to spend more time with her children.
This is the truth about minimum wage that most people want to ignore. Whenever the minimum wage is above the value that a young or inexperienced person can provide, whatever that level may be, they will be unemployable. Never being able to get a job, they will never learn the skills necessary to get an even better job and eventually prosper. Instead, they will likely be trapped in poverty, stuck at the true minimum wage, $0.
Thanks again for your comment. I value the chance to improve my writing by getting feedback on where I am not being clear.
Hi
Thanks for your reply – the debate is an interesting one, so I hope you don’t mind if I respond again.
As you rightly pointed out, Moo Cluck Moo and the larger fast food chains are not presently operating on a level-playing field, so I’d say the Jury’s out on what the MCM model will prove. MCM benefits from more experienced staff at entry-level but they also have the disadvantage of operating with tighter margins in order to do so.
What MCM does illustrate is that companies will choose to employ experienced workers over inexperienced if they can for the same price. The only reason McDs don’t do so at entry-level, is because their wage structure doesn’t attract or retain enough experienced staff to fill all vacancies. So I would say that the minimum wage, as it stands today, is not harmful to employment as McDonald’s are perfectly profitable on that basis and the young and inexperienced are still being given entry-level jobs.
I agree that the experience gap for the young is a problem and any setting of a minimum wage, if you have one, should take that into account. I don’t know how it works in the US, but in the UK we have an age-related sliding scale for the minimum wage. Not only does it provide some economic incentive for companies to take on the young, it also recognises the fact that a ‘living wage’ is not the same issue for an 18 year old living at home as it is for a Father with kids. I think there’s a lot of sense in such a sliding scale.
Your main question is, though, would raising the minimum wage to, say, $12 an hour harm youth employment. For sake of argument, I’ll assume the US has, and will retain, a minimum wage flat-rate implemented across the board. In that case, if everyone had to be paid at least $12 per hour – I would argue that, as long as the chains didn’t close stores due to financial strain, the ratio of inexperienced to experienced staff would remain the same as it is now. The companies will still take on the experienced over the inexperienced whenever they are available.
The likelihood of such a hike in the minimum wage harming employment due to closing stores I think is overstated. It would mean either operating with tighter profit margins or, more likely, the cost being passed on to the consumer. One can’t know for sure, but I would suspect that customers would swallow a few more cents on a burger or if not, that McDonald’s and their like are in a healthy enough financial position to be able to handle slightly smaller profit margins.
The question of whether companies should be forced to pay a higher minimum wage in principle, is one I doubt we’ll agree on. In my view, there is a compelling argument for adult, experienced workers to be assured a ‘living wage’ if the present minimum proves not to cover basic necessities. I believe it is detrimental to the wider economy to have a section of the population scratching a living despite being in full-time employment. In the UK such underemployment tends to result in the rest of society, one way or another, paying for the shortfall – in effect subsidising low-paying employers.
I say we’re unlikely to agree, as I’m not a fan of Ayn Rand and I see that you are. Unfortunately, I just don’t believe her theory (or the little I know of it) recognises the reality of human nature – not least humans’ ability to act with collective reckless stupidity on occasion, as the financial crash demonstrated. In fact, her devotee Greenspan’s apology to Congress pretty much sums up the regulation argument for me.
Thank you for the debate though, it’s been very interesting – made me think.
Greetings,
I am glad for the reply. I think you are correct we won’t see eye to eye on this issue, but I truly appreciate your comments. The questions you raised are helping me learn to express my thoughts more completely and, hopefully, more intelligibly.
Thanks again for your thoughtful comments.
Regards
Why, thank you and likewise.