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Friday, Dec 19, 2014
Commentary

Wage hikes hasten the return of self-service

BY MICHAEL SALTSMAN
Special to The Tampa Tribune

Published:

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Is the Automat on its way back? These precursors to modern day fast-food restaurants, which were entirely self-service, fell out of style decades ago.

But the do-it-yourself principle is coming back in a big way — and it’s being driven in some part by state and federal wage mandates that make employees too expensive to hire. The $15 minimum wage demanded by the recent labor-backed fast food protesters, and even the $10.10 minimum wage proposed by some in Congress, will only accelerate the process.

The signs are all around us. Recently, McDonald’s began testing an app-based ordering system that lets customers order and pay right from their iPhone. Chili’s also announced that it was installing computer-based tablet ordering systems at each of its 823 corporate-run locations. And a company led by Google co-founder Sergey Brin’s younger brother is now selling computer tablets for every restaurant table.

These changes are being billed as a “convenience” for customers, but they’re conveniences that are currently a part of someone’s job description. That’s seriously inconvenient for young and inexperienced employees who would be out of job. But the decision to switch out cashiers for computers and employees for apps is not a matter of spite, but rather simple economics.

Fast-food restaurants, along with other labor-intensive businesses such as grocery stores, gas stations, and retail outlets, only keep a few cents in profit from each sales dollar. When the cost of employing a minimum wage employee suddenly rises — e.g., the more than an additional $15,000 that a $15 minimum wage would add for each minimum wage employee every year — those businesses are forced to make up the difference or watch their profit get wiped out two or three times over.

The most obvious choice seems to be raising prices. But customers respond poorly if their extra value meal no longer offers extra value. After all, if restaurants and grocery stores could hike prices dramatically without affecting sales, they would have done so already.

The other option is to reduce costs. Practically speaking, this means that customers often end up serving themselves instead of being served by an employee. It’s a trend we’re already familiar with: We scan and bag our own groceries, we pump our own gas, we refill our own drinks, and so on. It’s a short step to placing our own order, as customers already do at many European fast-food locations.

But there’s only so much you can ask the customer to do; we can’t just flip our own burgers and cook our own fries, after all. That’s why businesses are now looking to robots for help. San Francisco-based Momentum Machines, for instance, has created a burger-flipping machine that does the work equivalent of three full-time kitchen employees. That’s 360 burgers per hour, with no strikes, benefits or wage demands.

At current labor costs, Momentum’s burger-flipper pays for itself within the first year. But at $15 an hour for an employee, the investment would pay off in a matter of months.

These changes are encouraged — and even forced — when employers are faced with labor cost increases that their business model isn’t built to handle. However well-meaning this new round of wage demands might be, the fact is that proponents are only fighting the laws of economics — and that’s a fight they can’t win.

Michael Saltsman is the research director at the Washington, D.C.-based Employment Policies Institute, a nonprofit research organization founded in 1991 that studies public policies surrounding employment growth.

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