St. Louis Serves Subsidized Fast Food: Will Higher Minimum Wage Law Help?

I’ve been hearing a lot of noise lately on my local public radio station about how the area is suffering do to fast food restaurants refusing to pay their workers more. The St. Louis Business Journal reports:

Fast food workers and other minimum-wage earners told lawmakers Monday at St. Louis City Hall that their wages should be raised so that they don’t have to rely on public assistance.

The workers and their advocates touted a highly-publicized study, published recently by the University of Illinois and the University of California-Berkeley, which said that 52 percent of families of front-line fast food workers rely on public assistance to the tune of nearly $7 billion a year, according to the St. Louis Beacon.

The study estimated that Missouri fast food workers take about $150 million in public assistance each year.

What is wrong with this story?

The National Restaurant Association has pushed back at the study,

saying it fails “to recognize that the majority of lower-wage employees work part-time to supplement a family income,” and that “40 percent of line staff workers in restaurants, the primary focus of the reports, are students,” according to the Beacon.

That is probably true, but there is another logical problem with the piece. Let me re-write the first paragraph:

Fast food workers and other minimum-wage earners told lawmakers Monday at St. Louis City Hall that food prices should be raised so that they don’t have to rely on public assistance.

Every single person in St. Louis, who orders only the cheapest burgers, or forgoes fast food in favor of making a sandwich at home, makes it impossible for fast food restaurants to charge higher prices. So the question is not whether or not the workers should be paid more. The question is whether or not there should be any fast food restaurants in St. Louis at all.

The reason why restaurants stay in business is because they find people who are willing to work for a wage that will support the business. If those people had not been available, the fast food industry would never have developed in St. Louis. If it now turns out that the only reason that work force exists is because of the availability of public assistance, then that is indeed a problem. But paying more is not a real option unless all the people in St. Louis suddenly want to spend more money.

But it wasn’t the fault of any fast food entrepreneur that he found people willing to work in his restaurant. What these workers demonstrate is that welfare aimed at helping the poor always ends up becoming corporate welfare. Businesses form and are able to find a steady workforce because the government taxes the people (or borrows money) to subsidize their lives. The state ends up paying a sort of “corporate benefits package” for the minimum wage business.

Trying to hike minimum wage law is a classic case of the government trying to solve an economic problem that it has created. But it will then create more problems as the higher wages will lead to higher unemployment in St. Louis and probably even more people on public assistance.