What the Minimum Wage Conflict Means to Investors

A wage increase can be absorbed, but only to a certain extent

     

At fast food chains like McDonald’s, those labor costs will be absorbed at the franchise level, so we won’t see much impact on the corporate P&L. Franchise owners will lobby for higher food prices to offset those costs, and that’s where the pinch comes — because while all restaurants will see increased labor costs, nobody wants to raise prices on their customers.

There’s a breaking point where that price increase drives customers to buy pasta and sauce at Dollar Tree (DLTR) instead of a burger. Then revenue declines, which means reduced franchise fees on the P&L.

So a minimum wage increase would hit restaurants and any other stock that relies heavily on unskilled labor. I think some of it would be offset by higher prices, and likely not impact P&Ls too much — provided the wage increase isn’t too bad. Any other business that doesn’t rely as much on unskilled labor is unlikely to be affected — unless minimum wage skyrocketed and forced other skilled labor to demand increases.

Bottom Line

Frankly, while I don’t see a federal increase on the way, certain states might make changes. So the bottom line for now is don’t sell any stocks just yet.

The one thing that often gets overlooked in this debate, though, is a solution that doesn’t affect businesses at all. It results in higher pay for anyone who wants it, and places the responsibility for a higher wage where it belongs: on the worker, not the employer.

Unskilled workers who want higher pay can do so by improving their skill sets. After all, if the market sees them as more valuable, they’ll be paid more. There’s a reason that plumbers, electricians and even janitors are paid more than minimum wage — they have specialized skills. Yet there’s this perception that somehow that’s not possible, which begs the question: Where did all these plumbers, electricians and janitors come from?

There are enormous resources for people to learn these new skill sets, from free local workshops to job fair referrals to government programs. Opportunity is out there. It just takes motivation.

As of this writing, Lawrence Meyers was long DLTR, and has worked his share of minimum wage jobs in his life.

The opinions contained in this column are solely those of the writer.

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