Last updated on August 5th, 2015 at 02:34 pm
Boosting employee wages to $15 an hour at limited-service restaurants could lead to an estimated 4.3 percent increase in prices at those restaurants, according to a recent Purdue School of Hospitality and Tourism Management study. The study also says that increasing wages to $22 per hour would result in a 25 percent increase in menu prices.
“We wanted to find out what happens if food service employees’ wages go up to $15 an hour and what happens if you take it to $22 an hour,” said Richard Ghiselli, professor and head of the School of Hospitality and Tourism Management. “Healthcare benefits are a little more complex. We did an analysis based on information at the time we started the study (in 2013). There were tax credits available then. With those tax credits available, giving full-time employees health insurance shouldn’t affect businesses that much. When those tax credits expire, then it changes.”
Employee turnover in the food service industry led to the study, Ghiselli explains.
“Turnover has been one of the more troublesome problems to manage in the food service industry. In 2013, franchised establishments experienced a turnover rate of 93 percent. People often hypothesize that if you raise pay and offer benefits, turnover will go down. I don’t think we answered the question of whether that reduces turnover, but the study showed that if you raise pay and offer health insurance, prices will go up,” he said.
Ghiselli notes that the study’s results were close to what he expected and that there could potentially be other effects of raising wages and offering health benefits.
“There were no surprises. We thought prices would go up. We just wanted to know how much they would go up if you raise pay and offer health insurance,” he said. “The other way to look at this if you don’t want to raise the prices is to examine the impact on product size. As expected, a hamburger would be much smaller.”