Why fast-food chains can afford to double pay

The campaign by U.S. fast-food workers for a minimum wage of $15 an hour pivots on a key issue -- whether restaurant chains can afford that level of compensation. Most fast-food franchise owners say that such a sharp rise in pay would drive up prices, repel customers and result in job losses.

But a recent study disputes that claim. Economists Robert Pollin and Jeannette Wicks-Lim of the University of Massachusetts' Political Economy Research Institute say fast-food chains could significantly increase pay and still maintain their profit levels.

The researchers acknowledge that a jump from the current federal minimum wage (already exceeded by many state minimums) of $7.25 an hour to $15 would represent a big increase in labor costs. But they argue that a combination of decreased employee turnover, "modest" annual price increases, and current trends in fast food sales growth would let restaurants raise wages without losing jobs, hurting overall profits or having to slash investment in areas such as marketing.

How is that possible? By implementing the wage hike in two phases over a four-year period, the researchers say. In the first year, franchises would lift pay from $7.25 to $10.50 an hour; workers would get a second wage increase, to $15 an hour, three years later.

The key is stronger productivity. Higher wages are likely to reduce turnover, which for employers curbs hiring and training costs. In addition, by lowering the continuous tide of new recruits, employees improve their skills and remain at companies long enough to offset the higher labor costs through better productivity.

Meanwhile, because a minimum wage increase would affect all fast-food companies, none could gain an advantage by keeping product prices lower.