Big Mac Index

A big jump in minimum wage could make prices soarWarren Hurt Chief Investment Officer F&M Trust weighs in on News Talk 103.7’s morning radio show – First News

February 12 – Using the “Big Mac Index,” an increase in the minimum wage to $15 an hour could mean $15 value meals, $30 pizzas and $7 gallons of gasoline.

Warren Hurt, Chief Investment Officer for F&M Trust, said it’s a basically a matter of economics.

“One hour worked at the minimum wage will buy you one typical fast food value meal, half of a pizza or roughly two gallons of gas,” Hurt said. Extrapolating that out at a $15 an hour minimum wage creates the above prices because the reality is if you double the cost of labor, healthy companies will raise prices.

“And the less healthy ones will fail,” Hurt warned. “The result will be more unemployment, more bankruptcy and more inflation.” The motivation to increase the minimum wage has been presented as a means to fight poverty, but it may fly in the very definition of the word.

According to the Census Bureau, the poverty threshold in this country differs by household size. A single person, under 65, living alone on the poverty threshold would be making $13,465 or $6.47 an hour.

A family of two (single parent and one child) the income is $17,839 or $8.58 an hour. The threshold increases with each child added. “However according to the federal government’s own 2020 census data, a household of five living off of one $15 an hour wage, would not technically be considered below the poverty threshold,” Hurt noted. “Please remember this is not my definition of poverty. This is how poverty is defined by the Census Bureau.”

Additionally, poverty level is also used to determine eligibility for certain human service programs used by the Health and Human Services Department. Drastic increases in the minimum wage could bump families out of the running for certain programs.

“I’m not going to attempt to define what the ‘correct’ minimum wage should be,” Hurt said. “Many well-respected economic scholars argue a minimum wage shouldn’t exist at all. But we need to recognize that the minimum wage is intended to be exactly that – the minimum acceptable wage.”

Flexibility is key in determining where the minimum wage falls.

Take for instance, retired people who work at golf courses for minimum wage in exchange for access to free golf. Or teenagers who work at ski resorts to have the chance to ski for free.

“If you raise the minimum wage, employers lose that flexibility,” Hurt pointed out. “The deal no longer works for employer or employee and you end up with a ski hill that struggles to find labor and an unemployed teenager.”

Hurt said usually putting more money in the hands of lower wage households does stimulate the economy.

“But you cannot double the cost of a fundamental economic input and expect prices to remain the same,” he concluded.