The United Kingdom is considering a plan to increase wages to from £6.50 an hour to £9 by 2020 (in increase from roughly $10/hour to $14/hour), and they should know the proposal is an assault on burritos.
George Osborne, Chancellor of the Exchequer, announced to Parliament on Wednesday that his budget proposal contains a provision to raise wages for workers over the age of 25. Before they decide whether or not to approve the plan, Britons should take a look at other cities that have recently hiked wages, namely San Francisco, and the unintended consequences it had on businesses.
This year, the Golden Gate City raised the minimum hourly wage from $10.74 to $12.25. Guess what: Chipotle prices increased accordingly! A global investment banking and wealth management firm released an investor report about the burrito chain beloved by many, which AEI scholar Mark J. Perry recently published in a blog post:
• In our weekly survey of ten of Chipotle’s markets, we found the company implemented price increases in half of the surveyed markets this week—San Francisco, Denver, Minneapolis, Chicago, and Orlando. In most markets, the price increases have been limited to beef and average about 4% on barbacoa and steak, toward the lower end of management’s expectation for a 4% to 6% price increase on beef.
• San Francisco, however, saw across-the-board price increases averaging over 10%, including 10% increases on chicken, carnitas (pork), sofritas (tofu), and vegetarian entrees along with a 14% increase on steak and barbacoa.We believe the outsized San Francisco price hike was likely because of increased minimum wages (which rose by 14% from $10.74 per hour to $12.25 on May 1) as well as scheduled minimum wage increases in future years (to $13 next year, $14 in 2017, and $15 in 2018).
There are 7 Chipotle locations in London alone, and Osborne should expect his future Hillary Clinton-esque burrito campaign stops to be more expensive if his budget successfully passes. Though maybe Chipotle will wise up and only hire employees under the age of 25, which could make it even harder for Britain’s older minimum wage employees to find employment.
The national living wage would hike wages from £6.50 to £7.20 next year — or $11.17 USD at current conversion rates– and gradually increase it until 2020. Though its citizens would have a higher income, the effects of a wage hike are arguably undone by prices that often rise alongside wages. Unemployment can rise too, as more businesses eventually cut hours and shed workers, and many minimum wage earners could soon be put out of a job by a burger flipping robot.
Obviously the rising wages would affect more businesses than just the burrito giant. Other companies in San Francisco are struggling just to keep their doors open. The owner of an iconic comic book store isn’t sure how he’s going to stay open amidst the city’s rising wages, which will reach $15 an hour by 2018. The U.K. should learn from our example, and quit trying to raise wages, or risk forcing its people to pay more for everything, starting with barbacoa beef.