Is Georgie Pie the price of having a minimum wage?

Like the 30,000 members of the facebook group "bring backGeorgie Pie", I have fond memories of the franchise.   Some would swear by thetaste, but the biggest attraction for many was that the pies were cheap.  Georgie Pie’s $1, $2, $3, $4 menu became legendary in fact, but therein liesthe problem.   The economic and regulatory environment has evolved since the1990s, and the costs of doing business for an outfit like Georgie Pie haveincreased substantially.   If McDonald’s were to resurrect the brand, they maybe able to milk some extra revenue and free publicity out of it.   But the costof a pie would likely come as a shock to many people.   The Georgie Pieexperience would never be the same.

The average item that cost $1 in 1996 would cost more than$1.35 today because of inflation.   The $1.35, $2.70, $4.05, $5.40 menu wouldn’tsell itself in quite the same way the original menu did.   But Georgie Pie’sproblems would run deeper than this.   Georgie Pie’s costs would have increasedmuch faster than inflation, had the franchise not been shut down.

Georgie Pie had a reputation for paying its mostly youthworkforce relatively poorly.   When I was growing up a job at McDonald’s paid upto $3 an hour more than a job at Georgie Pie, where a 15 year old at started onabout $5/hr.

The minimum youth wage has been increased several timessince the late 1990s, when it was set at $4.20/hr (the equivalent of $5.60 intoday’s dollars).   This rate originally applied to 16-19 year olds, but from2001 the adult minimum wage was extended to cover 18 and 19 year olds.  Following this change, the youth minimum wage was practically abolished in2008.   Arriving at the present day, all employees over 15 years old must bepaid $12.50/hr (although some under 18 year olds can be paid a training wage of$10/hr for up to three months after hiring).

For the record, I am in favour of having some form of minimumwage.   But this is largely a value judgement.   An informed debate about minimumwages has to acknowledge that there are costs.   A minimum wage is not money fornothing, and like many other government policies it imposes costs on one groupof people for the benefit of another.   In the case of minimum wages, thebeneficiaries are employed low-skilled workers.   The costs of having a minimumwage are borne by different groups within society, including unemployed low-skilledworkers, and consumers – such as fast food eaters.

The fast food industry has a high proportion of low-paidworkers and increases in the minimum wage can directly affect the price of fastfood.   For those of us who have fond memories of really cheap fast food, thekind Georgie Pie was famous for, this loss is one price we pay for NewZealand’s choice to have a higher minimum wage.

In theory, if it costs more to employ a particular group ofpeople (e.g. youth) then fewer of them will be employed.     Those lucky enoughto have a job earn more but it becomes tougher for the unemployed to find work.  The negative effects on employment increase the higher a minimum wage is set,relative to the market wage for low-skilled labour.

Anyone who wants to hire people on less than the minimumwage, such as a people with disabilities, has to get the employees individuallyassessed by a suitably qualified professional.     Many advocates for people withdisabilities find this process overly bureaucratic and restrictive.   A minimumwage not only restricts employers rights to set pay levels, but restricts therights of the unemployed (whether disabled or not) to drop their asking wage toa level where they might get a job.

A further drawback of setting the minimum wage too high isthat it can discourage up-skilling, by lowering the returns to training.   If anunskilled youth is lucky enough to get a job, the current minimum wage meansthey will be paid quite well.   When I was 17 and earning about $7/hr part-time intoday’s dollars, all I could think about was gaining the experience andqualification that would increase my earning potential.   Had I been earning$12.50/hr, leaving school at 17 would have been a reasonably attractive option.

Minimum wages benefit the low-paid who are already in work,but a high minimum wage imposes costs on businesses, consumers and theunemployed.   New Zealand’s relatively high minimum wage makes it difficult tosell cheap fast food, for example.   Recently there have been ignorant claimsthat we can raise living standards by simply raising the minimum wage.   Nexttime someone makes this claim and it sounds sensible, just remember GeorgiePie.

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