California Fast-Food Chains Are Now Serving Sticker Shock (due to higher state minimum wage)

Higher state minimum wage went into effect April 1; chains say burritos and burgers are getting more expensive in response

By Heather Haddon of The WSJ. Excerpts:

"Restaurants for months have said menu prices in California would rise as the state raised the minimum wage for fast-food workers. Now they are following through.

Consumers picking up burgers, burritos and chicken sandwiches at chains in the Golden State are grappling with prices that for months have been rising at a faster clip than in other states, according to market-research firm Datassential. 

Since September, when California moved to require large fast-food chains to bump up their minimum hourly pay to $20 in April, fast-food and fast-casual restaurants in California have increased prices by 10% overall, outpacing all other states, the firm found in an analysis of thousands of restaurants across 70 large chains."

"California raised the minimum wage for fast-food workers to $20 an hour in April, a 25% increase from the state’s broader $16 minimum wage."

"California restaurants already had some of the highest fast-food prices in the country, according to market-research firm Revenue Management Solutions. Every month since October, California fast-food and fast-casual restaurants have raised prices across a greater percentage of their menus compared with restaurants in the rest of the country, Datassential found."

"Customers across the country are starting to pull back on restaurant visits after eateries pushed up their prices in response to inflation, industry data shows."

Wages are the price of a resource, labor. When the price of a resource increases the supply of the good in question will decrease or shift to the left, leading to an increase in the price of the good. In this case, fast-food.

In 2013, Christina D. Romer, who was the first chair of the Council of Economic Advisors under Obama, wrote an article called The Business of the Minimum Wage in The NY Times. Excerpt:

"Some evidence suggests that employment doesn’t fall much because the higher minimum wage lowers labor turnover, which raises productivity and labor demand. But it’s possible that productivity also rises because the higher minimum attracts more efficient workers to the labor pool. If these new workers are typically more affluent — perhaps middle-income spouses or retirees — and end up taking some jobs held by poorer workers, a higher minimum could harm the truly disadvantaged.

Another reason that employment may not fall is that businesses pass along some of the cost of a higher minimum wage to consumers through higher prices. Often, the customers paying those prices — including some of the diners at McDonald’s and the shoppers at Walmart — have very low family incomes. Thus this price effect may harm the very people whom a minimum wage is supposed to help."

Dear Columbia Students, Divestment From Israel Won’t Work

Even if the university surrenders, it will be making a statement, not doing anything financially meaningful

By James Mackintosh of The WSJ. Excerpts:

"the parallel frequently made to the boycott of apartheid South Africa isn’t a very good one. That boycott lasted decades, mainly involved consumers, not investors, and had serious financial effects on the country’s exports. Cutting academic ties with South Africa didn’t have such a clear impact as protesters today believe, research suggests."

"But the financial effects, or lack of them, bear examining. And there’s a very instructive parallel: misguided demands to quit investments in fossil fuel companies to slow climate change.

Environmentalists think that if universities and others sell coal and oil stocks, it will influence fossil fuel production. It hasn’t, and it won’t, for three reasons that also apply to Israel.

First, there’s just too much capital around. University endowments are big (Columbia has $14 billion) but are a drop in the ocean of capital swilling around big companies. Microsoft, one of the stocks protesters want sold, alone is valued at $3 trillion. 

The impact of even a lot of universities selling would be negligible. There are far more people with huge amounts of money who don’t care about links to Israel (or oil). Investors who sell to protest against Israel will find others willing to buy for purely financial reasons. And some deep-pocketed supporters of Israel may have money to spare that would once have been a university donation.

Look at the climate campaign. The most widespread divestment has involved coal companies, which many huge pension funds and endowments agreed to exclude, and which are almost universally banned by ESG (environmental, social and corporate-governance investing) funds.

But when the world decided it wanted more coal, after Russia’s invasion of Ukraine led to energy shortages, no amount of shunning by investors could stop the shares of coal companies soaring. Investors who want to stop the use of coal should stop using coal, or push governments to ban coal use earlier, not try to somehow affect production by steering clear of coal stocks.

Second, small changes in share prices have no effect on corporate investing decisions. It is hard to detect the effects of interest rates on corporate investment, let alone of share prices.

Even if there were some marginal effect on a company’s valuation from massive disinvestment—and the evidence is there wouldn’t be much if any—the feed through to investment decisions would be more marginal still. Israel is much more likely to have trouble attracting capital because it is at war, not because share prices of companies invested in Israel are slightly reduced by disinvestment.

Even if selling the stock made it cheaper, the effect would be counterproductive. The profits of the companies would be unaffected, since they are determined by their costs and revenues; a boycott of their goods might matter, but a boycott of their shares won’t.

Selling the shares cheaply to someone else just leaves the buyer owning the future profits instead, at a bargain price. The university would have less money to spend on students, while those who are pro-Israel, pro-oil or just pro-profit would have more.

Third, the companies most important to Israel’s military, and to fossil fuel production, belong to or are supported by governments. Even if divestment somehow worked on other companies, it still wouldn’t work here. Israel receives large U.S. military support, financed by the government. Weapons will continue to flow no matter what private investors do—only Congress or the White House can stop them.

Likewise, in the climate debate, five of the top 10 oil producers in the world are controlled by Saudi Arabia, China, Mexico and Brazil, and they pump far more than the big five private U.S. and U.K. producers. They just aren’t vulnerable to divestment threats."

"“Divestment will not directly reduce the capital available to publicly listed fossil fuel companies, and may in fact promote the transfer of fossil fuel extraction activity to national and state-owned companies that are more polluting, less transparent, less sensitive to societal pressures, and less committed to addressing the climate crisis,” the committee said. It wants to be able to engage companies to encourage a switch to clean fuels by 2050 and to stop them lobbying against climate science. For that, the university needs to be a shareholder." (Columbia's socially responsible investing committee)

The Era of One-Stop Grocery Shopping Is Over

Consumers are making 8% more trips to different retailers as inflation continues to upend household budgets

By Rachel Wolfe of The WSJ. 

One thing that I always talked about with inflation was that one of its costs was all the things we had to do to avoid it. This article seems like an example of that.

Here is a passage from the related post linked below about Germany in the early 1920s when they had hyperinflation that is an another example of costly behavior:

"By mid-1923 workers were being paid as often as three times a day. Their wives would meet them, take the money and rush to the shops to exchange it for goods."

Now excerpts from Wolfe's article:

"Consumers bought groceries from an average of 20.7 different retailers between March 2023 and February 2024 according to data firm Numerator, up 23% from the same months between 2019 and 2020. In addition to visiting more stores, shoppers are also traveling to cheaper ZIP Codes to shop"

"latest example of consumers changing their behavior in response to the higher of prices in our lives"

"with groceries taking up the highest percentage of household budgets in 30 years"

"Grocery prices are up 21% in three years"

"shoppers are making 8% more trips than they did last year"

"Traditional grocers ate up 66% of total consumer spending on food at home in 2022"

"That’s down from 69% in 2017. "

"Roger Beahm, a marketing professor at Wake Forest University School of Business, says some food stores are now leaning into differentiation rather than trying to be all things to all people." 

Related posts:

World War I Finally Ends (a post from 2010 when Germany made the last payment for war reparations from World War I in 2010 that may have contributed to the hyper inflation)  

When workers were paid twice a day and given half-hour shopping breaks (Germany, 1923)

The % of 25-54 year olds employed was 80.8% in April after being 80.7% in March (and was 80.9% in both June and July of 2023); Average hours worked down

One weakness of the unemployment rate is that if people drop out of the labor force they cannot be counted as an unemployed person and the unemployment rate goes down. They are no longer actively seeking work and it might be because they are discouraged workers. The lower unemployment rate can be misleading in this case. People dropping out of the labor force might indicate a weak labor market.

We could look at the employment to population ratio instead, since that includes those not in the labor force. But that includes everyone over 16 and that means that senior citizens are in the group but many of them have retired. The more that retire, the lower this ratio would be and that might be misleading. It would not necessarily mean the labor market is weak.

But we have this ratio for people age 25-54 (which also eliminates many college age people who might not be looking for work).

The % of 25-54 year olds employed was 80.8% in April, after being 80.7% in March.  It was 80.6% in Jan. 2020 just before Covid. The 80.9% in June 2023 was the highest since the 80.9% in April, 2001.  

It was 80.6% in Jan. 2020 and 69.6% in April 2020.  Click here to see the BLS data. 

It was 79.875% for all of 2022 & 80.667% for all of 2023.

The unemployment rate was 3.9% in April after being 3.8% in March. The unemployment rate was 3.6% for all of  2022 as well as 2023.  Click here to go to that data.

The labor force participation rate fell to 62.66% from 62.67%. It was 62.2% for all of 2022 and was 62.6%. in 2023.

60.24% of the adult population was employed in April (that is people 16 years old and older). 

60.275% of the adult population was employed in March. So we had a slight decrease.

60.0% of the adult population was employed in 2022 (that is people 16 years old and older). 

60.3% of the adult population was employed in 2023. So we had a slight increase.

Here is the timeline graph of the percentage of 25-54 year olds employed since 2014.

 

Now since 1948.

Now hours worked. This comes from the St. Louis FED. See Average Weekly Hours of All Employees, Total Private. It was 34.3 in April & 34.4 in March. Shaded areas indicate U.S. recessions.