Dec 21, 2018 in Economics

A Price Floor in the Fast Food Service

A price floor is a situation where price of a service or a good in the market cannot go lower than the regulated floor. In terms of minimum wage, this is the least possible an employee may receive. In most cases, minimum wage law is known to affect new workers, unskilled employee and employers. A literal example is that when someone drops something on the floor, it cannot go lower than the floor as it will hit and apparently stop. In the case of the protesting fast food employees, this is not a binding price floor, it is non-binding. In this case, fast food employees are the suppliers while the multi-national corporations that offer employment to them are the consumers. Raising the minimum wage to $15 is above the current equilibrium minimum wage. More employees will be willing to supply more of their labor; in contrast the multi-national corporations will not be willing to employ more workers.

Price floor is a very common tool used by the United States government in regulating prices of goods and services. The minimum pay law is the utmost general and straightforwardly identifiable example of a price floor. However, it has been severally mentioned that price floors or legally binding minimum wages may either result to beneficial or harmful effects. According to the Yahoo finance, Fast Food employees are protesting to have their wages increased to $ 15 an hour by their employers. The fast food employees have received support from Fast Food Forward union in their attempts to hike their minimum wage. According to the host and co-host Jeff Mackle, this is 100% hike in the minimum wage of these employees. Although unlikely to succeed, this will have a short-term effect of raising the living standard of about 4 million fast food workers. However, salary cost of the employees will be passed onto customers and not to the multi-national corporations.

If the fast food employees succeed in their protest and their wages increased from $7.25 to $15 an hour, there will be a severe adjustment in the work situation in the fast food industry. This will bring a rise in the price floor line above the equilibrium price level. This will mean that the equilibrium or stability price is below the price floor. This means that the equilibrium price will not be attained. In such a case, fast food employees, acting as the suppliers of labor, are willing to supply higher quantity than before because of the higher price. In contrast, consumers in this case the multi-national corporations or firms will demand less or lower quantity than originally. This will result to a surplus in supply of labor by the employees. This will translate to layoffs or unemployment. Therefore, in case the protesting workers succeed in their wage increase efforts, the employment situation in the fast food industry will result to an excess in labor available or supplied and thus bring unemployment.

If the fast food workers succeed in getting their minimum wage increased, not all will benefit. The equilibrium wage for every worker will be dependent on the skills set along with market conditions. Therefore, the multi-national corporations will only be willing to retain those employees whose skills are outstanding. Those who fail to perform will be laid off. Therefore, employees who retain their employment will experience an improved living standard. This effect will drastically change the efficiency of the fast food industry. Fast food industry will be under pressure, and it will experience a lot of hitches.

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