Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Monday, January 31, 2005

Capital-Labour Substitution in Fast Foods

What happens when the minimum wage goes up? Employers have an incentive to use more capital and less low-wage, typically unskilled, labour.

But how do they do that in the fast food industry? How do you replace burger-flipping socionomology graduates with machines? You don't, necessarily, but you can replace order-taking socionomology graduates with cheaper labour and some capital:

The McDonald's restaurant in Hermiston, Oregon appears to be
"outsaucing" customers [sic] drive-thru meals.

The restaurant on Highway 395 has outsourced one of the most important jobs at the drive-through window -- order taking.

When a customer drives through, they'll be patched through to Grand Forks, North Dakota to place the order. Why? Because the minimum wage in North Dakota is $5.15, compared to Oregon's $7.25.

Thanks for the pointer to JC, who wonders, "And what is an hour call to North Dakota costing?"

My guess is that with satellite telecommunications, long-distance calls from Oregon to North Dakota can be sufficiently low-priced to make this arrangement profitable. But why Grand Forks? Why not Bangladesh?

So much for the studies claiming that increases in the minimum wage have no effect on employment in fast-food enterprises.

UPDATE: Phil Miller of Market Power has another example; this one is about four outlets in Missouri using a centralized call centre in Colorado. But in this case it is done to lower costs (presumably through economies of scale, specialization, and improved quality).
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