Fries with that free lunch? The problem with a $15 fast food wage

If an especially generous employer wants to pay $15 per hour (about $30,000 annually) for full-time fast food chefs and cashiers, he’s going to pay more than just this above-market wage. He will also pay half his employees’ payroll taxes, federal and state unemployment insurance, workers’ compensation insurance, training, uniforms (in the case of McDonald’s, at least), and on top of that the health insurance or employer penalty that will be required by Obamacare starting in 2015.

Suddenly, each $15-per-hour employee costs at least $19.50 and perhaps as much as $25 per hour (depending on how the employer handles the health insurance issue). On the other side of the ledger, the employee gets to keep about $12 per hour after payroll, federal and D.C. income taxes, not including any contribution or payment he has to make toward health insurance.

So employers lose 40 or 50 percent in government-mandated transaction costs whenever they engage a new worker. This is a rotten deal, and a worse one if the worker’s labor is (by the definition of “unskilled”) not especially valuable. It is worse still if the market wage is arbitrarily doubled.