When California began raising its minimum wage two years ago, Bill Phelps and his investors were worried. Phelps is CEO of a fast food company called Wetzel’s Pretzels, which has almost 100 outlets in California.

“Like most business people I was concerned about it,” he said.

The state increased the minimum wage in mid-2014 and just raised it again on Jan. 1 to $10.50 per hour for companies that employ more than 25 people. Smaller businesses will have a delay in implementation, but will follow suit as California moves along on its schedule to reach $15 per hour by 2022.

Phelps and a lot of other fast food CEOs have been worried that wage increases will cut into profits, and that if they raise prices to compensate, fewer people will come eat. So two years ago, Phelps prepared to take a hit. But something else happened entirely. Sales at his California stores immediately shot up.

“I was shocked,” Phelps says. “I was stunned by the business.”

The same exact pattern took place again in 2016, when the minimum wage rose again, Phelps said. There was a wage increase, and then boom, a bump in same-store sales across the state that held for most of the year.

Phelps is now convinced minimum wage increases aren’t bad for the fast food business; in fact, he says, they’re great. Phelps said you can see why if you visit the Wetzel’s Pretzels franchise in Concord’s Sunvalley Shopping Center.

Making Dough and Dough

At the mall you can smell the pretzels from far away. As you get close, you hear the sound of a mixer banging dough. It has to run constantly to keep up with the demand for pretzels. Business has been good the last few years, said franchise owner Mike Jacobs.

“My overall sales were something like 15 percent ahead after the first minimum wage bump, and now they’re about 12 percent ahead this year,” Jacobs said. “It isn’t because I’m such a great manager or smart guy, but the buying public has more money in their pocket.”

Jacobs says not only are more people coming to shop, but they’re buying more. Sure enough, as Jacobs and I talk, a mall employee stops in to buy a pretzel. He ends up also paying for a dipping sauce and a drink. Jacobs says sales like this are happening all the time.

Maybe this is all just coincidence. Maybe California’s economy happened to jump at the same exact times the state raised minimum wages. Maybe the franchise owners all started doing something to increase sales.  Even if minimum wage increases are also increasing sales for Wetzel’s Pretzels, who knows if a similar trend would happen at all fast food companies. Most Wetzel’s outlets are in places like malls, where there are lots of low-wage workers around to shop.

No economist has pored over the company’s data to do a proper case study. But there are at least a couple who would love to.

Without Data

UC Berkeley economist David Card has studied the minimum wage for over two decades. In the early 1990s, he published this influential case study that showed increasing the minimum wage did not reduce employment, as critics feared.

Card said colleagues have long suspected that rising minimum wages could actually increase fast food sales in the U.S., but no one could prove it — because American fast food companies rarely give out detailed sales data.

To test this theory, Card believes economists would need the kind of sales data Phelps is talking about at Wetzel’s Pretzels. It could be the missing piece. “Everyone knows it has been a gap,” Card said. “There has been a lot of speculation, but no one has figured out how to obtain the data.” If the data held up to analysis and Phelps is right, Card said it could help clear up a lot of misconceptions about minimum wage currently being touted as facts.

Right now, the conventional wisdom in the fast food business is that a rising minimum wage is bad for the bottom line. It’s what Phelps feared. It’s what President-elect Donald Trump’s pick for secretary of Labor, fast food businessman Andy Puzder, maintains. And even though there are not good data to back it up, Card said some economists perpetuate the idea. By doing so, he said, they’re choosing to be political instead of scientific.

“Economists unfortunately have, within the crowd, quite a few people who are ideologically committed to the idea that any kind of price regulation is always bad,” said Card.

Stakes on this issue are high, as a number of states are raising minimum wages.

Supporters of a $15 per hour minimum wage rally outside the state Capitol in Sacramento on March 31, 2016.
Supporters of a $15 per hour minimum wage rally outside the state Capitol in Sacramento on March 31, 2016. (Katie Orr/KQED)

More Pretzels and More Guitars

At the mall in Concord, store owner Jacobs doesn’t need an economics case study to know he’s been doing well. “By my looking at it, the minimum wage increase has just been a godsend,” Jacobs said. “My income this year will be double what it was in 2013.”

Jacobs is already putting his own increased profits back into the economy. He collects guitars and has been using some of his extra funds to buy new ones.

With the minimum wage going up, he believes everybody is a winner. His employees have gotten a raise. His CEO is getting big numbers. His customers can buy more pretzels. And Jacobs can buy more guitars.

Fast Food CEO Says Higher Minimum Wage Boosts Business 4 January,2017Sam Harnett
  • jernewm

    Why are people surprised at this. When you pay your employee more they are going to work more productively; their improved attitude will encourage larger and add on sales and the other who also got an increase will be better able to purchase your product they could not afford before. Why don’t business owners look at the date and see that taking care of their employees helps their bottom line.

    • Joe Smith

      Then the price is passed on to the customer who buys less or stops buying at all and people will be laid off or the store closes.

      • MinervaB

        Unless 100% of your business expenses are labor – and that would be an unlikely and unsustainable business model – prices will increase less than workers’ take home pay. Proportionally, workers will have more money available to spend. Boosting wages for lower and middle class workers boosts the economy.

        • Joe Smith

          Price will go up the same amount as the labor so someone will be paying for it taking that disposable income out of the economy. Why not keep a min wage job for what it is, a training job for the young to get the skills and life experience to earn a better job. These jobs were not meant to be livable wage jobs in the first place. I used to have 2 full time jobs and a part time job to support myself when I made min wage. If the dollar per hour is not enough then work more hours not complain until you get more money. Peole want everything handed to them these days and we are paying a price for it.

          • You are clearly not listening. If there are any price raises at all, it would only be a fraction of the labor increase. Because labor is only a fraction of business expenses. However, if an entire state/region has more money to spend, then revenue will increase and offset much (if not most) of the additional labor costs and prices would only increase by chump change.

          • Joe Smith

            Then the wages should be $100 an hour then, the economy will boom by that logic. We are just going to have to disagree, I see robots replacing many of the people because it will then be feasible to do so so we will have more people out of work and more on welfare so our taxes go up. Many articles out there now where robots are being brought in to replace workers most commonly in the fast food industry. For every penny that wages go up, a penny in cost somewhere will go up canceling out the increase.

          • Thomas Jackman

            Joe, it is clear you don’t understand the math involved. Please read up on this issue before commenting further.

            For example, if a company sells a product for $5, it might pay out 10% (.50) of that in the form of employee wages. DOUBLING wages would mean raising the price on the product to $5.50 to maintain the same profits per product sold. That means that your employee takes home twice as much money but the cost of goods only increased 10%. But it gets better. Even if everything you bought cost 10% more, your cost of living would not increase by 10% because a lot of what you spend money on has no labor costs, e.g. a home mortgage. That means you now have twice as money (100% more) to spend on a life where your costs have gone up less than 10%.

            Like all equations and formulas, if you increase one value enough it gets wacky. So yes, if you paid your employee $500 an hour then your cost of goods sold would have to go up an insane amount to cover this and suddenly things go all crazy.

            But no one is proposing that we do this, or even $100 an hour as you suggested. This is not a difficult concept. Eating vitamin D is good, but that doesn’t mean we should eat 100 lbs of it a day (which would kill you).

            Anyway, I don’t need you to understand this, because the math involved doesn’t care what you think or that you don’t care enough about the subject to understand it before spouting nonsense about it. The point is that the data has proven you wrong already. Which is the entire point of this article. Once the wage increases happened, the things people who understand math thought would happen would happen, and the things people who don’t understand math (like you and apparently the CEO of Wetzel’s Pretzels) did not happen. No rampant inflation, no inability to afford employees, etc.

          • Joe Smith

            I understand that for every penny in increase of a cost of producing a product, there will be an increase of a penny of cost SOMEWHERE down the line. There is no way around it. The penny does not magically disappear at some point. The point is these jobs do not merit $15 an hour so they shouldn’t be paid it. When I got paid low wages a long time ago, I worked more hours to make up for it. Nobody should get $15 for flipping a burger.

          • Capt. Williams

            “Nobody should get $15 for flipping a burger.”
            You are correct, these times 20 bucks would be far more in line.

          • Oikos

            Blocked for clinging to your stupidity. People like you are why America can’t have nice things.

          • Joe Smith

            Wasn’t blocked, I removed it and we will see how it goes, I’ve read several articles about owners closing down over wages, also, the people who got their benefits cut more than the wage increase so it like most thing cuts both ways, we will just have to sit back and see, hope a happy new year for you and family.

          • babyowl53

            LOL LOL What trash talk.

          • ah, now i see … you’re trolling with anti-information . go away

          • Joe Smith

            So you are telling me that the employer will just eat the increased cost of the raised wages instead of raising prices like they do any other time there is an increase? THAT is what you are telling me?

          • Kenji Yamada

            Joe, you are right, the employer will not just eat the increased cost, they will raise prices. Some important things to ask next are:

            1. Raise prices by how much?
            2. How will those price increases compare proportionally to the increase in worker incomes?
            3. What will be the consequences of that proportion?

            Thomas Jackson offered you some answers to those questions in his comment above. Here’s what he said again.

            “For example, if a company sells a product for $5, it might pay out 10% (.50) of that in the form of employee wages. DOUBLING wages would mean raising the price on the product to $5.50 to maintain the same profits per product sold. That means that your employee takes home twice as much money but the cost of goods only increased 10%. But it gets better. Even if everything you bought cost 10% more, your cost of living would not increase by 10% because a lot of what you spend money on has no labor costs, e.g. a home mortgage. That means you now have twice as money (100% more) to spend on a life where your costs have gone up less than 10%.”

          • RevKirchman

            True, the penny increase in cost will be passed along. It may even become more than a penny, depending on the % markup of cost in determining price. However, increase in price is also dependent upon market consumers ability to buy the product. To maintain a certain level of income businesses can take many different steps from increasing production of product or service and decreasing cost to altering market and advertising to broadening products or consumers. To isolate minimum wage in the overall economic costs of a state or nation or even businesses there of, is like an optometrist doing your overall health exam.

          • babyowl53

            That would work if those jobs were that…training. However, that is unfortunately not the way it works and never will. And you are right those jobs weren’t meant to be a livable wage. Again, it hasn’t turned out that way and will not change. Not everyone gets the opportunity to go onto a better paying job. And Raising the min. wage is not giving any one a hand out…

          • Dave Creek

            Actually, the minimum wage WAS meant to be a living wage. This quote from FDR: “No business which depends for existence on paying less than living
            wages to its workers has any right to continue in this country.” (1933,
            Statement on National Industrial Recovery Act)

        • Paul Smith

          Nah, businesses as a group will profit from their own money that they gave away. LOL! obviously all these leftists know more about business than Harvard MBAs and Bill Gates who are against the minimum wage. I’m really wondering why they aren’t successful business people if they’re so much smarter.

      • jernewm

        Joe, some people think that, but what usually happens is the opposite. Sometimes actual results are different from what we might expect and to learn what is the best thing to do, you have to look at actual results. What actually happens when you raise wages is that people have more money and are happier at work, so the business gets better and more people get hired.

        • Joe Smith

          No, it is basic math, the labor goes up, the prices go up, by your logic why not make it $20.00 and hour and the economy will be booming. As soon as the $15 min wage garbage started coming around, they started developing robots to replace these kind of workers etc. I know I will not pay more for fast food etc. because it is more expensive and the fact that people with no skills forced a higher wage they did not earn. Also, many union contracts, the labor of the already over priced union worker goes up when the min wage goes up so most thing will go up in price and the mon wage worker ends up about where they were in the first place while the rest of us pay more for what we buy.

          • jernewm

            Joe, I understand your thinking, but that is not what happens. In agreement with you the evidence on minimum wage increases is that they have to come slowly and be incremental, but in almost every case where the minimum wage was raised there was a practically no increase in costs of goods and no effect on number of people employed.
            You appear to not like unions. Would you prefer to work under the conditions workers faced before unions? In those days there was no 40 hour week or 8 hour work day as many worked 60-80 hours a week with not such thing as overtime, there were no paid holidays or vacations, benefits of any kind and working conditions were often unsafe and unhealthy to a degree we can’t image today. Working conditions didn’t happen because employers, especially the big corporations, were concerned about their employees, they happened because of unions. In the 1950s the economy was very strong and it got a good deal of its strength as a result of unions making it possible for people to be able to buy their basic needs and some luxuries as well. Again, facts tell us what really happens.
            Here are some links that back up what I’m saying. It is not unusual for me to have to change my mind about things when the facts show me that things are different from what I think. I ask you to look at what has happened when minimum wages increase. In any case this is the last time I’ll respond to any more comments on this subject.
            Here are some links: https://www.dol.gov/featured/minimum-wage/mythbuster
            http://www.epi.org/publication/the-impact-of-raising-the-federal-minimum-wage-to-12-by-2020-on-workers-businesses-and-the-economy-testimony-before-the-u-s-house-committee-on-education-and-the-workforce-member-forum/
            http://www.washington.edu/news/2016/04/18/early-analysis-of-seattles-15-wage-law-effect-on-prices-minimal-one-year-after-implementation/

          • Joe Smith

            Unions had a use once but with labor laws and OSHA etc they are no longer needed and their only current use is to get ridiculous benefits that crush companies and run up prices. Thanks for your response but we will have to disagree. Have a great New Year.

          • without unions, labor laws and osha will be gutted by capitalist right wing ‘representatives’ … just as their now gutting the affordable care act by defunding it . the only reason the labor laws and osha still exist is because unions have the UNIFIED worker power to force government to work for the people, instead of working only for corporate capitalists

          • Capt. Williams

            Wrong again. Unions are still needed, as a fact we need more organized labor. But that is what right wingers hate. Organized labor after all equals organized Democratic voting.

          • The labor costs go up, but so does the revenue when people spend more. Your line of thinking would be correct if only one company raised its wages, because it wouldn’t be backed up by an entire state/region with more money in their pockets. However, if an entire state/region raises wages, then many more people have more money to spend, and businesses have more customers. The only thing that could negatively affect consumer spending increases after a wage hike would be a rent hike. If rent stays the same, then consumers in that state/region will spend more money and business revenue will go up. If a business’s revenue doesn’t increase after a wage hike, then it was doomed to fail anyway.

          • Joe Smith

            Then we are doomed.

          • babyowl53

            Exactly.

          • i was paying my employees $20/hr in 1995 . you clearly didn’t read the article if you keep sticking to this right wing greed baloney

          • Capt. Williams

            Wrong again. Labor cost goes up and the increased business makes up for it. But keep shilling the old and untrue mantra, it has been soundly disproved every time the minimum wage was increased.

          • babyowl53

            No, again you’re wrong.
            This example isn’t about wage increase but the same principle applies………
            Several years ago, Las Cruces, NM (as many others) banned smoking in restaurants and other public places. Business owners complained loudly and long, saying they would lose money if people couldn’t smoke in their establishments. The ban went into affect….and business didn’t lose money, in fact, they were all booming with business because now ALL the non-smokers had somewhere to go without smoking.
            The exact opposite of what the average person thought. Quit being so negative, it likely is wrong.

      • babyowl53

        One word….wrong.
        You obviously didn’t read this article or any of the others. And this one said nothing about increasing his product. Another believer in the scare tactics of the GOP who wish to keep people down instead of having a thriving economy. Bottom line is when people earn more they feel more confident of spending more and feel good about having an increased wage.

      • Oikos

        So you didn’t read the article? Typical RW BS.

  • Andrea D

    Does anyone listen to the program or read the articles? People get paid more and they spend more. He is getting results from a lot of people getting more in their paychecks. It doesn’t come from him alone paying more. It’s the aggregate.

    • Paul Smith

      Except companies (as a group) can’t profit from their own money that they gave away.

      • Garfii Kartyk

        By that logic then no one can make any profit, ever.

        • Paul Smith

          WRONG. Shareholders (including middle class people) use some dividends paid by the company to engage in personal spending which doesn’t count as costs to a business. I used the words “give away” referring to paying inflated wages which is wasteful spending. Using the reasoning that spending is all that matters even if it’s waste you can justify things like the humongously stupid cash for clunkers program.

  • David Rice

    55,000+ years of commerce also said this; pay the people who create the wealth what their labor is worth, and the economy thrives.

  • Capt. Williams

    Every time government raises the minimum wage, business and Republicans scream that it will hurt business. Then the opposite happens.
    When a worker gets a raise, he or she has more money to spend. More money being spent = good for business and more employment.
    The only thing missing from the minimum wage laws is a cost of living increase tied to inflation, so we wouldn’t have to go through this every so often.

    • RevKirchman

      Capt. Williams you include a point overlooked by others, inflation (or economic consideration of devaluation of the money). Other considerations for the discussion in relation to income are A) % of cost used in determining price B)Import/Export of products C) Taxes involved D) Supply/Consumption point of the market E) Employment level vs workforce available and others, depending on product or service considered in relation to overall income balance.

      • Capt. Williams

        …yet raising the minimum wage has never hurt the economy, quite the opposite. History has proved that, but GOP talking points as per usual are dead wrong!

        • Paul Smith

          except there are studies linking the minimum wage to unemployment (David Neumark). And companies as a group can’t profit off of getting back their own money that they gave away.

    • Paul Smith

      Except their spending money that was given away by businesses so it’s impossible for businesses overall to profit from their own money they gave away.

  • Amnot Melanie

    This guy is an idiot. I don’t care what his profits are, raising the minimum wage is bad for everyone. You cannot pay these people more than they are worth, because it throws things out of balance. So what is going to happen when your disloyal employees use their extra money to increase their education, buy cars, and save up to relocate to other areas? They are not going to stay with like loyal employees, they are going to take off and leave you high and dry. So you’ll be forced to hire new employees who will just do the same thing to you time and time again. Are you ready to pay for that high turnover? How much will you raise prices then? What happens when there are fewer people to hire because they found “success” and you have to continually raise your wages to attract low skilled workers? How much will you raise prices then? Ever hear of inflation? You ought to be ashamed of yourself for pushing this propaganda.

    • Tbone

      This is good satire, I thought you were serious for a couple sentences!

    • Paul Smith

      Yup, companies can profit off of their own money that they gave away! Why not just print money too so we can all be rich?

  • Mike Adams

    Nationwide studies show Fast Food (like this company) are gaining customers while casual dining restaurants are suffering because we have higher wage costs. Traffic is down industry wide for casual dining, however, prices have increased so profits are up. Bottom line, decrease in the standard of living across the board. You cannot legislate wealth, it only comes from increasing value through innovation, entrepreneurship, natural resource development etc. All the stuff CA does it’s best to kill is what improves the standard of living for all.

    • Paul Smith

      Nah, companies as a group will profit off of their own money that they give away. Progressive nobodies know more about business than Bill Gates (who opposes the min wage). Dontcha know?

Author

Sam Harnett

Sam Harnett is a reporter who covers tech, capital and work at KQED. For the last five years he has been reporting on how technology and capitalism are changing the way we think about ourselves and what it means to work. He is the co-creator of The World According to Sound, a 90-second podcast that features different sounds and the stories behind them.

Before coming to KQED, Sam worked as an independent reporter who contributed regularly to The California Report, Marketplace, The World and NPR. In 2013, he launched a podcast called Driving With Strangers. In 2014, he was selected by the International Center for Journalists for a reporting fellowship in Japan, where he covered the legacy of the Fukushima disaster.

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