John Miltimore examines the claims of the CEO of the &pizza chain in the Washington DC area that his stores have no problem getting staff because he pays them a “living wage”:
As far as PR goes, Lastoria gets an A+. He was profiled by Business Insider, CBS News, and other media outlets. His economics grade, however, is another story.
First, the notion that &pizza’s wages are uniquely generous is wrong. The minimum wage in the nation’s capital, after all, is $15.20. Considering that Washington, DC has one of the highest costs of living in the US, it’s not unreasonable to assume that &pizza is paying workers what amounts to the market wage of their labor (i.e. the price they’d get in the absence of a wage floor). This is a stark contrast to other parts of the United States. Fifteen dollars in DC translates to roughly $24 in Florida, $25 in Alabama and Tennessee, $26 in New Mexico, and $27 in Louisiana.
Second, Lastoria decries the alleged “shortage of business owners willing to pay a living wage.” But it should be pointed out that &pizza is one of those businesses.
While there is no objective standard to determine what a living wage actually is, MIT has a Living Wage Calculator that allows readers to compute living wages based on the formula created by Dr. Amy K. Glasmeier.
To say that &pizza doesn’t pay its employees a “living wage” is an understatement. The living wage for a single mom with one child is $38.48 in Washington DC. For a single mother with two children, it’s $47.89. Indeed, even for a married couple with just one child, the living wage is $20.69 — nearly $5 an hour more than the average pay of Lastoria’s workers. (It’s unclear why Lastoria is having fewer problems hiring workers than other businesses, but it’s most likely attributable to local factors, such as the fact that he’s servicing nine of the twenty wealthiest counties in America.)
Finally, Lastoria’s claim that higher wages increase productivity enough to improve a company’s bottom line — the efficiency wage hypothesis — has problems logically and empirically. First, it implies that companies not currently paying an efficiency wage are willing to take less profit simply to make workers poorer. Moreover, efficiency wages have been shown to reduce employment, similar to minimum wage laws.
Lastoria might see the $16 an hour average wage as exceedingly generous — especially when he compares it to lower nominal wages paid in other parts of the country — but it’s a far cry from a “living wage”, according to the model used by living wage advocates.
I asked Lastoria how he’d respond to those who say restaurants like his should be required to pay each worker a living wage. He didn’t respond.
