Lessons from Shake Shack: A Higher Minimum Wage = Loss of Jobs

By Fiona W. Ong - Shawe & Rosenthal LLP

October 5, 2017

This week, Shake Shack excitedly announced that it was implementing kiosk-only service at its newest NYC location, with an ostensible focus on digital innovation and improved customer experience. This means that, rather than interacting with a live cashier to place and pay for an order, the customer will use the kiosk to place an electronic order and use a credit card to pay for it. I don’t doubt that plenty of research has been done to establish that this will, in fact, increase efficiency, which is a good thing because, as I sadly know, those Shake Shack lines can be interminably long. I also am fine with the fact that I will no longer need to interact with cashiers who sometimes can be surly or incompetent (although, frankly, not usually at Shake Shack. I think their hiring practices and customer service training seem to be quite good.) But what this really means is that there are fewer jobs that will need to be performed by actual people. Who would otherwise get paid.

Interestingly, Eater.com noted in an article, “Upcoming East Village Shake Shack Nixes Human Cashiers,” that only a year ago, Shake Shack founder Danny Meyer told it, ““I know there is a temptation to replace human beings with robots or with iPads. We want you to leave you there just skipping with delight, and so far we haven’t found anything that does that better, either in terms of the food or the hospitality, than people.” So what has changed so dramatically in a year? Quite simply, increased minimum wages.

As you may know, the Service Employees International Union (SEIU) has been pushing the “Fight for $15” – a $15/hour minimum wage. (I had previously blogged that, ironically,  the SEIU fails to pay its own “Fight for $15” staff $15/hour!) We are watching legislative initiatives all across the country to raise the minimum wage – in some cases to the desired $15/hour level. Many of these initiatives have been successful. The current minimum wage in NYC for large employers, like Shake Shack, is $11/hour, which jumps to $13/hour at the end of 2017, and then to $15/hour at the end of next year.

Eater.com noted in its article, “Shake Shack Hikes Prices to Stay Ahead of Rising Minimum Wages,” that, last year, the company raised prices on all its menu items. So the company had already taken action – directly impacting consumers – in order to allow it to continue to pay above the local minimum wage.

And now, in its press release, Shake Shack has also announced that, in conjunction with the implementation of digital kiosks, “Shake Shack will lead with a starting wage of $15 per hour to continue to be on the forefront of competitive wages and developing the leaders needed for growth.” Presumably this is a bump up from its already-above-minimum wage rate, which Eater.com had reported to be $12-13.50/hour back in 2016.

But what Shake Shack’s announcement doesn’t address is the fact that the practical consequence of its innovation is that it will need fewer employees. Making $15/hour. So, even though the point of the “Fight for $15” and an increased minimum wage is to bring more people out of poverty, here we have a situation in which fewer jobs are now available for those very people this initiative was intended to help.