I was joined Friday morning by CKE CEO Andy Puzder who is one of the most articulate and persuasive of America’s business leaders:
HH: This is my segment of greatest impact. It’s 8:30 in the East, 5:30 in the West. And in California, the 55 Freeway headed into the coast from the Inland Empire is jammed. The 405 is jammed. In Phoenix on AM960, people are going to work. Of course, all across Atlanta and Washington and St. Louis and D.C., all the freeways are jammed, in New York, etc. They’re all people going to work. And that’s why I asked Andy Puzder to join me. Andy is the CEO of CKE Restaurants. Now Andy is a lawyer. But he was such a good lawyer that Carl Karcher asked him to come in and actually run Karcher Enterprises after him. And CKE owns all of Carls, Jr. and Hardee’s, and you see Andy a lot on CNBC and the other business channels. And I want people to understand, especially those of you who are going to work this early, especially those of you who own businesses, what this minimum wage dispute is about, because in Phoenix, you’re going to be voting in the fall on a $12 dollar an hour minimum wage. California just adopted a $15 dollars an hour minimum wage. Andy, welcome to the Hugh Hewitt Show, thanks for getting up early to talk about this subject to this audience.
AP: Great to be here, Hugh, good to hear from you.
HH: Let’s begin with the basics. You employ a lot of people. How many people work for CKE?
AP: For the company itself, there’s about 10,000 employees. If you look at the system overall, which includes our franchisees, it’s closer to 75,000 people in the United States, and another 15,000 overseas.
HH: All right, so it’s a lot of people that depend on your company being healthy, a lot of families that need their jobs. What do you think of the $15 dollar an hour minimum wage, or even the $12 dollar an hour minimum wage that’s going to be on the ballot in Arizona?
AP: Well, I hope it stays on the ballot. One of the big surprises in California was that there was an initiative on the ballot that was supposed to be voted on in November. The polling was showing that it didn’t have popular support, that people were not going to, that they felt $15 dollars an hour was too big an increase. And so surprisingly, very surprisingly, the Governor, Brown, and the Legislature, Democrats, passed a $15 dollar an hour minimum wage bill despite the lack of popular support. And in fact, Governor Brown had stated, and I’m going to quote him here, he said raising the minimum wage too much would put a lot of people out of work. And he concluded that there would be, there won’t be a lot of jobs. So he knew about the bad impact, but they went and passed it anyway. So it’s, it was a big surprise here. But I can tell you generally what the impact, economic impact would be from raising the minimum wage to either of those amounts.
HH: Please do.
AP: If you, if you look at businesses generally, retailers generally, and this is information from the Fortune 500, we have some companies that make a lot of money per employee. For example, Apple did $39.5 billion in business last year, and only has 97,000 employees. So they made about $407,000 dollars per employee, which gives you a lot of latitude to increase wages, if you want to do so. In the retail segment, if you take all 22 retailers on the Fortune 500 and add them together, they did about $34 billion in business last year, and they employed 5.8 million people, you know, a lot more than the 97,000, obviously, that Apple employed, and a little less in revenue. And they made about $6,300 dollars per employee. Now if you give a minimum wage employee an increase to $12 dollars an hour, rather than making $6,300 dollars an hour on employees, you lose about $1,100.
AP: If you give them a raise to $15 dollars, you lose about $6,000 dollars per employee. So you actually go from a situation where your, you’ve got a business that can survive and that has economic strength to a business that you really can’t run, you really can’t hire people, so, and you can’t offset these costs of this magnitude with pricing, even if there was meaningful inflation, which we don’t have. So either businesses will move out of the state, this is what will happen in California when it gets to $15. Businesses will move out of the state, marginally profitable businesses will close, and businesses that manage to survive will more efficiently manage their labor by reducing hours to the bare minimum, automating as many positions as they possibly can, and raising prices as high as the market will bear. So…and you know, as Governor Brown said, there won’t be a lot of jobs. So it’s a very scary proposition for businesses, and I think states should look very carefully at what they do.
HH: Now Andy, in my world of radio, I’ve always had three interns. I’m going to two, right, because that’s, I don’t have a bigger budget for interns. So I’ve always paid them $10 dollars an hour. I’m not one of those people that don’t pay interns. I’ve always paid them $10 bucks an hour. They’re not worth $10 dollars an hour, but I pay them $10 dollars an hour. But now I’m going to, but that’s $30 dollars an hour for interns. Now, I’m going to pay two of them and spend the same amount of money, because that’s the budget for interns. I saw that the University of California at Berkeley laid off 500 people immediately. The University of California did, because they don’t have a budget that they can expand. They depend upon the state of California’s budget. And then I went to the movies yesterday, and I see automated drink machines everywhere, and I realize what is happening. You just mentioned it. Automation is going to replace low wage employees.
AP: Well, you already see it everywhere. I mean, if you go in casual dining restaurants in particular, like Chili’s and Applebees and Olive Garden, there is, they have the ordering screens. You have the touch screen ordering, which, quite honestly, millennials prefer. We have it in some of our restaurants that are near colleges or in an area where there is a lot of high tech employees. And I’ve actually been in the restaurants and seen millennials standing, waiting to use the ordering kiosks while there are people at the counter not doing anything who would wait on people. So there is a trend to install more and more of these touch screen ordering systems. You’ve also got back of the house innovations in automation that people don’t see. And so there’s a lot going on in that respect, and it will definitely impact the number of people that are employed. One of the big threats in California, by the way, is that when fully implemented, this $15 dollar an hour minimum wage is going to cost the state about $3.6 billion dollars a year. As you mentioned, the University at Berkeley is reducing the number of employees. But think about schools, generally, just the local schools, particularly schools for underprivileged or minority kids that are already struggling to provide the services their students need. They’re really going to feel the impact of these cuts a lot more than the affluent school districts along California’s coast. And these schools have a lot of minimum wage employees, like bus drivers, groundskeepers, custodians, after school staff, special needs staff. And they’re going to have to reduce things. They’re going to have to do things like expanding bus routes and putting in hiring and promotion freezes, reduced field trips and trips to athletic events, or reduce spending on technology, maybe take out music programs or enlarge classes. So there are a lot, you’re really going to see school districts be impacted by this increase as well as private businesses. And if you’re in the working class, you’re going to lose job opportunities for your kids, and you’re not going to get the kind of education you might otherwise have gotten. So I think this, taking this of the ballot, and doing this without a popular vote of the people of California, I think, was a horrific thing for the Democrats and Governor Brown to do. And I hope in the next election, the people of California make them pay for it.
HH: It is hard to make the argument, though, because everyone says a living wage. Now I’m talking with Andrew Puzder. He is the CEO of CKE Restaurants, which owns Carls, Jr. and Hardees, very, very popular brands across the United States. And I remember, Andy, you told me once, I don’t know when this was, that the real people who are punished by this are people who don’t have a job and have low skills. They can’t get into the workforce, because they don’t bring enough to the table. And here, I think particularly of urban youth who have been mal-served by a poor education system. You just can’t find employers who are going to give away jobs at this rate to kids who need skill sets.
AP: No, you can’t, and Governor Brown, as I said, he admitted that. He said there won’t be a lot of jobs. There was actually a very good report out of the Federal Reserve Bank of San Francisco just in December. There wasn’t a lot of media coverage on it, and the San Francisco Fed isn’t exactly a bastion of conservative economic thought. But they examined all of the research on the impact of minimum wage increases, and they stressed, they really emphasized, that the most important policy consideration was whether or not there would be fewer jobs for less skilled workers. And they said that was most important, because they’re the ones that the minimum wage is intended to help. So they looked at all the research, including some really faulty research done by Robert Reich, he was one of the individuals that conducted some research. They found it to be faulty. They found that the basis for the research wasn’t justified. And they found that the most credible research showed that increasing the minimum wage resulted in job losses for the least skilled workers. And it actually showed that that probably happened with larger adverse effects than earlier research had suggested. So even the San Francisco Fed has come out and said look, this is going to kill jobs. And it doesn’t kill jobs for people with technical skills. It doesn’t kill jobs for the people that are working in Silicon Valley or West L.A. It kills jobs for the least skilled and most vulnerable people in the working class. Those are the jobs that get people on the ladder of opportunity. I know, you know, I started at a Baskin-Robbins for a dollar an hour. Thank God I had that job.
AP: I learned a lot.
HH: Andy, I’ve got a Twitter follower, @gozplan, who tweets out you can’t offset this with pricing. This guest is good. Can you, you know, everyone knows Carl’s, Jr. You have a great product. They can’t, though. You can’t raise the cost of a hamburger. I mean, you can’t do it to offset this, correct?
AP: Well, you can raise the price, but not enough to offset this. That’s why you’re going to have to either, people are going to have to close their businesses, or they’re going to have to reduce the number of employees they have. Automation is a big help in that respect. But you can also manage your labor more efficiently. So, and then you raise prices as much as you can. But you can’t raise it enough to cover an increase like this where you go from, you know, making $6,000 an employee to losing $6,000 an employee. You can’t offset that gap with pricing alone. Nobody will pay it.
HH: Let me wonder if there isn’t one silver lining in our last couple of minutes, Andy Puzder, and that is this. The hike is so stark, and the effects will be so dramatic, we may finally have the illustration of why free market people have always been opposed to arbitrary minimum wage hikes. Do you think it is so huge a hike, and so dramatic an impact on employment that even some of the left will wake up?
AP: Well, some of the economists on the left, including economists from the Clinton administration and the Obama administration have said this is dangerous. Don’t do this. This goes too far. I think that this may be that step too far that will wake people up. I think in some sense, the SEIU, the Service Employees International Union, and the Democrats, are kind of like the dog that caught the car. I don’t know if they’re going to be able to deal with what happens out of this. Now I will say the increase in California, by the way, it goes up, it’s over six years. The interesting thing is the minimum wage only goes up $.50 cents a year while Governor Brown is governor. And then the next governor, it goes up a dollar a year.
AP: So it’s kind of interesting how he said, of course, is you know, as he said, there won’t be a lot of jobs. I guess he means there won’t be a lot of jobs for his successor, because it’s not going to go up that much during his administration.
HH: At the same time that Obamacare kicks in with massive hikes to those who have full-time employment. It’s really the perfect storm for employers. Andy Puzder of CKE Enterprises, thanks for joining me and explaining to people, for someone who employs 75,000 people through the network, 10,000 directly and then overseas, you’re a great voice for just the common sense approach to anyone who cares about giving people jobs. You just don’t do this. Andy, thank you.
End of interview.