Want to pay minimum wage? Might as well hang up an “Out of Business” sign in this energy-rich pocket of the U.S.
In the heart of North Dakota’s Bakken Formation lies a free-market poster child—a spot where fast-food workers earn multiples of the $7.25 federal minimum hourly wage.
“Our starting wage out there is $11, and that’s just to start,” Jon Munger said about his Williston, North Dakota, Hardee’s franchise. “We’ve got people at $13, $14, $15 at the crew level.” Management positions fetch as much as $20 per hour.
The energy boom isn’t confined just to Williston. Munger feels the ripple effect from North Dakota’s robust economy throughout the state.
Williston never sleeps
Williston is the busiest location of Munger’s 99 Hardee’s restaurants, 10 of which are in North Dakota.
“The difference in Williston is that we’re busy 24/7,” Munger said in a phone interview. “They talk about New York and Vegas never sleeping. Williston never sleeps.”
Two miles away at Buffalo Wild Wings, franchise owner Dani Reichenberger said she pays “more than twice the minimum wage for kitchen staff.”
Because the housing market is so pricey, Reichenberger provides a housing allowance for her general manager and rents a home to other managers for submarket rates.
At the Williston McDonald’s, pay starts at no less than $11 per hour, said Mike Kelley, a franchisee for 40 years who’s seen the ebb and flow of the area’s fortunes. His employees are also guaranteed a wage review every 750 hours worked, which almost always results in a raise.
Kelley’s hiring pool would dry up if he tried to pay someone minimum wage.
“I couldn’t hire anybody,” he said. “In this area, I would be totally embarrassed to even try to hire someone at $7.25.”
Market forces at play
The Bakken’s larger paychecks stem from high labor demand and a shortage of supply, said Mark Perry, a professor of economics and finance at the University of Michigan’s Flint campus. He described it as a “fascinating study” of the impact of an energy-driven boom as North Dakota’s energy production has soared and personal income rose.
North Dakota’s 2.6 percent unemployment rate is the lowest in the nation. Within that, Williams County, where Williston is located, boasts an unemployment rate of just 0.9 percent
“That basically means that anybody who wants a job can get one almost immediately,” Perry said. “You really don’t need living wages or minimum wages because the market pushes wages way up.”
To counteract higher wages, franchise operators have pared down and priced up.
At Hardee’s, Munger uses labor-saving devices, like self-ordering kiosks and automated training systems to cut down on costs. He also eliminated a hostess program and a roast beef slicer position. Customers feel the pinch too—prices are about 20 to 30 percent higher in Williston than his average restaurant.
Buffalo Wild Wings has adjusted its labor structure and become “very strict with inventory,” Reichenberger said.
McDonald’s makes up for bigger labor costs with increased volume and higher prices.
“A lot of McDonald’s in the nation have a dollar menu,” Kelley said. “Well, our dollar menu is $1.39.”
Still, expensive labor makes Kelley’s business difficult to run—a reality that other franchisees may soon face in places that have passed higher minimum wages.
Putting in these artificial wage floors hampers an economy and prices unskilled workers out of the market, Perry said.
As for $15, the hourly wage Seattle just passed, Perry says, “That, I think, is kind of an economic death wish.”
—By CNBC’s Katie Little