Minimum Wage Hikes and Restaurants: Who Gains? Who Loses?

Los Angeles and Seattle institute or contemplate big minimum wage hikes, and the furor over how restaurants will be affected continues.


The L.A. Weekly has a cover story this week exploring many voices and perspectives on what a higher minimum wage might do to restaurant workers and restaurants, close-focused on managers and employees at venerable L.A. 24-hour deli Canter's, at which I've consumed many, many dozens of half-pastramis on rye accompanied by bowls of either matzo ball or kreplach soup. And I hope to consume many many dozens more.


As the story says, "the city of Los Angeles plans to increase the minimum wage from $9 an hour to as much as $15.25 over the next few years."

Unsurprisingly, the interests of waiters and countermen and their management don't always seem to match. The whole thing is worth reading, but the perspectives can be roughly summed up as: higher per hour expenses might lead the deli to have to close nights on weekdays (you are hearing a large swath of Los Angeles including me scream in fear at this prospect); that higher per hour money will help the long-commuting, long-suffering low-wage workers live a little better, save a little more, or send more back to their families in Mexico; but that perhaps people shouldn't assume being a busboy or deliman is a lucrative lifetime career and need to up their game.

Servers might need to become busboys as well and service will suffer; consideration should be given to how tips increase compensation without forcing the deli itself to pay the full hourly wage freight; that a higher hourly wage for tipped workers that comes with a cost-necessitated cut in hours is hurting the waiter, not helping him or her.

The story shifts at the end to the politics of minimum wage hike, and to the specter of some employers who will just violate the law and in fact already do, and the city's inability to adequately police that, especially in a city with a large immigrant labor force.

All the differing perspectives from different actual humans involved are worth contemplating, and likely will fail to move anyone from whatever position they already have on whether raising the minimum wage is a good thing.

Ultimately and necessarily, this kind of perspective-based reporting gives no hard facts about how it will pan out, who will be helped and who will be hurt, who will keep their jobs and who will lose them or, hardest to know, who will never get a job they might otherwise have gotten.

Speaking of hard facts, last month I wrote about various stories out of Seattle that seemed confident that minimum wages on the rise in that city were causing possibly fatal problems for restaurants there, including this from Shift Washington:

Restaurant owners, expecting to operate on thinner margins, have tried to adapt in several ways including "higher menu prices, cheaper, lower-quality ingredients, reduced opening times, and cutting work hours and firing workers," according to The Seattle Times and Seattle Eater magazine. As the Washington Policy Center points out, when these strategies are not enough, businesses close, "workers lose their jobs and the neighborhood loses a prized amenity."

A spokesman for the Washington Restaurant Association told the Washington Policy Center, "Every [restaurant] operator I'm talking to is in panic mode, trying to figure out what the new world will look like….Seattle is the first city in this thing and everyone's watching, asking how is this going to change?" 

Follow-up discussion from ThinkProgress has called that presumption into question, as has analysis from Barry Ritholtz. He writes, after studying available data about restaurant permits pulled in Seattle:

we'd expect to see permit issuance fall off a cliff about a year or so ago as restaurateurs—or prospective restaurateurs—digested (pun intended) the knowledge that their labor costs would rise….

What I see…and I'm focused on the 12-month moving average – is, well, nothing. I see a longer-term trend of roughly 25-26 permits per month amid the usual month-to-month noise that is always evident in any data set. Contrary to conservative rhetoric that has been devoid of any fact- or data-based analysis, Seattle's restaurant business (through March 2015) looks very much today (in terms of permits) as it did prior to any notion of a higher minimum wage….Of course, the Seattle experiment will bear watching as the city's minimum wage gradually scales higher. At the moment, however, it certainly appears to be much ado about nothing.

What has happened so far in Seattle is no guarantee of future results of lack of results in terms of restaurant closings, or any other set of negative results of the enforced wage hike. Increasing labor costs may end up being something a restaurant can bear, but it may not. It is, mostly, too soon to tell.

But the logic of making it illegal to hire people whose value to the hirer is less than $15 seems like it will inevitably lead to some people who might have been hired, not being hired. And the logic of increasing labor costs in often very low margin businesses does seem likely to kill some of them. How many, and when, there is no way to say.

Ronald Bailey from our May issue on the unavoidably magical thinking at the heart of those who maintain a higher minimum wage can do no harm.