Denver is mulling new legislation that would increase the minimum wage to $15.87 an hour by 2021, with additional raises every subsequent year.
Introduced by Democratic Mayor Michael Hancock and Councilwoman At-large Robin Kniech, the measure would take effect in January of 2020, when businesses would be required to pay employees at least $13.87 an hour. After the additional $2 raise in 2021, that minimum would increase by 15 percent or $1.75 an hour—whichever is greater—every year after.
The current Colorado minimum wage is $11.10 an hour.
Researchers have long argued over the merits of minimum wage laws: A study from the University of Washington found that Seattle's minimum wage hurt the city's low-skilled workers, while a paper from the University of California, Berkeley says such reservations are unfounded, even in rural areas. It's likely that there's at least some truth to both conclusions: Some people earn more, some people work fewer hours for a higher hourly wage and end up breaking even, and some others might be shut out of the workforce altogether.
Yet one industry that tends to fall on the losing end of such proposals is the restaurant industry, which operates on skeletal profit margins—usually topping 6 percent at max.
Like much of the country, Denver offers a tipped wage, a lower hourly base pay for servers and bartenders that allows them to make up the rest—and more—in tips. But unlike much of the country, the Colorado Constitution stipulates that the tipped wage cannot be less than $3.02 below the state minimum, putting Denver's current tipped base at $8.08. That's already higher than the federal full minimum wage, which sits at $7.25 an hour. (It's worth mentioning that, if tips don't bring workers to the state's minimum wage threshold, their employers are legally required to make up the difference.)
"The speed with which this hike would be implemented is extreme," Sonia Riggs, president and CEO of the Colorado Restaurant Association, tells Reason, noting that restaurants would have a grand total of two months to ready themselves for the first hike. The city council is set to vote on the measure in November. If it passes, she assumes that dining establishments across Denver will first find themselves rushing to raise prices.
"People are not willing [to] pay $25 for a cheeseburger," says Riggs. "Less eating out is bad for everyone in this business."
That won't be the only effect. Riggs explains that, as it stands, servers in the city make somewhere between $20-40 on average, an even greater sum than Denver's proposed minimum wage hike. They'll still see a considerable bump in hourly wages. But kitchen staff, who typically make a marginal rate higher than the state's $15.87 proposal, will receive nothing at all. Back-of-house employees will thus watch front-of-house staff land a sizable raise, even though the latter were already bringing home considerably more cash.
"When the cook making $17 an hour sees the server getting a 50 percent raise to do the same job, the cook is going to want $20 an hour," says Riggs. "But remember, the restaurant has less money to work with here to accommodate that. So again, the restaurant has to raise prices and decrease costs, including cutting staff, in order to survive."
Survival is the name of the game in the restaurant industry, and it's a hard one to win. That becomes even less achievable with large minimum wage hikes: A recent study conducted by two researchers at Harvard Business School found that a median-rated restaurant on Yelp was 14 percent more likely to shutter with every dollar added to the tipped wage. For Denver, those odds would reach 67 percent come January 2021, if the legislation sails through the city council.
Riggs also remarks that restaurants in the area face a labor shortage in kitchen staff. Yet the measure would just further aggravate that problem, hamstringing the restaurateurs who want to hire more help, but who can no longer afford it.
"In the case of the restaurant industry," she says "this proposal actually hurts the people it's trying to help."