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Minimum Wage Hikes in New York City Cause Restaurants to Eliminate Jobs, Cut Hours, Raise Prices

Good intentions do not always lead to good outcomes.

Richard B. Levine/NewscomRichard B. Levine/NewscomNew York is known for its incredible food scene, but legislators in the Big Apple may have bitten off more than they can chew with the newest minimum wage hike.

The city's mandated increase, which took effect on December 31, requires businesses that employ 11 or more people to boost wages from $13 to $15 per hour. But most restaurants operate with the tipped wage, offering servers and bartenders a lower hourly base pay and the opportunity to rake in the rest in tips, which often yields better pay overall. If workers don't earn enough this way, employers are required to make up the difference.

That tipped minimum just rose from $8.65 to $10 an hour. A 16 percent jump is fairly punishing, considering the industry operates on razor-thin profit margins.

A new study conducted by the New York City Hospitality Alliance lends credence to the idea that substantial increases made to the tipped wage are far costlier than they are beneficial. After surveying 574 restaurants, they found that 2019 looks bleak: 75 percent of full-service establishments plan to cut employee hours, and 47 percent will eliminate jobs entirely in response to the forced minimum wage hikes. That follows closely on the heels of a dreary 2018, when 77 percent of full-service restaurants reduced employee hours and 36 percent cut jobs, both of which were also in response to the mandated wage increases.

Susannah Koteen, who runs Lido Restaurant in Harlem, has already had to make do with less by getting rid of her busboys, the lowest employees on the restaurant totem pole. Customer-facing but non-tipped, these workers now reap the full benefits of a $15 minimum wage, but only if they're lucky enough to stay employed.

"A server can bus their own table, but you can't ask a busboy to open a bottle of wine and talk about what it can be paired with," Koteen told CBS News.

Such policies not only disadvantage the most vulnerable in the short-term, but they also close a pathway to the middle class in the long-term. "Our current general manager started as a busser the day we opened. English is not his first language, he has his GED. He is smart, hardworking and cares about customer service," said Koteen. Those success stories—of the "American Dream" ilk—grow fewer and farther between as higher labor costs block avenues to success.

Consumers can expect to pay the price as well—quite literally. According to the NYC Hospitality Alliance Survey study, 87 percent of restaurants will increase prices in 2019, and 90 percent said they already did so last year. Both Per Se and Eleven Madison Park can count themselves among that cohort, as their menu prices rose in January 2018 and again at the start of the new year, directly after the annual wage increases set in. The Grill, another Manhattan establishment, started charging $38 for a mushroom omelet in 2018—a 52 percent jump from the $24 price tag in 2017. (That better be a really, really good omelet.)

All three are decidedly on the ritzier side, so it's feasible that their clientele have deep enough pockets to keep up with the stratospheric food and drink prices. But for lower-end restaurants, price increases can be prohibitive for their patrons.

That is, if they're fortunate enough to stay above water. Two researchers at Harvard Business School found that a median rated restaurant—one with about 3.5 stars on Yelp—has an additional 14 percent chance of closing for every dollar added to the tipped wage. The kneejerk reaction is that such restaurants must be mediocre at best and therefore deserve to close. But many of those establishments operate in underserved communities where money is tight and restaurant-goers have few affordable options. Business owners should be able to enter the marketplace without a boatload of cash, and customers shouldn't be stripped of their access to inexpensive dining.

To add insult to injury, Mayor Bill de Blasio recently unveiled a new policy which would require all businesses with five or more employees to guarantee two weeks of paid time off. That includes restaurants.

"This is an extraordinary step forward, especially because 35 percent of restaurant workers are parents who have already had to skip too many of their children's plays, recitals and games because of lack of paid time off," said Sekou Siby, executive director of Restaurant Opportunities Centers United, an organization that wants to abolish the tipped wage in favor of a higher minimum.

Siby isn't completely wrong. If these laws continue to rack up expenses for restaurant owners at top speed, then it's true that many workers may find themselves with more time on their hands. But it won't be because of paid time off. It will be because they're unemployed.

Photo Credit: Richard B. Levine/Newscom

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  • Diane Reynolds (Paul.)||

    Siby isn't completely wrong. If these laws continue to rack up expenses for restaurant owners at top speed, then it's true that many workers may find themselves with more time on their hands. But it won't be because of paid time off. It will be because they're unemployed.

    In the long run, the system will find its balance, and everything in New York will just be even more expensive, and minimum wage earners will still be poor(ish). Everyone will look around and wonder why, and the cycle will start all over.

  • esteve7||

    See: How the Democrats have created dependency and hollow out cities for the last 70 years.

  • Longtorso, Johnny||

    Dems who want $15/hr are merely misguided, despite that hurting immigrants and natives at the lower end of the economic scale.

    Reps who want to limit immigration to push up wages of those already here (will that work? different argument) are Pure Evil because that will hurt immigrants.

  • Mr. JD||

    That's the sarcasm of the moment, apparently.

  • vek||

    Except I don't care about the welfare of immigrants. Like it or not, I'm tied to the well being of my fellow Americans. If they're on welfare, it costs me, if they're employed it reduces my burdens as a taxpayer. Then there's the social harmony thing... Because rioting in the streets aren't exactly nice to deal with.

    As such I say let the low skill foreigners improve their own shit holes, and we can deal with our own problems as well.

  • Bubba Jones||

    minimum wage employees are serving a $40 omelette?

    This seems unlikely. Those waiters are making much more than that in tips, and they are splitting it with the busboys.

  • Tul­pa||

    Snitch.

  • Kevin Smith||

    As prices and wages go up, the tipping culture will go down. People visiting from other states aren't going to want to tip someone who might be making twice as much per hour as they do

  • vek||

    I know bartenders/servers in Seattle who make really stupid money. The lower ones seem to all make $50-60K as far as ones I've heard mention what they make... Some of the higher earning ones make $100K+.

    So yeah, if a place like that is ALSO busy, those people are making WAY over $15 an hour.

  • Uncle Jay||

    Well, how else are you get people unemployed, make small businesses collapse and have people leave your city better than raising the minimum wage?

  • I'm Not Sure||

    "The kneejerk reaction is that such restaurants must be mediocre at best and therefore deserve to close."

    I don't know about anyone else, but I look forward to the day when all restaurants are above average.

  • Rockabilly||

    A democrat progressive communist moment !!!

  • esteve7||

    Who says this is a good intention?

    After seeing all of the despicable behavior towards the Covington Kids by leftists, how they lie and lie and lie again because they are all hateful bigots, I am never giving them the benefit of the doubt on anything.

    How about saying they are morally reprehensible for dictating what I can and can't work for, and using government force to push their warped mindset on others.

  • Don't look at me!||

    I can eat a shit-ton of eggs at home for $38.

  • Rich||

    With *ambience*?!

  • GroundTruth||

    And probably better prepared too!

    The only reason for us to go out is to get a few new ideas. After than, take it home and do it right, for a third the price.

    And we don't have to leave the dog alone either!

  • Earth Skeptic||

    And proper NYC wait staff attitude?

  • KWlib||

    I just bought a dozen extra large eggs the other day for $2.51. So the (retail) cost for a three egg omelet would be 63 cents. The mushrooms can't cost much (if any) more than that. Let's be generous and say food costs are $2.00.

    $38.00? No thanks.

  • ClaLib ConFus NozMin||

    You're only calculating base cost of the eggs. You still need to factor in:

    The cost of the other ingredients. In this case, it's a mushroom omelette. For all we know, they might be truffles. Or magic.

    Production costs. Heating isn't free.

    Labor involved. Someone else is doing the cooking. Someone else is serving it. Someone else is cleaning it up.

    Relative value of time equation. Suppose you're a powerful attorney in Manhattan. You earn $1100/hr, because you're a fucking badass. How much money did you just lose by driving home, cooking a "$2" omelette, and then driving back?

  • ClaLib ConFus NozMin||

    You're only calculating base cost of the eggs. You still need to factor in:

    The cost of the other ingredients. In this case, it's a mushroom omelette. For all we know, they might be truffles. Or magic.

    Production costs. Heating isn't free.

    Labor involved. Someone else is doing the cooking. Someone else is serving it. Someone else is cleaning it up.

    Relative value of time equation. Suppose you're a powerful attorney in Manhattan. You earn $1100/hr, because you're a fucking badass. How much money did you just lose by driving home, cooking a "$2" omelette, and then driving back?

  • Sevo||

    Was there a point there, or did you just get some decent dope?

  • ClaLib ConFus NozMin||

    The point is that univariate analyses aren't generally that useful.

    Presumably, this applies to the NYC minimum wage raiser advocates as well. Some people can't live on the current minimum wage, apparently, but if they had another $320/month, they could. So they raise the hourly wage minimum from 13 to 15, without factoring in how this will impact the businesses and/or the consumers.

    Prices rise across the board, as partially explained in the article, which means that (ultimately) an extra $2/hr is no longer sufficient.

    Wagering a guess, the future holds a near-infinite number of minimum wage hikes in NYC. It will only end when they abandon their ridiculous univariate analysis, or when businesses abandon NYC.

    ___

    Note: The original commentary was solely predicated on the folly of univariate analyses. THIS comment has been infused with several bourbon and cokes.

  • ClaLib ConFus NozMin||

    infused with

    contaminated by

    diluted thereof

    rendered in virtue of

    etc

  • JWatts||

    I applaud this move by New York City to provide an experiment that we can all learn from. But what's with the $10 per hour tipped minimum? Come on, push it to $15, so we can see what a "fair wage" looks like.

    "requires businesses that employ 11 or more people to boost wages from $13 to $15 per hour."

    And what's with the 11 person minimum? Are employees of a 5 person business only 3/5ths of a person or some such? Surely everyone deserves to be treated equally.

  • ClaLib ConFus NozMin||

    Okay, so I forget exactly which law this is enshrined at, but if memory is serving it's Title IV of the Civil Rights Act of 1967.

    It's a federal law that pertains to equality of opportunity in hiring, regarding non-discrimination on the basis of a number of qualifying factors... But ONLY if the company in question has 15 or more employees (and a few other, less-invoked factors).

    [Aside: There was a King of the Hill episode in which this was mentioned, although (Aside 2:) This cartoon amused me but did not inform me.]

    Anyway, no. Nothing about the much-misunderstood 3/5 Compromise at play here. Just an imitation of existing federal law.

  • Longtobefree||

    So people in New York are getting what they voted for; how exactly is this bad.

    After enough reasonable people leave, and de Blasio and cronies have to start with self service, may, just maybe - - -

  • ||

    After enough reasonable people leave, and de Blasio and cronies have to start with self service, may, just maybe - - -

    What, at this point, makes you think anybody left in New York is reasonable?

    I'm not exactly a racist or believe in magic soil when it comes to the immigration debate, the people still in NYC are as bad as the people who voted for Chavez or Maduro and are just now fleeing the country.

    The only reasonable New Yorkers I know left a decade ago and are among the first to say "Fuck Bloomberg, Fuck DeBlasio, Fuck Cuomo!"

  • Dadlobby||

    The communist city of NY in the socialist state of NY. You can't live on $15 an hour in UPSTATE NY, much less NYC. To cover the property and other taxes $50,000 is low middle class upstate, $80,000 in NYC and with medical. This means you only have to work one side job over your full time gig to get ahead (your wife also). 100,000 plus a year bail on upstate NY every year, this as they continue to give more "entitlements" away in the "Big Free Apple".

  • creech||

    If waiters jobs are starting to shrink, what are all our "talented" models, actors, musicians, artists, and puppeteers going to do for a living in New York City while waiting to be discovered?

  • Fats of Fury||

    Mr Weinstein please pick up the courtesy phone.

  • I'm Not Sure||

    Run for Congress?

  • Earth Skeptic||

    Government jobs?

  • Sevo||

    Here's the most recent pearl of wisdom from our newest scumbag slaver, over in the earlier M/W thread:

    "Rob Misek|1.24.19 @ 3:21PM|#
    What's an economy, but a set of rules to achieve the objectives of a society?
    Progress, peace, health and sustainability.
    You want to be rich so you and your tribe will never have to work, contribute? Fuck you leech.
    Manipulating a corrupt set of rules to maximize benefit to yourself, fucking people over in the process, is not the objective of society."

    S/he is either a troll, an adolescent unfamiliar with history, or truly an evil piece of shit. I'm going with the later

  • cc2||

    You cannot make everyone rich by decree. You can, however, create disasters and runaway inflation by decree.

  • GroundTruth||

    " Minimum Wage Hikes in New York City Cause Restaurants to Eliminate Jobs, Cut Hours, Raise Prices"

    Surprise, surprise, surprise!

  • Rev. Arthur L. Kirkland||

    The commenters who engage in logical gymnastics to defend tariffs, subsidies, and general protectionism not only excoriate an increased minimum wage but also claim to be libertarians,

    Trump fans became disaffected and inconsequential the old-fashioned way.

  • Sevo||

    Rev. Arthur L. Kirkland|1.25.19 @ 1:44AM|#
    "Trump fans became disaffected and inconsequential the old-fashioned way."

    Half-educated, self-righteous assholes start out that way.

  • vek||

    The problem with things like this in places like NYC is that the MARKET minimum wage is already soooooo close to the figures they're using, it really doesn't show the harm it would do if widely imposed.

    In Seattle market minimum was about $11-12 before we SLOWLY started phasing in $15. We've more or less fully phased in $15 just this year. I bet the market minimum would be $13-14 already since years have gone by. Doing it in places like NYC covers for the horrible policy.

    A place like NYC needs to do something proportional, like that nut balls $33 an hour or whatever, to show the effect $15 would have if rolled out widely in the country.

    I implore the wise Top Men of NYC to go forward with $30+ an hour to show JUST how well THAT works!

  • Lester224||

    ^^The restaurants in NYC are not suffering due to a $15 minimum wage. If they are, they were marginal at best. People who commute to work in NYC but can't afford restaurant prices in the areas they work bring their lunch because they couldn't afford the prices without any cost increase due to a minimum wage increase.

    If you're talking about low-cost fast food, it's estimated most big-chain fast food would increase in price by 4% if subject to a $15 minimum wage.

  • Brubaker||

    Liberals have always had a very difficult time making the connection between cause and effect.

  • Jack Gritt||

    The Big Business funded libertines once again get it oh-so-wrong at Reason.com. That fails to surprise.

    A low minimum wage rate is a magnet for illegal alien immigration. It needs to end.

    A LOW MINIMUM WAGE HURTS YOU. A HIGHER MINIMUM WAGE KILLS ILLEGAL IMMIGRATION AND REDUCES HIDDEN SUBSIDIES TO BIG BUSINESS | TRUE DOLLAR JOURNAL

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