In a recent post, I made mention of a growing movement to provide a living wage to restaurant workers, many of whom have incomes that place their household income below the poverty level. The efforts I mentioned include two different but complementary initiatives: increasing the minimum wage for tipped and non-tipped (fast-food) workers, and also to eliminate tipping by substituting a service surcharge embedded in menu pricing (or not), and allocate that premium among the entire restaurant staff, including the “back of the house”. Danny Meyer of Union Square Hospitality Group started this ball rolling in New York City, but Rick Davidson just announced a seemingly similar policy at Davidson Brothers in Glens Falls.
Much of the reaction to that post has been positive, but a surprising number of comments have not been. I thought I might take this opportunity to elaborate on my position. Please feel free to agree or disagree in the comments section.
Much of the public discussion specific to the minimum wage has broken down along two opposing views: Restaurant workers, in general, are much in favor of increasing the minimum wage. Surprisingly, some restaurant workers, whose views I will discuss shortly, are opposed to an increase. Restaurant operators are opposed. (Surprise!) Owners suggest that any increase in the minimum wage will result in layoffs, that they cannot afford to pay more without cutting staff.
I’ll start with the last argument first – that minimum wage increases will result in layoffs. That suggestion would imply that there are two, and only two, moving parts in this equation – the restaurant workers income, and restaurant owners’ payroll. In actuality, there are many more moving parts in the story. The restaurant owners’ payroll is funded by restaurant receipts, and obviously, that variable has many moving parts and possibilities, only one of which is pricing. Increasing receipts would mean more revenue to fund payroll, and there are multiple ways to increase receipts, the easiest by raising menu prices. Curiously, with their next breath, many of these same people will argue that cutting income taxes will increase government revenue, but I digress.
I think that the overwhelming majority of restaurant owners would handle an increased wage mandate in this fashion – by increasing prices, not by cutting staff. “But that will be inflationary and hurt sales!”, they will say. Yes, it will be inflationary for one year, the year they raise the prices. It will not start an economy busting inflationary cycle, and oh, by the way, the Fed is bending over backward and trying, unsuccessfully, to raise inflation to 2%. I’ll also suggest that for every lost customer who refuses to pay an extra dollar for their burger, the restaurant will add a customer – a restaurant worker who can now afford to go out to eat more than twice a year. (And folks in the business know that restaurant workers are the best customers, and the best tippers.)
The operators’ argument that a minimum wage increase would require staff layoffs also suggests that restaurant owners currently have excess staff to cut. Seriously? What restaurant owner is knowingly running with excess staff? None that I know of, who are still in business. If a restaurant does not have staff to cut, they will raise prices or seek to increase gross revenue in some other fashion (like upping their game). In the end it will be a combination of many things, but I believe staff reduction will play little part in it.
Political supporters of the restaurant (owners) industry will also point out that a restaurant worker’s minimum wage is most often supported by other social subsidies such as food stamps, rental subsidies, etc., and if you add that all up, they are no longer “living below the poverty level”. I am never surprised to see industry lobbyists spewing that pablum, but frankly I was stunned to find a similar theme in a recent Facebook post by a friend who works in a local restaurant in Schroon Lake. She wrote:
Raising fast food workers to a minimum wage of 15.00 an hour is a classic case of “Be careful what you wish for”. How many people will now be earning a wage above the poverty line and are now ineligible for food stamps, HEAP, and rent assistance?? Wish granted, they’ll now be paying for their own Health Insurance too. Not saying it’s fair to other industries….just saying it was a fairly smart way for NY to lower some tax payer debt…..