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Minimum wage debate in the restaurant industry

The issue of raising the minimum wage is controversial. The arguments on both sides are compelling, leaving me lost for answers. Raising the minimum wage will have a disproportionate impact on industries that rely on low-wage workers, like the hotel industry, restaurants and fast-food chains, nursing homes and hospitals and big-box retailers. My practice includes a focus on restaurants, bars and wineries – all industries that this new law will impact heavily, most especially start-up ventures. More than 50 percent of restaurants fail in their first year of business, and 90 percent of those who make it through the first year don’t make it through their second year.

My job is to solve problems for clients, or more importantly help them avoid problems in the first place. Is raising the minimum wage a problem for the restaurant industry?

I like to base my opinions and educated guesses on facts, which sent me exploring some of the statistics surrounding the impact of minimum wage increases. What actually happened each time the minimum wage was raised in the past? This would surely give some insight into what we might expect from the coming wage increases. What I learned reassured me that my clients were not on the verge of a crisis. Some initial challenges, yes, but a positive impact in the long run.

Claims – fears and rhetoric about the impact

The increase will result in increasing menu prices, cutting employees or maybe closing doors.

The increase will hurt the unskilled and poor, who are priced out of entry-level jobs.

The increase will increase overall unemployment.

Facts – empirical evidence of actual impact

These dire predictions regurgitate the claims in each of the past minimum wage hikes, and they have never materialized. Indeed, contrary to business rhetoric, studies reveal that that higher minimum wage levels do not force employers to lay off workers.

A study of employment rates between 1990 and 2006 concluded that the minimum wage difference between neighboring states did not reduce employment.

The majority of those paid the minimum wage are young people ages 16 to 24. They are largely students working part-time and living at home.

Costco and Stride Rite, companies that employ low wage workers have supported increasing the minimum wage, finding that it reduces employee turnover and improves workers’ productivity.

The “multiplier effect:” a minimum wage hike to $9 would pump $21 billion into the economy. When poor workers have more money to spend, they spend it, almost entirely in the local community, on basic necessities like housing, food, clothing and transportation.

In recent years, the nation’s job growth has been concentrated in low-wage sectors where pay levels are so low that many employees are eligible for food stamps. More than one-quarter of all jobs pay poverty-level wages.

The recession recovery is not being felt by the low wage worker. Since 2009, the wealthiest have seen a growth in income while the poorest have experienced a reduction in income.

Case studies

In 2003, Santa Fe, New Mexico increased its minimum wage  and restaurateur Al Lucero called the plan economically irresponsible and argued that “people will be so content… that they’ll have no desire to improve themselves.”  Nearly 10 years later, the minimum wage rate is now $10.29 an hour, and Santa Fe has one of the lowest unemployment rates in the state. Studies have concluded there was “no evidence of adverse effects” from the wage hike.

In 2003, San Francisco voters also adopted a citywide minimum-wage law. The Golden Gate Restaurant Association called it a job killer that would “bankrupt many restaurants.” The Association of Realtors said that many hospitality industry workers were “likely to receive pink slips and join the ranks of the unemployed.”  Four years later, a study  found that after San Francisco’s minimum wage went up, restaurant growth was higher in the city than in neighboring East Bay cities. In December 2012, the city’s unemployment rate was well below the statewide average, and job growth in bars and restaurants has led the region’s post-recession recovery.

Conclusion

Restaurants may have to slightly increase their payroll expenses, but they’ll benefit when customers have more money to spend. The weight of the evidence points to little or no effect of minimum wage increases on job growth. Raising the minimum wage is good for business and the overall economy. When consumer demand grows, businesses thrive, earn more profits, and create more jobs.