With Minimum Wage Increase on the Menu, Diners May Find Restaurants Are Out

WithMinWageEverybody has a favorite diner or restaurant, a place to kick back and grab a sandwich, salad or even a cup of coffee.

But for some of those local favorite haunts, changes in state and local minimum wage laws could amount to “No Service.”

In early April, California Gov. Jerry Brown signed into effect a statewide minimum wage increase to $15 an hour, to be phased in and in full effect by 2022. The first of these increases will be mandatory by Jan.1 of 2017, an increase to $10.50. So does a $0.50 increase in pay really affect businesses that much? For many, the answer is yes.

Marc Cohen, executive chef and managing partner of three independent restaurants in Orange County, Calif., is responsible for about 120 employees – of which more than 50% are making minimum wage. He says the future of independent restaurants is bleak due to the minimum wage changes, adding that the increase “affects all of our workers because we are very carefully monitoring hours.”

“One-dollar-an-hour [increase] per restaurant is a cost of $12,000 per year per restaurant. And the minimum wage so far has gone up $2 in California in the last 2 years with a bottom line cost of $24,000 per restaurant or $72,000 for the three restaurants combined,” he said.

“I believe that it will change the restaurant industry forever and that the business model as you know it, or as you’ve come to expect, will have to change or independent restaurants will cease to exist in their current form. I think that it’s going to drive down profits and make the restaurants extremely difficult to continue to run. If the minimum wage is implemented in the current format … you will see many restaurant closures and many independent restaurants going out [of business], which will result in all of the jobs being lost for the people that you’re trying to protect.”

A study from 2013 showed that about half of minimum-wage employees work for businesses with fewer than 100 employees and 40% are employed at very small businesses with fewer than 50 workers. These are the small businesses that will be hit if the government continues to overregulate. Also, increasing the minimum wage means any employee between the old level and the new level must have their wages increased, so the full number is more than just those employees currently making the minimum wage.

In a Chamber report, Jeffrey A Eisenach, Ph.D. – senior vice president and co-chair of NERA’s Communications, Media, and Internet Practice, as well as an adjunct professor at George Mason University Law School – explains the “The Long-Run Effects of Employment Regulation on California’s Economy.”

“The study found that each one dollar increase in the minimum wage translates into a 0.281 percentage point increase in unemployment and a reduction of 71.47 new businesses per one million inhabitants. … California’s minimum wage increase to $15 per hour by 2022 is expected to raise unemployment by roughly 1.97 percentage points (reducing the level of employment in 2022 by approximately 373,000 jobs), while decreasing the number of new businesses formed in the state by approximately 19,000 annually.”

Proponents of minimum wage increases say they are fighting to increase income for low wage employees.

What they routinely fail to acknowledge is that the revenue to increase these incomes must come from somewhere.  Since minimum wage employees are associated with small employers, this means that sector must bear the brunt of such increases.  When they suffer, their employees suffer and larger goals, like job and new business creation, are undermined and everybody loses.