Rumors of the New York restaurant scene’s death have been greatly exaggerated. When the city passed legislation raising its minimum wage to $15 per hour—$10 for tipped employees—doom and gloom came forth from every economic prognosticator from Washington Heights to Battery Park.
Restaurateurs aren’t in this business for the fat profit margins—somewhere between 3-5% is the norm. With labor costs usually representing more than half of an establishment’s expenses, any increase in wages would surely spell disaster for the industry as a whole, right?
This was certainly the position the National Restaurant Association (NRA) took. The organization has strongly opposed any legislation aimed at the so-called “Fight for 15,” specifically H.R. 582, the “Raise the Wage Act.” This bill, currently in the Senate graveyard, would raise the federal minimum wage from $7.25 to $15 by 2024 and adjust the rate annually for inflation moving forward.
The organization’s press release decried the action of raising wages as “harmful to both businesses and employees.” Their arguments include such time-honored clichés as “higher wages mean restaurants will eliminate positions,” “rising costs for goods and services will hurt the workers,” and “employees in small towns don’t need cost-of-living adjustments.”
Let’s debunk some of these.
“Higher Wages Lead to Job Losses”
On the surface, it would be easy to assume that a business owner that suddenly has to pay their workers more would respond by reducing the number of workers they have to pay. The idea is that rather than increase their overall labor cost and reduce their net income, ownership would opt instead to simply cut the same pie into fewer slices.
Fortunately for the labor class, data does not support this position. A joint study between Dartmouth College and Michigan State University analyzed the findings of 60 research projects between 2000 and 2015. Meta-analysis of the data showed that increases in minimum wages have not had a significant impact on employment numbers, either positively or negatively.
“Employees in Rural America Don’t Need $15 an Hour”
On this one, very specific argument, I will agree with the NRA.
A single employee with no children living in Tulsa, OK doesn’t need $15 an hour to meet their bare minimum life needs; they need about $16.80. The assertion that “what people in New York need is more than what people in smaller communities need” is a strange hill to die on in a battle for a wage that still wouldn’t meet those needs for the smaller communities.
If we were talking about the “Fight for $25”—the wage it would take our same hypothetical employee to meet their bare necessities in the NY metro area—then their argument might hold water. As it stands, however, $15 is a rate that caters to Middle America, not New York, Los Angeles, and Chicago. Decades of wage stagnation hurt workers across the country, not just in major urban areas. And when workers have less money to spend, they eat out less. That’s the real killer for restaurants worried about labor costs.
So, What About New York?
Proponents and opponents of minimum wage increases can throw scholarly articles and economic theories back and forth at each other until there’s not enough trees left to print the paper, but what about actually seeing it in practice? What happened when the culinary epicenter of the country put its money where its mouths are?
From 2013 to 2018, the city’s minimum wage rose from $7.25 to $13.50—not an insignificant increase. The city defied projections of falling revenues and rising unemployment; instead the city grew both its restaurant sales and jobs. Of course, this has a strong correlation with the overall economic health of New York City, but when measured against large cities without minimum wage increases, the Big Apple outpaced the others.
As much as restaurant owners may clench their fists a little tighter when forking over the extra wages, the city’s eateries also saw 6.6% revenue growth over the same time period. Yes, prices have and will continue to increase as labor costs grow, but the offset is not as monumental as economists would have you believe. An increase of $0.80 to the New Jersey minimum wage resulted in just a 3.2% bump in food prices, per a 1992 study. Simply put: when the working class has more money in their coffers, they’re more likely to eat out. That’s great news for restaurants.
Does the New York hospitality scene have serious threats to its profitability? Absolutely. Third-party delivery services charging huge commission fees, astronomical rents, and a looming recession all pose serious dangers to the industry. What restaurateurs do not need to fear, however, is a modest increase in their employees’ pay.
