Jeremy Julian

How to survive the minimum wage hike

May 25, 2016

Picking up where we left off last week, we will be looking into the consequences and resulting effects that could come from the new minimum wage law.

Last week, we looked into the facts and benefits of the new $15 minimum wage law. Click on the link to catch up on our previous article.

Research that has been completed over the past several decades, suggests raising the minimum wage has little negative impact on overall employment. Problem is, most past wage hikes have been relatively modest, and there is no data to confidently predict what might happen following the kinds of increases now planned for the state California. California is increasing it’s minimum wage from $10 to $15.

That is a 50% jump.

Although these would be phased in over several years, the sheer size of the increases has made even proponents of higher minimum wages a little worried.

“Just as the benefits of this policy are likely to be greater because it covers a greater share of the work force than for past minimum wage increases, the risk of these costs is also higher,” said Ben Zipperer, an expert on the minimum wage at the liberal Washington Center for Equitable Growth. “It’s very unclear how that’s going to stack up.”

By moving towards a plan to raise the statewide minimum wage to $15 an hour by 2022, California, could raise living standards for millions of workers. However, it could also increase unemployment among some of the very same economically marginal workers the wage increase is intended to help. Many economists worry that a potential loss of jobs in a number of cities where wages are comparatively low, could largely offset the growth of higher incomes at the bottom of the wage scale. Meaning, there could be less, higher-income jobs and less people working overall.

San Francisco and San Jose, both high-wage cities benefiting from the tech boom, will be fine. The negative consequences of the minimum wage increase in Los Angeles and San Diego, both large cities where wages are lower, are likely to be more felt across the community, though, it is possible the effect could be minimal and managed.

But in lower-wage, inland cities like Bakersfield and Fresno, the effects could be devastating. That is because the rise of the minimum wage to $15 over the next six years would push the wage floor much closer to the expected pay for a worker in the middle of the wage scale, affecting a much higher proportion of employees and employers there than in high-wage cities.

So why are more inland cities going to have a hard time versus cities like Los Angeles and San Francisco, you may be asking?

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Well, cities with high real estate prices are typically better able to withstand minimum wage increases than cities with low prices, because wages represent a smaller fraction of a business’s overall cost in those cities and therefore have a smaller effect on the bottom line. When real estate is cheap, wages are, by far, the biggest expense for the typical service business, like restaurants.

Craig Scharton, the owner of a farm-to-table restaurant called Peeve’s Public House in downtown Fresno, said he was still stabilizing his business from a recent increase in the minimum wage from $9 to $10 an hour. He said the increase had forced him to close on Mondays and Tuesdays and played a role in reducing his staffing to a dozen today from 18 two and a half years ago.

Mr. Scharton was at a loss to explain how he would absorb the new increase. “We’re trying our best to revitalize downtown,” he said. “This just kind of kicks our legs out from under us.”

And that is how a lot of service industry businesses feel, especially restaurants.

The National Restaurant Association came out and opposed the wage hike as soon as the increase was announced, stating that “Profit margins in our industry are slim and the rate of survival is a high hurdle to overcome…As restaurateurs already grapple with rising food and operational costs, an increase to $15 will fundamentally change the way restaurants do business.”

What are you and your business going to do survive and offset the costs of the new minimum wage?

Our friends over at Custom Business Solutions just released a whitepaper that analyzes restaurant technology solutions that can help your business save money and offset the costs of the higher minimum wage.

If you want to help your restaurant be more efficient, reduce cost and weather the storm of the upcoming economic changes, learn more about the NorthStar Order Entry System and request a free demo by clicking on the link provided.

Be sure to join us next week as we discuss the effects the new law is going to have on restaurants and the industry as a whole.

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