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Colorado was among the four states where voters approved a minimum wage hike in November. Among the specific provisions for the new wage hike was the stipulation that tipped workers — such as waiters who receive tips and are paid below the standard minimum wage — will receive a mandated wage hike of 99 cents.
Naturally, this will lead to an increase in costs for restaurant owners who will then seek to raise prices and/or reduce costs. KDVR in Denver reports:
Kanatzer owns The Airplane Restaurant in Colorado Springs and said he has already increased his kids menu prices. …
“I increased it a dollar — my kids menu prices went from $4.99 to $5.99,” Kanatzer said.
Raising prices can only go so far, however. Contrary to what many non-economists seem to believe, it is not possible to simply “pass on the extra cost to customers.” As any economics-major undergraduate knows, it is only possible to pass on a portion of the increased cost to the customer because higher prices and competition from other firms will lead to fewer sales if the owner simply attempts to “pass on the cost.” And even if all restaurants are subject to the same wage hike, there are always substitutes in the form of take-out and other types of dining.
Specifically, in response to the forced wage hike we can expect to see more food-service business go the way of so-called “fast casual dining” which include brands such as Chipotle and Noodles and Company. These are restaurants where patrons order food at the counter, and then take their food to their tables themselves. These places often offer alcoholic beverages and higher-quality food than “fast food” places such as McDonalds, and somewhat approximate the “casual dining” experience at lower cost thanks to the elimination of servers.
Thus, in order to control costs, restaurants that have in past hired wait staff will become more like fast casual restaurants. The KDVR report suggests exactly this, in fact:
Kanatzer estimates most restaurants will adjust prices and change staffing levels as a result, which could mean fewer servers and longer waits.
“I’ve got a friend who has a restaurant and he’s going to do counter service from 2-4 (p.m.) so he’s not going to have a server at all,” Kanatzer said.
…Kanatzer suspects more restaurants will install kiosks at tables in the hopes technology might eliminate the need for most servers.
So, we should expect restaurants to hire fewer servers and move toward more counter service and use of technology to replace servers.
Some waiters have become concerned that the new wage hike is endangering their jobs. They should be concerned:
Even some servers who are recipients of the pay raise fear possible impacts.
“I’m more worried about [the restaurant owner] and how it might affect him — not how it impacts me,” said Lisa Bowen, a server at The Airplane Restaurant.
The effect on workers will be that many of them will need to move to lower-wage jobs due to there being fewer waiter opportunities. Many people who are now waiters and potential waiters will have to take jobs as cashiers and other workers at fast food and fast casual restaurants instead of waiting tables. As anyone who has worked in food service knows, these sorts of jobs often pay far less per hour than traditional waiter jobs. So, the minimum wage hike will mean an actual pay cut for many people who could have made more as waiters, were it not for the minimum wage hike.
Moreover, it means that in the future, waiter positions that might have existed in the absence of the minimum wage hike will never exist. More restaurants that rely on a large wait staff will change their model, close down, or never be opened at all, further cutting the job opportunities for workers who would benefit from working as waiters.
However, these unseen positions that never came into existence will not show up in any unemployment data, and thus the proponents of minimum wage hikes will claim that higher wages to not lead to less employment. The media will interview the lucky waiters who managed to keep their jobs and wait tables in an environment of higher prices — and higher tips. Competition for these remaining jobs will become more fierce meaning lower-skill waiters will find themselves locked out of waiter jobs. In the end, proponents of minimum wage hikes will declare victory and ignore all the unseen consequences imposed on the most vulnerable, unskilled, and marginal members of the workforce.
This article was initially published on Mises.org.
Rabelrouser says
Well, it looks like a lot less student loans are going to get paid off.
Just another bubble in the making.
JRATT1956 says
Cry me a river! In 2007 a minimum wage increase was on the ballot in MT. Before it passed you had all the business owner’s on the news saying it would cost jobs and businesses would close their doors. 8 years later the MT minimum wage is $8.15 and there are more new business open in my town of 60,000.
I made $9.10 per hour (it would need to be over $40 today to have the same buying power) loading trucks for Gallo Wine in Commerce, CA right out of high school in 1975. Today I cannot find a job starting at $10 per hour. Adjusted for inflation minimum wage should be over $10 per hour. We are all working for slave wages today, it is just some slaves are paid a little better than others.
anotheramethyst says
Explain to me why wait staff, whom the boss pays less than minimum wage, will have to be fired and replaced by workers making minimum wage? That makes no sense. If anything, some bus boys will have their hours cut and the waiters will be bussing their own tables. Wait staff is the cheapest people to hire in a restaurant (except maybe in payroll taxes, I’m honestly not sure about what taxes employers pay on someone’s tips). Why wouldn’t the opposite thing happen, and places like Chipotle put out tip jars so employers can pay less in wages? Think about it people. I wait tables. I make $4.50 an hour in wages. Another dollar is still WELL BELOW the minimum wage of $8/hour around here. The hourly paycheck basically just pays the taxes on my tips, that’s it. At most I bring home about $400 a month from my paycheck, and that’s unusually high. All the rest is tips. And I work at a nice place, so I live pretty good.