The Other Side of $15 Part 2

“Don’t go around saying the world owes you a living. The world owes you nothing — it was here first.”

Mark Twain

This is the second part to an on-going series. If you haven’t read Part 1 yet, you can do so here.

I never intended to continue on the topic of $15 per hour, but after publishing Part 1 a few weeks ago, I continue to see it come up everywhere. I also found some additional points worth mentioning. Part 1 didn’t really give a conclusion, but the results of the thought experiment showed that there is no economic basis for $15 per hour minimum wage and that there are unintended consequences as part of it.

New York City continues to be a battleground for $15, with some economic reports stating that the increase of minimum wage to $15 this year making the case that it has caused restaurants to thrive, while others — including the government’s own Bureau of Labor Statistics (BLS) — to show a negative impact.

So which is it?

The New School and National Employment Law Project (NELP) wrote a joint report this month claiming they found a “thriving industry” despite the recent forced increase of minimum wage: “The New York City restaurant industry has maintained substantially faster job growth than the private sector overall in the years since the State minimum wage rose in phases from $7.25 an hour at the end of 2013 to $15.00 at the end of 2018.” However, in reading the report I found this statement on the same page of the executive summary: “This report does not suggest that New York City’s sharp minimum wage increase caused restaurant employment to soar—the more rapid restaurant employment gains likely are due to the city’s faster private job growth.”

So it didn’t hurt employment, but $15 per hour is not the catalyst for the industry to be “thriving” as Business Insider would lend you to believe (citing the same joint report as above). It appears some publications jumped on the report as “proof” a $15 minimum wage is good for business. I’m sure Bernie Sanders would agree with them.

Other reports aren’t so rosy about $15 in the Big Apple. According to the Foundation for Economic Education, New York City has lost 4,000 jobs in the restaurant sector this past year. The article included this Bureau of Labor Statistics chart showing a negative percent change in NYC restaurant employment:

In addition, according to an NYC Hospitality Alliance survey taken only a month after the $15 per hour bill took effect in New York, restaurants immediately started cutting employee hours afterward. All overtime work was halted also. The survey queried 574 establishments in New York City and found:

76.50% of full service restaurant respondents reduced employee hours, and 36.30% eliminated jobs in 2018, in response to mandated wage increases.* 75% of limited service restaurant respondents report that they will reduce employee hours, and 53.10% will eliminate jobs in 2019 as a result of mandated wage increases that took effect on December 31, 2018.

*In 2018, NYC also raised the minimum wage to $13 per hour from $11.

In addition, 87.3% of respondents report they will increase menu prices in 2019 as a result of the wage increases; 60.8% reported their food and beverage menu will be “reworked” in response to the increases; and 34.4% of respondents told surveyors that their repeat customers were dining at the restaurant less frequently than before the mandatory increase.

Remember what happened to my fictional restaurant in Part 1 of this series? Once my payroll costs were increased 106%, it became a struggle to maintain employment and retail the cost of my hamburgers. Working hours had to be cut, which impacted operations, and the only other choice was to raise the cost of the hamburgers (by more than double), which threatened repeat customers. The findings by the Alliance show that my thought experiment was essentially correct, with real life results matching my fictional ones. The result is the same: increased menu costs and cut hours eventually lead to eliminating jobs.

There’s plenty of other recent articles criticizing the negative impact of the $15 wage increase from the New York Post, Business Insider, National Interest, and the Wall Street Journal. According to the Seattle Times an “upscale” restaurant chain in the city is blaming increased wage hikes for their bankruptcy filing, showing an increase of $10.4 million in additional labor costs.

Overall, the results haven’t been promising. If it is hurting high cost of living cities like Seattle and New York City, I imagine it would be devastating to cities like Buffalo, New York or Omaha, Nebraska — two cities with the lowest cost of living in the U.S. I can’t even imagine the struggle restaurants would have keeping up here in Pittsburgh.

One of the biggest problem with a national $15 per hour minimum wage is that its national. Cost of living fluctuates wildly throughout the 50 states, as evidenced from this U.S. Bureau of Economic Analysis data. An article from USA Today broke it down in easier to read terms (ever tried to read a government economic report?). In Mississippi, a dollar’s worth is actually the highest — equivalent to $1.16. That means that $1 will buy $1.16 worth of goods and services there. The lowest worth (predictably) is Hawaii, where $1 will only purchase $0.84 worth of goods and services. California and New York, two of the biggest advocates for $15 minimum wage, each buy only $0.87 worth. By comparison, your dollar bill is 25% more valuable somewhere like Mississippi or Ohio ($1.12).

So while $15 minimum wage is less disruptive when the dollar buys less, imagine the economic impact in a low-rent city. Prices absolutely must spike to accommodate such a (relative) large increase in labor cost. Cost of living will be forcibly dragged upward, disrupting the entire local economy as locals cannot afford to eat out or do the things they used to do. I can’t imagine that small, rural economies can support a $15 minimum wage either. I suspect it’s the rural areas and lower cost of living cities that have kept the federal minimum wage down, as they cannot cope with a higher one.

For example, in Pittsburgh we have a restaurant chain called Eat’n Park. There are quite a few of them, serving breakfast, lunch, and dinner. Some of them are also open 24 hours. Most dishes are in the $8-$12 range. According to Glass Door, almost all employees in the restaurant have wages that range from $4 per hour (server) to $10 per hour (dishwasher, cook). The store manager, on average, earns a $43,000 per year salary. If $15 per hour were implemented, that’s a 4x increase in server’s pay alone. Everyone in the restaurant (save the manager) gets a significant pay increase. If menu costs are increased to offset the huge wage changes, I guarantee you business will go down. Eat’N Park is very popular with the senior citizen crowd, most of whom are on fixed incomes (which is why they eat at Eat’N Park). Fixed income senior citizens are not going to be willing (or able) to pay the increased costs.

$15 per hour minimum wage is in no way a one-size-fits-all solution.

So why are big box retailers like Walmart advocating for $15 per hour minimum wage? Wouldn’t that hurt them having tens of thousands of employees? I’ll go into detail in the third and final part of this series. Stay tuned!