Last year, we talked about Minneapolis “it” restaurant Hell’s Kitchen which, after years of virtue-signaling its approval for things like mandatory #FightFor15 minimum wage hikes and compulsory sick time, had had to eliminate the equivalent of five full-time, $15/hour jobs – partly due to bad management, partly due to hikes in bottom-line expenses, and partly due to bad management encouraging the hikes to bottom line expenses.
It’s not just Minneapolis. New York City restaurants are taking it right in the blintz:
A New York City Hospitality Alliance survey of 574 restaurants showed that 75 percent of full-service restaurants reported plans to reduce employee hours this year in response to the latest mandated wage increase. Another 47 percent said they would eliminate jobs in 2019. Eighty-seven percent of respondents also said they would increase menu prices this year.
These types of cost-cutting moves coincide with a U.S. Labor Department report released last Friday showing full-service restaurants in December raised prices the most since 2011, to cover soaring labor and food costs.
“The money has to come from somewhere, and we found that unfortunately, as a result, businesses are making some really tough decisions which don’t only impact them, but have a negative impact on their workers as well as their diners, too,” said Andrew Rigie, executive director of the New York City Hospitality Alliance, which represents restaurants and nightlife venues throughout the five boroughs.
But shaving workers’ hours and killing jobs limits restaurateurs’ ability to offer employees opportunities for growth and development. It also can kill owners hopes of offering a fine-dining experience that delivers both good food and good service.
Let them eat platitudes!
“The money has to come from somewhere…” What a novel thought! Who could have anticipated this?
As Jason Lewis has observed on many occasions;
“Democrats think that businesses have big piles of money just sitting around to give out.”
Some where early in a competent economics course, the professor draws a supply and demand curve on a board and explains what happens when the government sets the price at a different place than the market would set it. This is about the time that all cool kids in the Ivy’s start skipping class and smoking dope.
Demand for restaurant meals is relatively elastic, because the substitution cost is low. Most restaurant patrons can feed themselves far cheaper than they can feed themselves at a restaurant.
Restaurant profits are thin. The bulk of the money spent on a restaurant meal goes to rent, supplies, and labor. The median restaurant profit is between three and five percent.
Increase the share of the price of a meal that goes to labor, and the price increases. You can reduce profit, but that won’t make up for the increased labor cost, and of course less profit potential will discourage investment in new restaurants. If you decrease the share of the cost devoted to supplies or rent, you decrease the value to the customer, so revenues drop.
In the real world, what you see if you artificially increase costs, is that marginally profitable restaurants will close down, and not be replaced. Big restaurant chains have more options when it comes to cost shifting, so the independent restaurants are harder hit.
On the labor side, the total number of jobs will decrease, and the more marginal restaurant workers will be hardest hit. “More marginal” in this case doesn’t always mean less skilled. A worker who needs flexible scheduling will be replaced by a worker who does not need flexible scheduling. The idea is that you can mitigate higher labor costs by hiring more productive employees.
The current minimum wage of $7.25/hour is just as artificial as a minimum wage of $15/hour. If you reduced the current minimum wage to $5/hour, you would see more restaurants, with cheaper prices, with more people working in food service at lower wages. If you increase the minimum wage to $15/hour, you will see the opposite effects.
Neighborhood restaurant I go to has ~64 seats total. They usually have 9-12 staff working at any point in time, only 3 of whom are servers. At just $15/hour I wonder how much they have to sell, just to cover the “nut” of payroll costs, food costs, rent and utilities.
The root problem is what economists call “substitution.” If we mandate that all employees make $15 an hour, then restaurants will have to raise prices to cover the increased cost of wages. That will cause people to pack a lunch or eat at home to save money. Plainly, the solution is to require all meals to cost the same, whether eaten in restaurants or at home. It’s akin to the “prevailing wage” theory of government contracting.
If it costs $10 to eat a burger, fries and a Coke at the local franchise of a giant multi-national fast food corporation, then Cub must raise the price of hamburger and Ore Ida frozen french fries and canned soft drinks. The state must set minimum prices, as we do for cigarettes, to level the playing field.
I don’t see why this would be controversial. Isn’t it obvious? The solution to a problem caused by regulations, is more regulations.