Editorial: More and more data shows that minimum wage hikes kill jobs

Published on Monday, 19 June 2017 13:36 - Written by

The economic data continues to pile up, and the conclusion is clear. Raising the minimum wage is hurting both employers and workers - many of whom find themselves without a job after wage hikes go into effect.

That’s particularly true in the restaurant industry, with its razor-thin profit margins and fierce competition.

According to the Fresno Bee’s Jeremy Bagott, “In a pair of affluent coastal California counties, the canary in the mineshaft has gotten splayed, spatchcocked and plated over a bed of unintended consequences, garnished with sprigs of locally sourced economic distortion and non-GMO, ‘What the heck were they thinking?’ The result of one early experiment in a citywide $15 minimum wage is an ominous sign for the state’s poorer inland counties as the statewide wage floor creeps toward the mark.”

San Francisco was an early-adopter of the higher minimum wage.

“It’s now experiencing a restaurant die-off, minting jobless hash-slingers, cashiers, busboys, scullery engineers and line cooks as they get pink-slipped in increasing numbers,” Bagott notes. “And the wage there hasn’t yet hit $15. As the East Bay Times reported in January, at least 60 restaurants around the Bay Area had closed since September alone.”

A certain level of turnover is natural in the restaurant industry. But the wage hike’s effects are big enough to be measurable.

A new study by the Harvard Business School confirms this.

“The impact of the minimum wage varies with the rating of the business,” the study says. “Our point estimates suggest that a $1 increase in the minimum wage leads to an approximate 14 percent increase in the likelihood of exit for the median 3.5-star restaurant but the impact falls to zero for five-star restaurants.”

So famous restaurants aren’t affected, but the smaller and mid-size restaurants are. Which category do you think employs more workers?

Here’s just one example: “Joining San Francisco’s restaurant die-off was rising star AQ, which in 2012 was named a James Beard Award finalist for the best new restaurant in America. The restaurant’s profit margins went from a reported 8.5 percent in 2012 to 1.5 percent by 2015. Most restaurants are thought to require margins of 3 and 5 percent.”

Lower skilled workers are the first to go, of course. But it’s not just layoffs. You have to factor in two less tangible effects. Many workers aren’t employed in restaurants that never open at all; margins affect decisions about whether a company expands into new locations.

And there’s the effect on youth unemployment. Where are the jobs for young people, jobs that provide an entry into the working world?

“Another telltale is San Diego, where voters approved increasing the city’s minimum wage to $11.50 per hour from $10.50, this after the minimum wage was increased from $8 an hour in 2015 - meaning hourly costs have risen 43 percent in two years,” Bagott writes. “The cost increases have pushed San Diego restaurants to the brink, Stephen Zolezzi, president of the Food and Beverage Association of San Diego County, told the San Diego Business Journal.”

Minimum wage hikes kill jobs.