Minnesota Restaurants and Minimum Wage

Just thinking through the complaints some restaurant owners are raising about the eventual increase in Minnesota’s minimum wage.  It seems obvious to me that their worries are a little overblown.

 

Workers in the kitchen at Delmonico's Restaura...

Workers in the kitchen at Delmonico’s Restaurant, New York City.

One restaurant owner warned that the days of table service could come to an end and grandma will have to get her own drink and bring it back to her table.

 

Another restaurant owner warned that people will have to start placing orders on self-serve tablets or kiosks.  He tells us people won’t like that.

 

And it seems everyone is worried that restaurants will close, people will lose jobs, and prices will go up.

 

 

Let’s take these in reverse order.  It could very well be the case that some restaurants will close and some people will lose jobs.  It is very likely that some prices will go up.  This is the most legitimate and real concern restaurant owners raise.

 

Restaurant Worker Minimum Wage has Not Risen i...

 

In the end, there is very little data showing business closures resulting from increased wages.  Keep in mind that for decades wages increased as a result of organized labor efforts.  These raises did not result in wide spread business closure.  The did have the effect of slowing hiring, but infrequently retrenchment.

 

A more likely outcome will be an increase in prices.  This would be the most likely route to job losses if increased prices reduced business.   It’ is a big unknown, but restaurants — and restaurant patrons — have adjusted to increases in prices for decades.  Labor is not the only cost of business.

 

If food needs to be prepared and served, dishes and tables cleaned, they will continue to do so.  You cannot run a restaurant without the people needed to make it work.  Unless restaurant owners are employing excess labor now — which isn’t likely —  there would be no reason to reduce labor before increasing prices.

 

That brings us to the idea of using self-serve tablets instead of a full staff of waitresses and waiters, and idea which the restaurant owner said people would not like.  I’d argue if that restaurant starts using tablets and patrons don’t like it, he has problems other than an increased minimum wage.

Waiters

Of course some business owners could hide behind the increased minimum wage as an excuse to cut staff, employ iPads, and attempt to increase profits and blame it all on the law, but that would be a cynical view.

 

So let’s move on.

 

Perhaps the minimum wage creates an existential moment for restaurants.  Is the restaurant going to offer table service or is grandma pouring her own Coca Cola?   I don’t own a restaurant — I don’t own a business so some might dismiss my opinion — but I eat in restaurants as often as I eat at home.  I doubt very much my preference for a full service restaurant will go unmet.  If some of my favorite restaurants ditched the staff in favor of soda machines and iPads, those restaurants would not interest me.

 

Charlie's Menu 1933The short run is the most uncertain.  It is unclear how restaurants will manage the costs.  It’s unclear what would happen if the costs of higher wages were transferred to the customer.  However this isn’t entirely unknown territory.  Other costs have risen over the decades when wages for restaurant staff did not.  Wage increases are simply another form of increase in the marginal cost to the business.  Eventually costs and prices would settle into a new equilibrium as they have when other costs rise.

 

What has driven growth in the restaurant industry in recent decades is a growth in demand.  An increase in minimum wage should be encouraging for restaurant owners because not only the restaurant staff will be paid more, but many other workers would also have more income.  That income will be spent, helping the over all economy and that’s good for business.

 

 

 

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One thought on “Minnesota Restaurants and Minimum Wage

  1. Phil Riveness

    I served in the Minnesota House of Representatives in 1984 when we phased out the “tip credit” that permitted restaurants to pay sub-minimum wages to servers so long as they signed a form attesting that they had received enough in tips to bring them up to the minimum wage. The tip credit still exists in many states. Before the phase-out I would venture that most patrons thought their tips signaled satisfaction with service not a way to subsidize the establishment. I was threatened by the hospitality industry (I represented most of the 494 strip) that if I voted for the phase out of the tip credit they would do all they could to defeat me in the next election. I did proudly vote for the phase-out (basic economic justice mostly affecting women) and also did win re-election.

    Reply

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