As A.K. mentioned in his earlier post, Seattle bumped up the minimum wage to $15 which has caused quite the firestorm in media. Washington State previously had one of the highest minimum wages at $9.32/hour, much higher than the federal minimum wage of $7.25 which was last passed in 2009.
One interesting piece of this legislation is that ALL tipped and non-tipped workers will have to be paid $15/hour or more starting in 5 years! Waiters and waitresses, who approximately receive $2-$3/hour and tips to supplement their base minimum wage pay, will be included in the new law.
Minimum wage for tipped employees has been stagnate at $2.13 since 1991, with federal legislation requiring that employers are supposed to make up the difference if tips do not equate to the legal minimum wage. Some workers will have employers boosting their wages when nights are slow (as required by law), whereas others make well over minimum wage on good nights. President Obama in his plan to change the federal minimum wage to $10.10 by 2015 also pushed for the tipped minimum wage to be 70% of the full wage. Congress has fought this legislation, but that does not mean states, like Washington, have not already started to enact these changes.
This leaves a few questions to ponder: Would people stop tipping with salaried waitresses and waiters? Will the quality of service at a restaurant decrease? Will food prices rise? Here are some potential issues that I see:
More Tasks Could be Automated Leading to Job Loss
Tasks like ordering could be automated to I-Pads on each table with a button to press when a server must be present for a specific question. Bolt Burgers, in Washington D.C., already has a pretty impressive ordering system that is fully automated which allows you to choose from 25 potential toppings. However, automated tasks are also being brought to quality restaurants in Palo Alto, such as Calafia run by Rajat Suri.
“It costs about a dollar a day per table, it can even go lower depending on if you have sponsors involved because all the alcohol companies want to get involved,” Suri says. “For that, they get about $6 a day per tablet in increased sales. That’s extra desserts, appetizers, drinks. They get about another $5 in extra table turns. If you can fit in one more table per night, that’s worth a lot of money. And some restaurants, though not Calafia, get about $4, $5 extra because they choose to save labor.”
This restaurant device, called the Presto, was designed to engage younger generations who desire all things digital. With new minimum wage laws for tipped employees they may become a cheap alternative to hired labor.
A Decrease In Hours and Quality of Food Service
Even without automated systems, jobs could be cut and workload increased at restaurants. If servers are still desired by consumers and restaurateurs cannot afford to pay 6 employees all $15/hour then perhaps only 2-3 workers will remain employed. As one restaurateur in Virginia stated, higher wages will “minimize the need for staff”.
With fewer servers, each server will take on more tables and service could slow down. The Boston Globe reports that “diners doled out some $40 billion in gratuities in 2012” which may shrink with a decline in service. Further, customers may not feel as compelled to make up for low wages with an increase in hourly pay to $15/hour.
Cost of Food Increases and Restaurant Expansion
As Alan Greenblatt points out, “Consumers can be sensitive to price changes” and when eating out, most meals cost more when they are waited on by servers. Nancy Laird, owner of a high-end restaurant in New Jersey, stated:
“If this minimum wage is raised, we will have to raise prices. We will of course meet some customer resistance and because of customer resistance we will have fewer revenues and thus fewer employees.”
Laird’s explains how a snowball effect that can happen. If consumers stop eating at restaurants due to an increase in prices, restaurants may lower prices to encourage food sales, but supplement the increased costs with lay-offs of servers.
A New Jersey businessman from the same article, whose company owns 40 Applebees and 7 other restaurants, said an increase in tipped server wages would be “devastating” and would force his company to reconsider expanding in New Jersey. “Labor costs are huge dollars to a restaurant operator”.
Less “Freebies” for All
In a city like San Francisco, where there is a large restaurant scene, restaurants are choosing to skimp on the extras such as nice tablecloths and bread and butter for consumers. When asked about the new laws increasing wages for servers in San Francisco one restaurateur stated:
“It’s very, very expensive to run any sort of restaurant in San Francisco,” says Patricia Unterman, a longtime restaurateur and food critic in the city. “The cost of doing business here, especially for labor-intensive operations like restaurants, almost doesn’t pencil out.”
There are fewer benefits for servers and employees who receive the increase in wages, too. SeaTac, which is a city in Washington that already has seen the $15/hour wage increase start at the beginning of the year, has employees less than pleased at the new law. Tim Worstall from Forbes writes about a conversation one had with a SeaTac employee:
‘“Are you happy with the $15 wage?” I asked the full-time cleaning lady.
“It sounds good, but it’s not good,” the woman said.
“Why?” I asked.
“I lost my 401k, health insurance, paid holiday, and vacation,” she responded. “No more free food,” she added.
The hotel used to feed her. Now, she has to bring her own food. Also, no overtime, she said. She used to work extra hours and received overtime pay.
What else? I asked.
“I have to pay for parking,” she said.
I then asked the part-time waitress, who was part of the catering staff.
“Yes, I’ve got $15 an hour, but all my tips are now much less,” she said. Before the new wage law was implemented, her hourly wage was $7. But her tips added to more than $15 an hour. Yes, she used to receive free food and parking. Now, she has to bring her own food and pay for parking.’
Minimum wage laws, especially this particular law designated for servers, may have the right intent—to give workers more money, but in reality there are adverse effects that occur to offset or even outweigh any potential gain. Businesses do not just take money from top management and give it to waitresses and waiters. Instead, changes will occur in terms of employment numbers, quality of service, tips that customers willfully give, prices of food for customers, number of new restaurant job openings and amenities such as free parking or food during shifts. When a new legislation is enacted, the effect usually is less mild than imagined. There is a ripple effect that occurs that can leave workers worse off than the legislation originally intended.