Higher minimum wage puts the squeeze on business

By: Carlos Gazitua

Appeared in The Miami Herald on September 8, 2015


They’ve dropped the bill for the $15 minimum wage on the table, and guess who’s paying?

Recently, we learned the consequences of Seattle’s $15 minimum wage: A net loss of 1,300 jobs for area restaurants, which employ about half of its minimum wage workers, over the first half of the year. That’s the biggest dip since the Great Recession, despite broader regional employment gains and a booming U.S. restaurant industry.

It’s clearly employees picking up the tab in the “Fight for $15.”

Los Angeles and San Francisco are implementing new $15 minimum-wage requirements, too. And New York State will soon approve a $15 minimum wage for all fast-food employees, starting in New York City in 2018 and upstate soon after. Other state and local governments are pushing similar action while Democratic presidential candidates are calling for a $15 minimum wage nationwide.

As always, there are consequences for early adopters: In Seattle, Vietnamese restaurant Tamarind Tree reduced its headcount by 20 percent because increased labor costs; a Z Pizza franchise in the city closed entirely and laid off its 11-person staff. Seattle’s Icon Grill significantly cut back on employee benefits.

In San Francisco, popular restaurants Source, Abbot’s Cellar and Luna Park all closed their doors in recent months, citing the $15 minimum wage as the ultimate cause. Across the Bay in Oakland, which hiked the minimum wage to $12.25 earlier this year, 10 Chinatown restaurants and grocery stores have shuttered because of the wage increase.

Seattle, Los Angeles, San Francisco and soon New York: They were all warned. University of California Irvine and Federal Reserve Board economists who studied decades of minimum wage research concluded that wage hikes clearly cost jobs — particularly among the least skilled. In 2013, the nonpartisan Congressional Budget Office estimated that 500,000 jobs would be lost with a national minimum-wage increase to $10.10.

Of course, a $15 minimum wage kills even more jobs. And you don’t need an economics degree to understand why.

Minimum-wage employers are traditionally in the service-sector — ultra-competitive businesses with high labor costs and razor-thin profit margins. When you can’t raise prices, wage mandates force service companies to cut costs: employee hours, jobs and expansion plans.

To adapt, some employers are replacing employees with technology. Wendy’s chief financial officer recently told investors the company will “continue to look at initiatives and how we work to offset any impacts of future wage inflation through technology initiatives, whether that’s customer self-order kiosks, whether that’s automating more in the back of the house in the restaurant.” In other words, Wendy’s will soon replace artificially expensive employees with technology.

Last year, McDonald’s said it’s pursuing a similar strategy. At the new McDonald’s on Sutter Street in San Francisco, customers place orders with two human-sized ordering tablets. McDonald’s already is rolling out 7,000 self-service kiosks in Europe, which has much higher minimum wages.

Even advocates are concerned about the effects of such dramatic wage hikes. For instance, Katharine Abraham, former Bureau of Labor Statistics commissioner and economic adviser to President Obama, wrote that she is “concerned about what a $15 minimum nationwide would do to employment.” The experiences of early adopters prove she should be wary: When service-sector business growth is restricted, there are fewer job opportunities for low-skilled employees who need them most.

In Florida, where my restaurant, Sergio’s, is headquartered, the $8.05 minimum wage has been increasing since 2004, when voters adopted a constitutional amendment mandating annual wage adjustments pegged to the cost-of-living. Employees are guaranteed a fair wage, and business owners can manage the impact.

At Sergio’s, we employ few at minimum wage — it’s a tight labor market in Florida and hiring the best often means paying the most. But as we leave the relative safety of the Sunshine State to begin a national expansion, a $15 local minimum wage may inspire us to find another location. We are hopeful that state and local government leaders — some dealing with up to 20 percent youth unemployment — take a closer look at the consequences of the “Fight for $15.”

Carlos Gazitua is CEO of Sergio’s Restaurants, the nation’s first Cuban restaurant franchise, and a member of the Job Creators Network.