Biden Destroys Restaurants to Save Them
Author: Michael Saltsman
Publication Date: January 2021
Newspaper: Wall Street Journal
Abolishing the tipped minimum wage would wipe out the benefit of his Covid grants.
Joe Biden proposes $15 billion in relief grants for America’s Covid-crushed businesses. But he also wants to mandate a new minimum wage that for many restaurants would wipe out the benefit and then some.
Restaurants shed some six million jobs in the first two months of the pandemic. As a consequence of continued Covid-related closures and a decline in customer traffic, the industry ended 2020 with 2.5 million fewer jobs than before the pandemic. They received a temporary lifeline through the Paycheck Protection Program, but have advocated without success for more-substantial relief. Mr. Biden’s recovery plan acknowledges restaurants were “disproportionately” harmed by Covid.
But he also proposes to raise the federal minimum wage to $15 an hour, which more than doubles the existing minimum, $7.25 an hour. The separate minimum for tipped workers is $2.13 an hour, and the president-elect proposes to raise that to $15 too—an increase of more than 600%. Tipped workers are already required to earn the full federal minimum between their base wage and tips, and most earn far more.
The relief grants wouldn’t come close to offsetting this new mandate. Consider the math for a small full-service restaurant location in West Virginia with five servers, where the tipped-wage minimum is $2.62 an hour. Mr. Biden’s plan would raise the hourly cost of each server by $12.38, or $19,313 annually for a 30-hour workweek. With payroll taxes, that’s roughly $100,000 in new annual costs, compared with the average Covid relief grant of $15,000 per small business.
A recent study from economists at Miami and Trinity universities finds a plan like Mr. Biden’s would cost the hospitality industry more than one million jobs—including nearly 700,000 held by tipped workers. A Census Bureau study shows that restaurant workers see lower tips in states with a higher minimum wage, a likely consequence of restaurants’ transition towards self-service models. Unsurprisingly, tipped workers oppose Mr. Biden’s plan.
These national studies are supported by local data from left-leaning cities and states that have already raised the tipped minimum to $15 or nearly that. After years of robust full-service restaurant growth, both New York City and San Francisco saw back-to-back years of declining employment in 2018 and 2019, according to data from the Quarterly Census of Employment and Wages. In Seattle, a research team linked to the University of Washington found a 13% increase in the rate of businesses closing or leaving the city associated with a rising minimum wage.
Mr. Biden has dismissed the point. “There’s no evidence that when you raise the minimum wage, businesses go out of business,” he said in his second debate with President Trump. But the nonpartisan Congressional Budget Office reviewed decades of research on the subject and reaffirmed the consensus view that wage hikes cost jobs. Increasing restaurants’ labor costs is no way to help them recover from a pandemic.