Column: Minimum wage hike will hurt restaurants
Author: Michael Saltsman
Publication Date: October 2015
Newspaper: Detroit News
Topics: Minimum Wage
It’s been one year since Michigan took its first step toward implementing a 25 percent minimum wage increase. To judge the effects of the policy, it’s important to look beyond the state’s overall economic growth numbers.
Analyzing the outcomes of minimum wage increases is tricky because only a small proportion of the working population earns the minimum wage. In Michigan, for instance, less than 4 percent of employees earned the federal minimum wage in 2014. (A slightly larger number earn the state’s higher minimum wage.) For that reason, broader economic trends obscure the real impacts of wage hikes.
But just because the minimum wage affects only a small percentage of the population doesn’t mean that its effects aren’t significant. Most employees begin their careers at minimum wage jobs before quickly being promoted to earn more. If these entry-level positions become more difficult to obtain because of higher wage floors, some people may never have the opportunity to get the skills and training necessary to earn more than the minimum wage.
The 12 former employees of the small Hillsdale restaurant Tastes of Life understand this first hand. Their jobs were eliminated when the restaurant was forced to close last fall because of the minimum wage increase. According to owner Pastor Jack Mosley, Michigan’s wage hike raised the annual operating costs of the restaurant by about $9,000, an amount that could not be covered by price increases or more customers.
Tastes of Life wasn’t an ordinary restaurant. It was part of a nonprofit organization called Life Challenge, which helps those with difficult backgrounds transition into the workforce. Tastes of Life employed those with disabilities, histories of substance abuse and criminal backgrounds. These disadvantaged employees, who are often marginally attached to the labor force, are whom we must examine in any analysis of the consequences of minimum wage increases.
Michigan’s young job-seekers, too, are more likely to be employed at the minimum wage, and are still facing unemployment rates above historical norms. In the state as a whole, the youth unemployment rate is 17.8 percent, and is notably higher in specific counties: in Wayne County, for instance, it is 21.6 percent. And that number doesn’t count those who have given up looking for a job. Minimum wage increases only exacerbate this economic hardship by creating additional barriers to employment.
This evidence is clearer in geographies that have increased their minimum wages even more dramatically than Michigan. In West Coast cities like San Francisco and Seattle, for example, where the minimum wage is rising to $15, numerous small businesses have been forced to layoff employees, reduce hours or close altogether.
Popular San Francisco restaurants Abbot’s Cellar, Luna Park and Source, for example, closed this year citing the minimum wage increase as a driving reason. In Seattle, a Z Pizza franchisee was forced to close, and the popular local company that makes Therm-a-rest camping mats has said that it will expand elsewhere because of the costs associated with the hike. (Additional stories are available at Facesof15.com.)
As with Michigan, these consequences have largely been masked by booming overall economic conditions. In another classic mistake of seeing correlation for causation, some policymakers falsely point to this as evidence that minimum wage increases have been beneficial. Before they do so, however, they must reckon with these stories of lost job opportunities. Tastes of Life can either be a wake-up call or a harbinger of things to come at higher minimum wages.