Liberals on the “left coast,” are getting a dose of reality. California aims to raise the minimum wage to $15 per hour, by 2023. San Diego jumped the gun and raised it substantially for the city. It’s having disastrous consequences on the restaurant industry, as 4,000 jobs are cut and menu prices skyrocket.
The minimum wage in California was $10 per hour in 2015, and in January 2016, it rose to $10.25. Incrementally, it was supposed to hit $15 by 2023. Instead, in January 2016, San Diego raised their wage to $11.50.
Food service was the first, and most drastic place it affected, and economists say that that industry is the best place to assess. Food service employers rely on lower paid workers, and because they operate on a small profit margin, long-term effects can be seen quicker than in other industries. According to the San Diego Tribune, restaurants in San Diego employed 126,000 workers, but there were around 4,000 jobs that were either cut or not created. Lynn Reaser chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University conducted an analysis of federal payroll data.
She found that if San Diego County had kept the same pace as the rest of the state, instead of slowing down their growth, 5,200 more jobs could have been created. Instead, only 1,300 were created in the past year. What’s worse, is that in the past month, not only has their not been growth, but there’s been decline.
“Although restaurant employees who are able to retain their jobs or secure employment will be better off, others will find it more difficult to find work,” Reaser said. “People with any kind of criminal record, unskilled, uneducated, or any homeless job seekers will find it more difficult.”
Not only that, to compensate for the rising cost of labor, restaurants have had to raise menu prices. The San Diego Tribune interviewed a restaurant manager named Jim Philips, who manages a swanky Studio Diner. “Yes, we have raised menu prices. Yes, we’re going to raise them again,” he said.
He has gone from 71 to 65 employees, and still needs to cut seven more jobs. The jobs he is looking at eliminating include the positions of greeters and busters, and instead, having the servers clear and watch for customers.
“Just in the last four or five years, I believe, the city, state and federal governments have added more costs to operating a restaurant than in the previous 20 years,” he said.
Philips is referring to another referendum last year requiring employers to provide sick leave. Now, not only have their operating costs increased, the increase in menu prices is going to scare away customers. If restaurant prices go up, then people will just eat at home. City council member Gloria Todd when it was passed told the San Diego Tribune,”San Diegans understand that no one who works full time should have to live in poverty. San Diego voters have chosen to stand with working families to ensure they have access to a decent wage and necessary sick days.”
Now she’s silent on the issue. Economist Alan Kruger, who was a financial advisor under Obama, wrote in a 2015 essay in the New York Times, “Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences. Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.”
Indeed. One of the criticisms of the minimum wage spike, is it puts people in a higher tax bracket, which eliminates their candidacy for public assistance programs—which they rely on. So, an increase in wage, is sometimes a decrease in living standard. Other solutions employers are using in the face of rising operation costs is to cut hours, leaving them paying the same amount.
However, what is not being discussed here, is that minimum wage is the “minimum.” No one should be living on the minimum wage. It’s designed for students, not livelihoods. It’s not meant to support a household. The Tribune also says that some companies are experimenting with artificial intelligence to offset the high cost of labor. Starbucks is working on an automated barista, and Mc Donald’s is working on self-ordering terminals. Reaser explained that historically, such advances have, surprisingly raised living standards by bringing higher productivity, and allowing people to do more specialized jobs.
Other cities are experimenting with similar plans. Washington D.C., Seattle, Los Angeles and New York are all raising their minimum wage to $15 per hour. Oregon and New York state have both passed the law across the board.