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Friday, July 25, 2008

The Impact of the Minimum Wage Hike

On July 24, the hourly minimum wage increased from $5.85 to $6.55. This follows an increase of $.70 a year ago. Exactly a year from now, the starting wage will increase to $7.25. Do these mandated wage hikes imposed by the federal government have any effect on consumers, workers and how small employers run their operations? You bet.

The National Restaurant Association surveyed 1,300 members to see what actions restaurants have taken – if any – as a result of the 2007 wage increase. While 23 percent of restaurant operators did not have to take action in response to the wage hike, others did. Here are some of the results, according to the association’s report of the survey:

• “Fifty-eight percent of operators increased menu prices, while 41 percent reduced the number of hours that their employees work.”

• “Twenty-six percent of operators postponed plans for new hiring, while 24 percent of operators reduced the number of employees in their restaurants.”

• “Among the 58 percent of restaurant operators who said they increased menu prices as a result of the 2007 minimum wage increase, the average increase was 7.3 percent.”

• “Sixty-nine percent of quickservice operators increased menu prices, compared to 60 percent of family dining operators, 53 percent of casual dining operators, and 41 percent of fine dining operators.”

• “Forty-six percent of family dining operators cut employee hours, compared to 43 percent of casual dining operators, 40 percent of quickservice operators, and 34 percent of fine dining operators.

• “Twenty-four percent of restaurant operators said they cut jobs after the 2007 minimum wage increase.”

• “Five percent of restaurant operators said they cut employee benefits after the 2007 minimum wage increase. Among the benefits mentioned were health insurance contributions, 401(k) contributions, employee meals, and paid vacations.”

What do restaurant operators plan to do in response to the scheduled July 24, 2008 increase? Well, more of the same – and, those actions will go deeper.

According to the survey report, “Sixty-six percent of operators plan to increase menu prices, while 48 percent plan to reduce the number of hours that their employees work. Twenty-eight percent of operators plan to postpone plans for new hiring, while 26 percent of operators plan to reduce the number of employees in their restaurants.”

Only 19 percent of restaurants plan to take no action.

The small business community continues to spell out for Congress, as well as state legislative bodies, the economically destructive trade-offs that occur when they raise the minimum wage. Artificial and mandated wage increases reduce jobs, hours and benefits; raise prices for businesses and consumers; make small firms less competitive and viable; and slow economic activity overall.

Will it all be over in 2009? Will small business owners get to breathe of collective sigh of relief?

Democratic presidential candidate U.S. Senator Barack Obama (D-IL) said the following in a media release regarding the July 24 wage increase: “And we must tie future increases in the minimum wage to inflation so that it grows along with the costs those workers face.” Ouch!

No mention, however, of the costs and burdens that small businesses face as they struggle to keep their doors open.

Karen Kerrigan, President & CEO

2 comments:

Anonymous said...

So if a waiter gets 80 cents per hour more and waits on only 8 people in an hour, the restaurant would need to get 10 cents from each customer. So the $6.95 sandwich would need to be raised to $7.02. The $1.50 drink would need to go the $1.52. Doesn't seem to awful.

Karen Kerrigan said...

Perhaps that is OK for your budget, but if you actually ran a business operating on slim margins you would understand how the additional per-employee costs (not including payroll taxes, etc.) make it more difficult to survive. And what about the 24 percent of these businesses that let people go -- is that not awful to you?