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by whimsy 4393 days ago
• Studies of the impact of minimum wage increases on restaurants’ operating costs find that an increase of 10 percent in the minimum wage increases operating costs by about 1 to 2 percent.

• Researchers find small one-time price increases in the restaurant industry (of about 0.7 percent following a 10 percent minimum wage increase), but not in other industries.

from "University of California, Berkeley study: Who Would be Affected by an Increase in Seattle’s Minimum Wage?" which is one of the two pieces of research commissioned in the development of the Seattle ordinance.[1] The research explored empirical evidence provided by similar minimum-wage increase ordinances in other cities. (9 total, I believe, including San Francisco.)

[1] http://murray.seattle.gov/wp-content/uploads/2014/03/UC-Berk...
2 comments
zo1 4393 days ago
Okay, and? We all know that operating costs will rise if the wages paid to employees goes up. The question is, how will those cost increases be paid for. Less profit, higher price of service/product? Not to mention that a 1-2% in operating cost could be a drastic reduction in profit, or increase in price. It depends on the business. And the proposed increase is 100%, not 10% as cited in the article so can we assume that "operating costs will go up by 10-20%? Not sure.
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todd8 4392 days ago
You continue to cite this study in several comments here. It's true, that under the assumptions of the paper, a 10 percent increase of the minimum wage increases operating costs by about 1 to 2 percent. However, the paper assumes that this increase only affects a small number of workers by a small amount (1/3 of the workers have their wages increased by 5%). A 100 percent increase in wages will affect almost everyone working in the restaurant industry (not just the 1/3 of workers the paper assumes). And it will affect them by a large amount, not 5%. Thus, the results of the paper don't simply scale linearly with the size of the increase in the minimum wage. Under simple assumptions (of the kind made by the paper cited) I calculate that costs to restaurants will rise by over 30%. It could end up more or it could end up less, the paper didn't provide a distribution of wages in the restaurant industry which would more accurately answer this question.

In any case, you should realize that this is a major increase in costs to restaurants, not just 1 or 2 percent.

The numbers I've seen for profit margins in restaurants range from 2 to about 3 percent. Since 1/3 of costs in restaurants come from labor, a 30% increase in labor costs will mean that restaurants will have a negative profit margin of around 7 or 8 percent after the new minimum wage goes into effect.

This means that eventually there will likely be less workers, higher prices for food, and less restaurants.

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