Wednesday, March 20, 2013

Minimum Wage Hike - Good or Bad?

During President Obama's State of the Union address, he proposed a federal minimum wage increase to $9 an hour. And in early March, Sen. Tom Harkin, D-Iowa, and Rep. George Miller, D-Calif., joined together to unveil the latest version of a bill designed to raise the federal minimum wage to $10.10, which we will examine further.

Let me start by saying that there certainly isn't anything wrong with workers making more money, and I hate to argue that there might be. If people have more money, it's not a bad thing. However, it's not that simple either. An increase in minimum wage could be perceived or spun as a tax increase. Higher weekly wages means workers and businesses that employ them will pay more taxes. Any percentage of more is more, whether it be labor cost or taxes. From this standpoint, anyone involved in business can understand the concern.

Perhaps the restaurant industry has the most reason for concern. Most of us in this business operate at a pre-tax profit margin of just 4 to 6 percent, and that's why the National Restaurant Association is vehemently opposed to a minimum wage increase. Just this week they were given the Senate floor to give their reasons for their position.

The $10.10 minimum wage that Senators Harkin and Miller have proposed would be a 39% minimum wage increase. That's right, 39%! That means businesses would pay 39% more in minimum wage over a 3 year period. How many businesses can incur operational costs that drastic in this economy? But it gets worse for us. The largest concern for the restaurant industry would be the proposed $7.07 minimum wage for tipped employees, which is absurdly high for the already highest paid positions within a restaurant. The $10.10 minimum wage, while still a concern for many restaurants (especially chains) won't be such a big hit on independent restaurants like us. Quite honestly, in this business you need to weed out the weak and keep the strong. To keep the strong, you need to keep them ha$$y. Many of the best hourly paid employees are already over that threshold.

However, the $7.07 proposed minimum wage for the tipped employee's is a concern. Just consider this; if a server comes to work for 5 hours and makes $100 in tips, they are already making $20 an hour. Certainly there are some poor shifts thrown in, and certainly there are some great shifts thrown in so that all averages out. Sometimes their hourly tip wage is absurdly high, other days it is on the low side. But when it is on the low side, they are not working many hours either. The wage which is currently $4.95 would increase by 43%. As an individual, if your expenses increased by 43%, how long could you survive? And the main point that the NRA needs to get through is that this increase will mainly go towards THE ALREADY HIGHEST PAID INDIVIDUALS. Thus leaving nothing left to increase those hourly workers already making their proposed minimum wage. How can restaurants increase the chef making $11 or $12 or more an hour for the last year, knowing the other half of his labor is due a 43% increase?

Of course, the only way to offset the increased expense is to raise prices. Certainly food and liquor prices will not be going down anytime soon. It does not leave anyone in our industry much choice, but to raise menu prices. Thus, the American consumer is directly charged for this wage increase proposal. And already, restaurants are talking about not hiring, not training and not promoting. In theory, people making more money is a great idea, but once all the dominoes fall.... is it really, at least for our line of work?

Here are a few more takes on the issue:


  1. Had wages kept up with increased productivity, workers today would be making a minimum wage of over 20 dollars an hour. I'm not advocating such a change.
    The company I work for typically fits into the 4 to 6 percent profit range with some months under and some over that range. Yet, the CEO of my company is an advocate for increasing the minimum wage.
    Another aspect to consider is that when workers aren't given a high enough wage or enough hours they end up on Government programs because a single mother working 40 hours in Chicago doesn't stand a chance on minimum wage.

  2. What ends up happening is we the people end up subsidizing giant corporations when their employees aren't paid enough. The next time you find yourself getting irritated by those on welfare programs (which lets be honest, can be insanely frustrating) lets remember that what we are really doing is subsidizing labor costs of corporations. At least that's how I see it.
    - your favorite brother