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After $15 Minimum Wage, NYC Experienced Decline in Restaurant Jobs

MTLynn

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New York City Experienced Worst Decline in Restaurant Jobs since 9/11 After $15 Minimum Wage Win
New economic research suggests their latest experiment is not going as planned.
Thursday, February 28, 2019
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Jon Miltimore
Economics Minimum Wage Economic Education New York City Labor Costs Regulation
The Big Apple’s fast-food industry, The New York Times recently reported, has long served as a laboratory for progressive politicians and the nation’s labor machine.

But new economic research suggests their latest experiment is not going as planned.

Data show that following the labor movement’s “Fight for $15” victory, which imposed steep annual increases in mandatory wages for workers, New York City experienced its sharpest decline in restaurant jobs in nearly 20 years.

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Tight Profit Margins
Restaurants tend to operate on famously low profit margins, typically 2 to 6 percent. So a 40 percent mandatory wage increase over a two-year period is not trivial.

In response to the minimum wage hikes, New York City restaurants did what businesses tend to do when labor costs rise: they increased prices and reduced labor staff and hours.

For example, Lalito’s, a popular restaurant on Bayard Street, recently raised its menu prices 10-15 percent, Eater New York reports.

A New York City Hospitality Alliance survey also showed that three out of four full-service restaurants said they planned to reduce employee hours. Nearly half of those surveyed said they planned to eliminate some job positions in 2019.

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In response, New York City council members are trying to shield restaurant employees from “unfair” firings. Labor lawyer Michael J. Lotito, whose firm represents the restaurant industry, told The Times that a “just cause” firing provision for fast food employers “would be a first in the country.”

Regardless of whether or not the firings are “fair,” the data are clear: restaurant workers are losing jobs.

The "Restaurant Recession"
Recently published data from the American Enterprise Institute, a right-leaning Washington, DC, think tank, show that full-service restaurant employment declined for the first time in a decade in 2018. That year also saw the sharpest month-to-month annual decline since the attacks of 9/11.

“December 2018 restaurant jobs were down by almost 3,000 (and by 1.64%) from the previous December,” wrote economist Mark Perry, “and the 2.5% annual decline in March 2018 was the worst annual decline since the sharp collapse in restaurant jobs following 9/11 in 2001.”

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Perry says this “restaurant recession” is likely the result of the series of mandatory wage hikes that brought the city’s minimum wage to $15 an hour.

New York’s experience is noteworthy since numerous states have passed or are in the process of passing a $15 pay floor. Illinois and New Jersey recently passed laws mandating a $15 minimum wage—they will be phased in over several years, similar to New York’s law—joining California, Massachusetts, and of course New York. The Maryland House of Delegates advanced a $15 pay floor by voice vote Wednesday. The District of Columbia and some cities, including Seattle and Minneapolis, have also passed $15 minimum wage laws.

Considering the latest results of New York’s $15 minimum wage experiment, lawmakers and activists should consider Mary Shelley’s great moral lesson: beware the monsters we create ourselves
 
Back in the 1980s when I was in college I was bartender here in the Boro and later Nashville until I graduated. I worked at a restaurant called Trotters...I think min wage was $3 a hour then. As a bartender I made $2.01 an hour but made at least $10 more an hour (on average) in tips. If the restaurant had to pay the bartender and wait staff the equivalent of $15 an hour today they would go under.

I find this idea of a "living" wage the craziest thing I've ever hear of. It simply cannot work. It hasn't worked in the history of mankind.
 
$15 an hour in NYC is like $8 in Murfreesboro. The sky isn't falling. It was the right thing to do.
 
$15 an hour in NYC is like $8 in Murfreesboro. The sky isn't falling. It was the right thing to do.

Most places are paying way more than $8 an hour in Murfreesboro. And most in NYC pay more as well. Min wage was never designed to support a person/family just like SSI was never designed to support a person on retirement.

Only about 2.3% of workers making hourly wages make min wage...people get raises, people get better jobs.

What do you pay the folks that have worked for a few years and are making $15 an hour? You think they might get pissed?
 
Ok several things wrong with your statement. Ok, first of all, many of these people in NYC weren't making the national minimum wage, but they also weren't making enough to live reasonable in the NYC economy, that's why the minimum was raised. Secondly, show me a statement, form, etc that is from a law maker that introduced the minimum wage bill that states that it was "never designed to support a person." I'd like to see it. Thirdly, not everyone can do better. I work with people every day that make about $8.75 an hour and they will NEVER do better unless given a raise. They aren't like you and I. I can explain a semi complicated task to almost any one of these 350 line workers in the plant and I'll get a blank stair. They don't have the brain power and when they try to leave for more money, most of them end up right back where they started because they have limits. For instance, I will probably never go to medical school. Why? Because I just don't have quite the brain power. People can't always do better. We all have our limits and for many those limits are a fairly low bar. Fourthly, we will always need janitors, food workers, ditch diggers, etc etc etc. The idea that we should allow them to wallow in poverty based on your skewed view of economics is ridiculous. It's not going to happen, if my side has anything to say about it, regardless of your bullshit Randian views. Sorry, but that's not going to fly. Lastly, yes there will be some sore feelings about others getting raises, however, it's been my experience that companies generally make it up by bumping their pay a dollar or two to compensate. Labor is 23% (give or take) of cost. Another $1.50 added to bring some employees up a bit will cause a bit of inflation, so will the raise the $15, but neither is enough to cause extreme inflation and what inflation that does happen won't be enough to negate the raise. Now, is $15 an hour reasonable for McMinnville, TN? Probably not, but the economy there is far more reasonable than NYC. They wouldn't need it.
 
BRF,

We don't allow them to wallow in their circumstances - I am so sick of this defense. Now we can't control what they do with the help they get.

There are 6 major benefits we give to those that are poor that I can think of on the top of my head - They are Food Stamps, Medicaid, CHIP, Housing Assistance, Supplemental Security Income, and Temporary Assistance for Needy Families. We also have the earned income tax credit...these programs are worth a ton and are there to help those that need it. I am sure there are many others. Then there is charity that comes from Churches and many others.

What you don't get is many of these jobs are not worth more than what the employer can pay...and if push comes to shove, many companies will use technology to replace these workers.

We discussed the restaurant example earlier...how can a business that makes 2-5% gross profit absorb a cost increase with out price increases...when companies increase prices all of a sudden making a few more $ per hour doesn't really help.
 
There are several things wrong with your statement. For one, anyone that has been on public assistance knows that you don't need to make much money to be kicked out of the system, so many people are not on any of the programs you mentioned, but also fail to make a living wage. Why should I pay for public assistance anyway when businesses can just pay a living wage to begin with? Also, as I have mentioned before, just because there is an increase in labor doesn't mean that it will increase inflation enough to negate the increase in pay. Increasing lower end pay from $12 to $15 is not going to cause dramatic changes in the cost of the goods and services because it's an overall increase of the goods of around 5% but an overall increase in wages of around %12. Yes, inflation will cut into it a bit, but overall they will be in better shape.
 
There are several things wrong with your statement. For one, anyone that has been on public assistance knows that you don't need to make much money to be kicked out of the system, so many people are not on any of the programs you mentioned, but also fail to make a living wage. Why should I pay for public assistance anyway when businesses can just pay a living wage to begin with? Also, as I have mentioned before, just because there is an increase in labor doesn't mean that it will increase inflation enough to negate the increase in pay. Increasing lower end pay from $12 to $15 is not going to cause dramatic changes in the cost of the goods and services because it's an overall increase of the goods of around 5% but an overall increase in wages of around %12. Yes, inflation will cut into it a bit, but overall they will be in better shape.

What happens to all those employees that have "earned" their raises? And now all of a sudden they earn the same amount because of a min wage law? What you ignore is the cause and effect of this type of change and the ripple effect.

We don't live in a "fixed" world, its dynamic. Its all interconnected. Price is not static, wage is not static.

In the previous post I gave you a list of services that people get and you brought up some thought you believe is true without any data or facts...I promise you families that make min wage and earn a lower amount get these services and count on them. You simply are not looking at this from a 360 degree view...

The world is not static.
 
No one said the world is static. That doesn't negate the fact that wages have stagnated to the point that we have to have a lot of services to aid the poor. Screw that, pay a living wage for your area. A McDonald's franchise owner in NYC makes around $100,000 a year. If they have to increase the cost of my burger by 5% I can live with that. As far as "what about the workers that have been there for years" I've seen it happen before and what happens is they are given raises to compensate, so stop crying about that. It's a cop out.
 
So everyone gets raises and the cost of the product goes up to cover the increased costs - so the pay raise is negated. Brilliant! Nothing changed. But BRF feels better.
 
As far as "what about the workers that have been there for years" I've seen it happen before and what happens is they are given raises to compensate, so stop crying about that. It's a cop out.

We had a similar issue a few years ago. The market for a job dictated that we up the pay of a particular subset of employees. They each got a raise to get them up to market level depending on their level of expertise. Then we adjusted our burden rate that affects the cost of doing business, which is then absorbed into the cost of each job. The customer probably didn't see much increase in the price of the product, but we were able to keep qualified employees, make them feel more appreciated and in the end because of all that they feel better about their job and probably do a better job.

If a company is only making 2-5% GPM, they might not be able to absorb it, but to me that is not a very sound business to begin with.
 
So basically BRF wrote a euphemistic statement that a percentage of people are too stupid to do the basics of following any task and therefore must be taken care of at the cost of the business that employs them because it is the right thing to do. Any politician that comes out to say that would be career suicide.

I think automation will help solve this problem.

In the 90s I worked a Union job and us on the lower end had our hourly wage increased to those that had either earned or had their pay determined by seniority (not a fan of that metric). There was a lot of calamity during the months after.
 
We had a similar issue a few years ago. The market for a job dictated that we up the pay of a particular subset of employees. They each got a raise to get them up to market level depending on their level of expertise. Then we adjusted our burden rate that affects the cost of doing business, which is then absorbed into the cost of each job. The customer probably didn't see much increase in the price of the product, but we were able to keep qualified employees, make them feel more appreciated and in the end because of all that they feel better about their job and probably do a better job.

If a company is only making 2-5% GPM, they might not be able to absorb it, but to me that is not a very sound business to begin with.

I get your example...the company decided it was the right thing to do due to market conditions. Wages in general are rising in the Boro due do the need to find employees - a market condition. The key word you used was "market" conditions.

I can promise you high volume restaurants operate on small margins...have you noticed many of them installing kiosks so you can order your food - this is to create a more efficient and less labor intensive process.

I personally don't have a problem with having a minimum wage, I have a problem with re making this into a "living" wage - I don't understand the definition of a living wage, its a moving target. BRF was redefining it based on the area - TN low cost, NYC high cost - and yet the NYC high cost area just killed 25,000 jobs that pay high salaries. These are starter jobs for young adults, they will never cover the cost of living for families.
 
Ok, two things... One, I didn't say they were too stupid to follow the basics of any task. I said their skills are low and for many of them they aren't likely to get much better. Secondly, yes the price of your combo meal might go up fifty cents so that these people can better afford to pay rent, utilities, etc... Come on guys... Don't be so petty. Again, the slight increase in inflation in the area will not be enough to negate all of the effect of the increase. It will negate about half of it. Stop crying because your burger might go up a few cents... Good grief what a bunch of babies.
 
A living wage is the minimum income necessary for a worker to meet their basic needs.[3] Needs are defined to include food, housing, and other essential needs such as clothing. The goal of a living wage is to allow a worker to afford a basic but decent standard of living.[4] Due to the flexible nature of the term "needs", there is not one universally accepted measure of what a living wage is and as such it varies by location and household type.[5]

A living wage, in some nations such as the United Kingdom and New Zealand, generally means that a person working 40 hours a week, with no additional income, should be able to afford the basics for a modest but decent life, such as, food, shelter, utilities, transport, health care, and child care.[6][7]
 
And before you guys start, I think we all know what a basic, but decent, apartment, car, food, clothes, etc is... At least any reasonable person does...
 
If wages go up artificially, just because we define a nebulous concept like living wage, then the cost of all goods go up - why can't you understand this basic concept. No new wealth is created, its just redistribution and for low margin business they simple don't have the margin so they have to increase the price . This is not rocket science.
 
New wealth is created because the increase in the cost of goods and services doesn't completely negate the increase in pay. It takes several years for that to happen. This isn't brain surgery.
 
NYC restaurants cutting staff hours as minimum wage hits $15

BY MEGAN CERULLO

JANUARY 16, 2019 / 7:00 AM / MONEYWATCH



The legal minimum wage for New York City employers with 11 or more workers rose more than 15 percent on Dec. 31, 2018, to $15 per hour from $13, giving fast-food, retail and other employees a bump in pay. But some New York City restaurant owners say the latest minimum wage hike is forcing them to cut workers' hours just to stay afloat.

It's the third rise in the city's base wage since Dec. 31, 2016, when it went to $11 an hour. The latest increase is part of a plan that phases in minimum wage hikes across New York state, with amounts and effective dates varying by region and industry. It's not just a New York phenomenon, however: Minimum wages rose in 20 states with the new year, forcing businesses across the country to grapple with higher payrolls -- and compete for workers with giants like Amazon that are already offering $15 an hour.

Jon Bloostein operates six New York City restaurants that employ between 50 and 110 people each. The owner of Heartland Brewery and Houston Hall, Bloostein said the effect of the higher minimum wage on payroll across locations represents "an immense cost" to his business.

"We lost control of our largest controllable expense," he told CBS MoneyWatch. "So in order to live with that and stay in business, we're cutting hours."

Bloostein said he has scaled back on employee hours and no longer uses hosts and hostesses during lunch on light traffic days. Customers instead are greeted with a sign that reads, "Kindly select a table." He also staggers employees' start times. "These fewer hours add up to a lot of money in restaurants," he said.

Bloostein said he has increased menu prices, too. "So as a result [of the minimum wage hike], it will cost more to dine out," he said. "It's not great for labor, it's not great for the people who invest in or own restaurants, and it's not great for the public."


A New York City Hospitality Alliance survey of 574 restaurants showed that 75 percent of full-service restaurants reported plans to reduce employee hours this year in response to the latest mandated wage increase. Another 47 percent said they would eliminate jobs in 2019. Eighty-seven percent of respondents also said they would increase menu prices this year.

These types of cost-cutting moves coincide with a U.S. Labor Department report released last Friday showing full-service restaurants in December raised prices the most since 2011, to cover soaring labor and food costs.

"The money has to come from somewhere, and we found that unfortunately, as a result, businesses are making some really tough decisions which don't only impact them, but have a negative impact on their workers as well as their diners, too," said Andrew Rigie, executive director of the New York City Hospitality Alliance, which represents restaurants and nightlife venues throughout the five boroughs.

But shaving workers' hours and killing jobs limits restaurateurs' ability to offer employees opportunities for growth and development. It also can kill owners hopes of offering a fine-dining experience that delivers both good food and good service.

Servers also bus tables
Susannah Koteen, who opened Lido Restaurant in Harlem in 2011, said she has already started combining jobs to reduce workers' hours. She relies on servers to bus their own tables, eliminating one of the lowest-paying customer-facing jobs.

She explained her rationale: "A server can bus their own table, but you can't ask a busboy to open a bottle of wine and talk about what it can be paired with," she said.

Koteen said she's loath to cut these kinds of positions in a community she cares about and from which she has in the past promoted low-wage workers to management positions. "Our current general manager started as a busser the day we opened. English is not his first language, he has his GED. He is smart, hardworking and cares about customer service."

She also worries that the wage mandate will discourage operators and change the restaurant landscape in New York City.

"If you make it impossible for people to operate, they have to close or take drastic measures or really cut people back. At some point people aren't going to be opening because you have to look at the bottom line," she said.

Staff layoffs diminish quality
Some businesses are finding other ways to trim costs while retaining their staff.

Marc Sherry, co-owner of the 1860s-era Old Homestead Steakhouse in Manhattan, said he never considered reducing his staff in response to the wage hike.

"The increase in the minimum wage is in effect, but it was never in our business plan to lay off staff because if we lay off staff, we aren't able to maintain the quality and experience we have brought for the last 150 years," he said.

This way he avoids turnover, which can be costly to a business. "Employee retention helps customer retention," said Holly Sklar, founder and director of Business for a Fair Minimum Wage.

And workers are customers too, economists point out.

A wage hike would help put money "into the hands of people who have no choice but to spend it," said Heidi Shierholz of the Economic Policy Institute.

Instead of cutting jobs, Sherry spending more time looking for better food prices and trimming nonfood expenses, including the restaurant's phone and electric systems.

"You look at every avenue of business to save money," Sherry said, "but never cut staff from the kitchen, bar or front of house because that ruins the experience we have been known for."
 
New wealth is created because the increase in the cost of goods and services doesn't completely negate the increase in pay. It takes several years for that to happen. This isn't brain surgery.

All these types of changes will do is speed up the automation of lower paying jobs, reducing employment options for unskilled labor...and create more of what you rail against. Automation will do it anyway, you just speed it up with this type of thought. Cause, as you have said, it isn't brain surgery.
 
There are two "automated" kiosks at the McDonald's down the street. I've seen two people using them in they last six months... You can't force automation on customers in all situations. I do agree that $15 an hour is too much, generally speaking, for most areas, but in NYC, just pay the extra fifty cents for your food. Yes, several owners have made negative statements about the situation, but several have supported it. It's likely that some are just using it as an excuse to cut labor... In the end, they'll lose part of their customer base for doing it... Penny wise and pound foolish.
 
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Amazon raised minimum wage to $15...then cut hours by 25%. Unintended consequences of the "feel good" politics
 
You can't take one or two examples and imply that it will be standard practice for all employers. At the very least they make the same money, or close to it, and have free time to spend with their family or work another 10 hours somewhere to bring it up to 40 hours and make even more money.
 
Also, it's not feel good politics. I know you want to oversimplify it and state that it is, but there are economists that believe a living wage, based on the cost of living in your area, is a good idea. It's not just "feelings." You guys need to get off of that trip...
 
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