What a $15 Minimum Wage Would Mean for the Restaurant Industry

It’s been a decade since the last federal minimum wage increase, and there won’t be another one any time soon.

In August, the Senate declined to consider the Raise the Wage Act, passed by the House of Representatives in late July, which proposed raising the federal minimum wage from $7.25 per hour to $15 per hour over a seven-year span.

While the legislation is all but dead, the fact that one half of Congress voted in favor shows that a higher minimum wage is on the minds of many politicians and their constituents. While it’s on hold for now, it could be revived in 2020, should the partisan balance shift.

In theory, hourly workers are due for a raise. The value of $7.25 per hour has declined by 16% in real value terms over the last decade due to inflation and a rising cost of living. But not all industries could transition seamlessly into a new minimum wage requirement — especially the restaurant industry and its notoriously slim profit margins. 

The Push to Raise the Minimum Wage

The push for a higher minimum wage has come amid a declining middle class and years of no increases despite rising cost of living. While Congress has declined to raise the federal minimum wage, many states, cities and even individual employers have instituted their own minimum wage requirements or starting wages. 

For example, New York requires an $11.10 minimum wage, and Washington now requires $12. Cities like San Francisco and Seattle have recently established their own local minimum wages as well. In terms of company-specific raises, Bank of America’shourly positions now start at $20, and Target upped its hourly pay to $13. 

However, restaurants’ business models and smaller scale make it difficult to take their own steps to offer higher wages. For almost all restaurants, labor and rent are the two top cost categories. If labor costs double, even over a seven-year period, many restaurants would be in serious financial trouble unless they take creative steps to survive.

How Would a $15 Wage Play out in the Restaurant Industry?

If the push for a higher federal minimum wage is successful, many (if not most) restaurants will struggle to meet the requirement while maintaining normal operations. As the possibility of a new wage requirement looms, there are several routes we might see restaurants take.

1. Shutting down or shifting the cost increase to customers – Forced to pay hourly workers more when already bringing in slim margins, some local restaurants would inevitably go out of business. Others may pass the cost through to customers, making it more expensive to eat out. Some establishments could seek to increase their usage of contract labor-based food delivery, adjusting their business models to become something more like a commercial kitchen that doesn’t serve customers in-house and only offers service through mobile food ordering apps. Under such conditions, a business might only have to employ hourly cooks and partner with apps like Grubhub or DoorDash — no hourly customer-facing staff needed.
2. Turning to technology over humans – Some restaurants that choose to employ fewer people to survive the wage increase will incorporate more technology in the customer experience. Tablets may stand in as maitre d’s for guests to check into a reservation. Some QSR (quick service restaurant) chains like McDonalds and White Castle have already begun to implement automated ordering on a touchscreen rather than with a human. With a minimum wage increase, many restaurants would likely take technology’s role even further.
3. Trusting humans to cover more ground – Some establishments will choose to decrease their staff and increase the responsibilities of those who remain. I live in San Francisco, where the minimum wage went up to $15 per hour this summer, and have seen local restaurants choose this route often. My favorite coffee shop can afford to staff only one person, and during the morning rush, the line can stretch out the door. In North Carolina, where I was raised and where the minimum wage is still the federally mandated level of $7.25, the same shop could and likely would staff at least two people, especially during the morning rush.

   

   Both this type of measure and the previously mentioned tendency to replace human labor with technology mean that an uptick in unemployment is likely inevitable, and only the most skilled workers in the hourly job market could hold down restaurant jobs. As a result, vulnerable worker populations such as those with a criminal record, recovering veterans and people with disabilities would be subtly pushed out of the restaurant labor force, with other workers who have fewer limitations taking their places. In turn, the reduction in opportunities for some among the current pool of hourly workers would strain social services’ resources.

4. Merging shift and contract employment – Restaurants that can’t afford to staff enough part-time hourly workers to serve patrons during busy periods may find a blend of hourly staffing and contract staffing keeps customers happy. Rather than scheduling three hourly workers for eight-hour shifts, they can keep one worker on and put out calls to contractors for shorter work periods as needed to keep up with business. Calling in extra hands only when it’s absolutely needed would help keep labor costs down.

What Does the Future Hold for the Federal Minimum Wage?

While the possibility of a $15 federal minimum wage is on the back burner for now, the push for an increase has been gaining steam. With employers, states and cities taking their own steps to raise their minimum wages, I don’t see the chatter around the issue dying down any time soon.

However, any real action isn’t likely to happen unless the composition of Congress shifts in 2020, with Democrats gaining enough seats to pass such legislation. And if it does come to that, we’d also see significant lobbying efforts from the restaurant industry and others likely to be affected — and understandably so. While a $15 minimum wage may hold few repercussions for some industries, the restaurant industry wouldn’t be one of them.