Massachusetts, New York, and several other states are beginning to see the ugly side of minimum wage hikes: coffee shop and restaurant store closures, reduced hours of work, and job cuts.
Mandated minimum wage hikes have a pretty side and an ugly side, according to economists. The pretty side is the additional money they put in the pockets of those who work for a minimum wage.
The ugly side is the payroll tsunami they unleash for smaller businesses, already under stress from soaring healthcare costs and rents.
For some of these businesses, the minimum wage hikes tip the balance between staying in business and going out of business.
That’s what happened to once iconic Boston restaurant Durgin-Park in Faneuil Hall. It closed the doors after two centuries in operation, as it couldn’t cope with wage and healthcare premium hikes.
That’s a great loss for Boston’s living history, a loss for the store owners, and a loss for those who worked there.
Apparently, in this case, minimum wage hikes ended up hurting those they were supposed to help.
For other small businesses, minimum wage hikes have yet to tip the balance between staying in business or going out of business. But they force them to cut employee hours or lay-off employees to cope with the higher payroll. “First, we have to cut overtime,” says Chris, a franchise owner in Long Island. “Next, we have to lay people off, if we want to stay in business.”
Nowhere is this more evident than NYC, which has seen wage hikes year after year, now paying what the ‘Fight for $15’ movement has fought for around the country.
On December 31st, NYC raised the minimum wage to $15, a 15% increase from the 2018 level, and a 34% hike from 2017.
When taken together with rising healthcare premiums, the city’s small businesses were caught in a payroll tsunami.
The result? Close to three-quarters of restaurants in New York City have cut labor input since the minimum wage was raised to $15 per hour.
That’s according to a survey by The NYC Hospitality Alliance. Specifically, 76.5% of full-service restaurant respondents said they had to cut employee hours and 36% said they cut jobs in 2018 in response to the mandated minimum wage hikes.
That’s consistent with BLS data, which show that New York City full service restaurant employment has gone from an 8% growth back in 2012 to a -2% growth in the last two years.
Meanwhile, cutting employees usually means a heavier work burden for those left behind. Once again, minimum wage hikes end up hurting those they are supposed to help.
To be fair, not every economist sees minimum wage hikes as the main source of labor problems. Paul R. Kutasovic, Professor of Finance at New York Institute of Technology and business forecaster, is one of them.
He thinks that the labor problem NYC businesses faced is associated with strong economic growth. “A strong economy makes it hard for businesses to find qualified people,” says Kutasovic. “In some markets, strong economic growth has pushed wages above the minimum.”
I guess we have to wait and see whether things get better or worse for small businesses when the next economic contraction hits home.