When Tom Douglas first heard about the plans of raising the minimum wage in Seattle to $15 an hour, he knew what it would mean for his business: higher costs. And he knew what that would mean for his customers, too: higher prices.
Douglas, a 57-year-old chef and restaurateur, owns 19 restaurants and bakeries throughout Seattle. In the beginning of this year he raised wages at all of his restaurants to at least $15 an hour, a couple of years before the city’s new ordinance required it. At the same time he raised prices, eliminating tipping and replacing it with a 20 percent service charge. But despite the higher price his profit margins are still hurting from the higher costs.
“I might not make any money this year,” he said.
With the minimum wage on the rise in Seattle, prices at restaurants goes up as well as restaurateurs are trying to regain their losses on wages.
Last April, Seattle became the first city in the country to adopt a €15 an hour minimum wage, which will be phased in over the next five years. The move set of a debate between business owners, who fear that their business will suffer, and happy workers, whom celebrates wages going up.
As states like California and New York are also raising the minimum wages in the nearby future, the nation looks towards Seattle to find out what actually happens when wages rises.
So far it’s too early to conclude anything other than soaring prices. Prices at local restaurants have soared an average of 9 percent since March 2015, which was the last month before the wage climb began.
Douglas is a well-known figure in the culinary world of Seattle owning restaurants, bakeries and catering services throughout the city and he stresses that he’s a supporter of raising the minimum wage but what’s proving a challenge in terms of wages in Seattle eateries is that tips are not considered wages. So even though waiters have been earning well through tips, they are still getting a pay raise and in order to cope with that Douglas have replaced the opportunity to tip with a 20 percent service charge at his restaurants.
So far it’s not been an issue among his dinner-dining customers except from a few complaints. But lunch is another story, as people don’t expect to spend as much midday as when they are out dining later on. Douglas is working with a couple of solutions.
“We might close lunch, shorten hours from four to two or do more delivery,” Douglas said. “But we are not going to make a move until January, since we don’t want to make any rash decisions.”
Seattle’s minimum wage hike is still too new for there to be reliable data on its economic effects. The only thing that is certain is that prices are going up at restaurants while prices in housing and groceries are staying put and following national trends, University of Washington have conducted a survey among 2000 restaurant owners and their most common response has been more expensive food.
According to Jacob Vigdor, professor of public policy at the University of Washington and a leading expert on the economic effects of raising minimum wage, this is a typical first step for businesses
“Shutting down your business or laying people off is never the first response to higher costs,” Vigdor said.
Price increases are especially prevalent among small and medium businesses and it’s becoming a strong trend among the members of the Seattle division of The National Restaurant Association. But they risk losing customers by doing so and eventually this might lead to loss of labor if raising the prices doesn’t cut it.
“Our members have been concerned about raising the minimum wage, but we are trying to cheer them on,” said Stephanie Davenport, Communications Manager at the association. “The restaurant business is going to survive this, but some of the answers might be automating things which will ultimately lead to less labor unfortunately.”
However it’s still too early to make decisive conclusions beside the increase in prices. An example of the data difficulties that’s influencing the debate is found in blogpost by the American Enterprise Institute from August last year. The writer Mark Perry, economics and finance professor at University of Flint and an opponent to raising the minimum wage, builds the case that jobs in the restaurant sector is being cut in Seattle while the rest of Washington State is adding people to the workforce in the same sector.
But there are reasons to be cautious with conclusions so early in the process, said Chris Tilly, director at UCLA Institute for Research on Labor and Employment.
“Mark Perry has a graph that shows one thing, but I’ve seen a chart on year-over-year job growth, where Seattle is growing faster than the state,” Tilly. “The data doesn’t seem to speak with one voice of this.”
Proponents of raising the minimum wage describe it as a matter of equality and wealth distribution from rich to poor. The median household income in Seattle in 2014 was $71,273, beating the national median income of $53,657. So dining out is getting more expensive and money is getting redistributed into the hands of less well-off workers. But Vigdor said that one conclusion from Seattle’s experience is that the businesses that politicians want to target with this are not affected.
“Retailers and restaurant owners are not necessarily well off,” Vigdor said.
Another group of people standing to lose from this is the consumers eating at restaurants and earning more than minimum wage. Their purchasing power is weakened, Vigdor said.
“People earning minimum wage are not spending money in restaurants anyway. That’s why price increases have been the story so far,” Vigdor said.
The soaring prices at restaurants in Seattle are still only the first real indicator of any consequences by raising the minimum wage. And as politicians, businesses and consumers all try to figure out whether raising the minimum wage is a success or not, experts like Jacob Vigdor is still monitoring and collecting new data to answer that question.
Soon the war on wages picks up on new battlefields like California and New York. And rising prices at restaurants is something that people in New York can expect to happen in their city as well when the country’s biggest city start their path to $15 January 1 2017.
”Nobody in New York should expect the sky to fall down on day one, but it will have a more significant impact in the outer boroughs than with businesses in Manhattan,” Vigdor said.