A few months ago I received an email from MoveOn.org requesting that I sign a petition that lobbies to raise the federal minimum wage to over $10 per hour and tie the tipped minimum wage to 70% of the federal minimum wage. This is the appeal:
I’m not writing to discuss the merits of raising the minimum wage, but it concerns me that the author of the above argument suggests that the wage raise she is proposing “would only increase food costs at most by 10 cents a day for consumers.” Intuitively, that claim seemed inaccurate to me, so I decided to do some digging. As it turns out the dime a day claim comes from a real study (appropriately named “A Dime A Day”), composed by well-intentioned authors who likely never have run an independent restaurant. The study analyzes the effects of the Miller/Harkin Minimum Wage Proposal on the price of food. According to the Dime a Day study, the Miller/Harkin proposal suggests that the federal minimum wage be raised to $9.80 per hour (30 cents less per hour than the wage proposed on the petition I received) and that the tipped-minimum wage be tied to 70% of the federal minimum wage. You can read the whole thing here.
The source of my skepticism is based on how the Miller/Harkin proposal will affect payroll for my company. Payroll at my Lawrenceville restaurant would increase by more than $200 per day if the authors of the study get their way and see the Miller/Harken proposal become the law of the land. [See chart below for details.] Yet if we have 200 guests visit on a given day, each of them would have to devote their full dime of extra spending entirely to Franktuary just to give us $20 in additional revenue.
With cost of goods sold factored in, our revenue would need to increase by about 15% just to cover our new payroll requirements. Furthermore, with the loan my business has to pay I would have little choice other than to pass all of the cost of our new payroll obligations to the consumer. This means that a customer would have to pay $23 for what used to cost $20. If some of your fellow consumers decide it now costs too much to eat at Franktuary, you might have to pay more. Yet the Dime a Day study claims “the price of a $20 restaurant meal would increase 45 cents over three years.”
Hence, if the Miller/Harkin proposal becomes law we may see consumers change their spending habits and tip much less in order to compensate for higher restaurant prices. If this scenario occurs it’s not beyond possibility for a customer to end up spending more money at a restaurant while his server receives less money, all because the tipped minimum wage increased. I’m not saying that will happen, but it’s certainly one of a myriad of unintended consequences that could come to fruition.
While the Miller/Harkin proposal would increase my payroll by more than $60,000 on an annual basis, it’s worth noting that all of my employees already make more than the federal minimum wage, although many of them make less than what the proposed new minimum wage would be. Even my tipped employees make well above the full federal minimum wage once their gratuities are taken into account. In fact, if that weren’t the case I would be responsible for paying them the difference between their tip driven earnings and the actual minimum wage.
As far as the methodology of the Dime a Day study is concerned, it’s worth mentioning that though it proposes that we tie the tipped minimum wage to 70% of the federal minimum wage, the tipped minimum wage figure that it uses for its own calculations is $4.67 per hour. Since the details of the study suggest that the federal and tipped minimum wages be increased incrementally, it’s correct to say that three years from the date that the Miller/Harkin proposal becomes law the tipped minimum wage would be $4.67. However, this is misleading because once the proposed wage raises from the petition are fully in effect, something that would take 6 years rather than 3, the tipped minimum wage becomes $7.07 per hour. That’s a huge difference!
Of course, not everyone eats out every single day. Therefore, it may indeed be true that a typical consumer would only average ten cents more in costs across all his food consumption on a daily basis. I do not have the necessary data to make a judgment on that claim. What I do know is that by necessity it will cost a typical diner significantly more than an extra dime to go out to eat at a restaurant like my own.
I’m left to conclude that the way Franktuary would be affected by the Miller/Harkin proposal is not accurately represented in the Dime a Day study. Instead, Franktuary is lumped together with all businesses, many of which are at very different points in their life cycle. The Dime a Day study claims that “minimum wage workers’ wages constitute a very small percentage of most industries’ overall payroll.” This statement may be accurate, but it’s also true that a significant majority of the people who work for Franktuary would receive a mandatory wage increase if the Miller/Harkin proposal went into effect. While I’m all for paying my employees more when it’s possible to do so, it’s apparent that the net effect of being forced into raises ahead of Franktuary’s growth curve would seriously challenge the immediate viability and long-term prospects of my restaurant.
So, is the Dime a Day study worth pondering? Absolutely. But if it’s made law, realize that when you eat out you’ll be paying much more than an extra dime at many restaurants. Moreover, realize that smaller businesses like Franktuary will suffer disproportionately under this policy. This is because the “high wage earners” the study presumes businesses to have, thereby making its proposed minimum wage increases negligible across an entire payroll, aren’t reliably there when it comes to independent restaurants.
Finally, if the general public supports the Miller/Harkin proposal, but is not willing to continue to support small, independent businesses after their price points change as a result of the proposal there will be another unintended consequence. In that situation there will be people who go from making an amount below the new minimum wage to making no wage at all until they’re able to find new employment. There’s a good chance that the new job they find will remain in the food industry and that their new employer will be a much larger company than their old employer. This is because a larger company with deeper pockets is more likely to remain solvent while affording the mandatory wage increases all American businesses may soon be facing. While workers will earn a higher wage, the barrier to becoming someone who hires will also be elevated. In that scenario, its a big win for all the large companies who are happy with the current state of our nation’s food system. I’m pretty sure that neither I nor the authors of the Dime a Day study want to see that!