Commentary
Minimum-wage bill would deal a blow to Minnesota restaurants
By Michael Saltsman
Michael Saltsman is research director of the Employment Policies Institute, which describes itself as "a nonprofit research organization dedicated to studying public policy issues surrounding employment growth."
It's a new year and a new Legislature in Minnesota, and the ruling DFL Party has arrived in St. Paul with no shortage of well-intentioned proposals. Chief among them is a plan to raise the state's minimum wage 30 percent to $9.38 from its current $7.25.
While it's similar to a number of other wage bills introduced this year, the impact in Minnesota would be unique. Minnesota is one of seven states that does not permit employers to count the tips earned by restaurant employees as income. As a consequence, the base wage for tipped employees is already 240 percent above the federal level. The DFL proposal would widen this gap, and link it to inflation, causing it to grow most years thereafter.
This proposal might appeal to the DFL's base, but it would be devastating for the state's restaurants.
The empirical research regarding the impact of wage mandates at full-service restaurants is clear: Economists from Miami and Trinity Universities analyzed two decades of government data and found that each 10 percent increase in the tipped employee base wage reduces their hours worked by roughly 5 percent. But straightforward evidence like this often gets lost in a battle of the studies, where both sides of the debate claim to have the research on their side.
Local businesses in Minnesota can help provide context — businesses like the River Oasis Cafe, a diner in Stillwater. Purchased five years ago by Craig Beemer, the cafe has 17 employees and annual sales just over the threshold the state uses to distinguish a "small" from a "large" business.
Beemer doesn't feel like a large business. Even on busy weekend mornings, he has just seven people on the floor — four servers, two cooks and one dishwasher. Last year, as the owner of the business, he estimates his income was only about 20 percent higher than the top-earning employee on his wait staff.
Running the numbers on the proposed increase in the minimum wage, Beemer estimates an increase in labor costs of more than $20,000. Labor costs, however, already eat up 31 percent of his sales revenue, and food costs consume another 34 percent. After paying rent and other expenses, Beemer's profit margin — the amount the business keeps from each sales dollar — is 2.8 percent.
If the minimum wage were increased from $7.25 to $9.38 per hour, Beemer said, "I don't think it's possible to operate my business profitably without making significant changes to our business model." With his prices already raised to the upper limit of what he believes his customers will pay, Beemer said, changing his business to a "fast casual" model, where customers place their order at the counter, may be the only way to operate profitably.
The servers who used to wait on customers — the servers whom the DFL wants to help with this hike — would unfortunately be out of work.
For Beemer, it's a surprise is that this legislation exists in the first place. His servers currently earn $18-$22 an hour on average, which means they're earning between $11 and $15 an hour in tip income alone. In other words, these are not minimum-wage employees — yet current law in Minnesota treats them as if they were.
Why would policymakers legislate a $2.13 an hour raise for employees already making $18-$22 per hour? Beemer's not sure, and he's convinced that legislators are "not considering all the facts." Indeed, another consequence of the proposed wage increase is that it will affect his ability to pay dishwashers (who make $8-$10 per hour) and cooks (who make $12-$15 per hour).
Before rushing to pass this bill, Beemer said, he hopes senators or representatives will consider the negative impact that an increase in the minimum wage will have on everyone who works in the restaurant industry. He's hoping that economic common sense prevails.
Comments (11)
It's really disappointing that the author only talked to ONE restaurant owner - in a wealthy Twin Cities suburb - to counterpoint the DFL-proposed legislation. Very sloppy reporting during a pledge drive.
But remember folks, the primary reason for the increase in the minimum wage is to reward public employee unions whose wages are based off the minimum wage. Increase the minimum wage, union wages automatically go up, union wages go up, more money for the DFL. Follow the money.
True, Sieur, but that restaurant is a true diner that caters to the blue collar locals just as well as the suit and tie crowd. The only thing exclusive about this place maybe its location.
Just another case of legislators not looking at the facts and ignoring the unintended consequences of their actions. My wife worked as a waitress at a Minneapolis dive bar and made around $40-50/hr on tips alone and on top of that she pulled in her minimum wage. The minimum wage increase will push many restaurants on the edge right off the cliff and out of business. Fully contemplate the consequences of your actions before passing laws.
Minimum wage employers are big business chains--Perkins and the like, not Ma and Pa shops. Profits are good as is the income of the Employment Policies Institute thanks to the giants of the hospitality industry. Hardly a fair fight. Remember Tom Emmer? The guy who runs the "expert think tank" cited here obviously has no clue.
Hmm. Here is a direct web review of the restaurant in question: "When the second omelet arrived - it too had meat in it. My friend was unable to eat any of it. When the owner checked on us, my friend voiced her displeasure with the service. The owner proceeded to tell her that she was making a unreasonable demand for not wanting to pay for a meal she was unable to eat due to the establishment inability to keep meat out of her VEGETABLE omelet. He was extremely rude to all three of us and told us if we didn't want to pay we could leave and never come back." say no more.
Servers make the minimum wage plus TIPS. Tips are taxed as wages. Servers make far more than the minimum wage. Please review the facts not the restaurant!
Minimum wage is an employers way of saying to their employee, "If I could pay you less, I would."
Minimum wage is not a way of saying I would pay you less if I could. It's a way of telling an employee they are worth more than are. Nobody worth hiring makes minimum wage. It's just a way of keeping good employees from making more. If all I can afford in labor is $725 dollars a week and my employees in total work 100 hours than every body gets $7.25 an hour. If minimum wage was $7.00 an hour than I would have $25 to give to an employee that out performs all other an extra $1 an hour. Minimum wage is just a way to subsidize those that can't pull their own weight. The state steps in and says even though you don't work very hard, we think your time for standing here doing nothing is worth a minimum amount of money. Sorry, but it just keeps everybody at the entry level of the workforce from getting ahead. And forces small businesses from having flexibility in their staffing choices. Sorry high-school kids, no jobs this summer either!
Employees who earn tips should be excluded. If you know anything About the restaurant or bar business you would agree that we are not low paid. This raise should be for the truly low income employees like burger king. If you make tips you make more the $10 per hr. I know as have been in this business (bar & restaurant) for sometime and it will hurt a lot of small businesses.
Want to help people at the bottom of the wage scale? Get Congress to eliminate the 6.2% Social Security tax on the first $10,000 of income. Raising the minimum wage is a zero sum game because higher wages must be passed along to the consumer in the form of increased prices for goods and services.
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