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Calif.’s wage hikes prove an uneven burden, study finds

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How is the march toward a $15 minimum wage affecting restaurants in California? That all depends on where you look, according to a study released last week by a university researcher.

Local branches of national chains have had an easier time than independents and regional brands in weathering a 50% rise in the state’s minimum wage since 2012, to $12 an hour, the research found. 

Along the same lines, full-service establishments have been more negatively impacted, in terms of job growth, than limited-service concepts, which are more likely to have a chain affiliation. Yet expansion slowed more dramatically for quick-service and full-service brands.

The report observes that compensation already tended to be higher in full-service restaurants, in part because the state does not permit employers to count server and bartenders’ tips toward their mandated wages. The data suggests that the higher labor costs typical of table-service restaurants have become that much more of a drag on profitability. 

The research shows that employees of both types of restaurants may not have benefited as much as proponents of a wage increase had expected. California’s minimum wage is being hiked in stages, with a target of $15 an hour by 2022. By the time the pay floor had been raised by 20%, workers paid the minimum wage saw their annual compensation increase by just 4.2%, according to the report, which was conducted by UC Riverside School of Business Center for Economic Forecasting and Development. Employees of full-service restaurants are taking home an overall pay increase of just 2.7%.

The report was commissioned by the California Restaurant Association.

Average hourly wages for California’s lowest-paying occupations

OccupationHourly wage
Forest and conservation workers$10.16
Fast-food cooks$11.18
Graders and sorters, agricultural products$11.19
Dishwashers$11.20
Farmworkers and agricultural laborers$11.23
Foodservice prep workers/counter servers$11.31
Restaurant host/hostess$11.40
Manicurists, pedicurists$11.41
Amusement and recreation attendants$11.42
Shampooers$11.52

Source: “The minimum wage: An analysis of the impact on the restaurant industry,” Bureau of Labor Statistics, Occupational Employment Statistics

Four of the 10 lowest-paying jobs in California still fall within the foodservice business, noted the report, “The minimum wage: An analysis of the impact on the restaurant industry.”

“The research does not suggest that the minimum wage should not rise or that rising wages do not have any benefits,” Christopher Thornberg,the study’s author, said in a statement. “However, increases to the state’s minimum wage in recent years have been the fastest since California first set a minimum wage in 1916—and that pace is creating certain negative consequences for smaller businesses and people who need the most help rising out of poverty.”

The report contends that the increase in wages was counterbalanced by a significant cut in employees’ hours. 

The report also found that a higher wage’s negative impact on job creation is twice as strong in low income and high unemployment areas than elsewhere in the state. Thornberg concluded that higher-income areas can more readily pass along a wage increase to patrons in the form of higher menu prices.

Restaurants continued to create jobs at a more rapid clip than the economy as a whole between 2012 and 2017, according to the study. Total employment in California rose 21%, while the number of jobs created in limited- and full-service restaurants increased 35% and 27%, respectively.

But the study concludes that 18.8% more jobs, or nearly 12,000 positions, would have been created in the full-service sector alone without the burden of a 50% hike in the minimum wage.

It projects that 40,000 fewer jobs will have been created in restaurants by 2022, when the minimum wage hits $15 an hour. 

“Additionally, the negative impacts on businesses and their workers appear to be masked somewhat by a robust economy,” said Thornberg. “Today, even when workers lose hours or jobs because of higher labor costs to the employer, they are presumably able to bounce back quickly by finding another job or more hours elsewhere. In the event of another economic downturn, that job loss would be more lasting.”

California’s minimum wage is set to rise by $1 per year for the next three years. Gradual increases are expected to push the minimum wages of Connecticut, the District of Columbia, Illinois, Maryland, Massachusetts, New Jersey and New York to $15 an hour within the next six years.

California is the nation’s largest restaurant market.

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