The first stage of the Seattle-mandated $15/hr minimum wage, to $11/hr, takes effect next month, but already Seattle’s low wage workers are feeling the pain of their pay “raise.”
…the city is experiencing a rising trend in restaurant closures.
The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront.
The shut-downs have idled dozens of low-wage workers, the very people advocates say the wage law is supposed to help. Instead of delivering the promised “living wage” of $15 an hour, economic realities created by the new law have dropped the hourly wage for these workers to zero.
About 36% of restaurant earnings go to paying labor costs.
Restaurants operate on thin margins, though, with average profits of 4% or less….
The Seattle Eater offered a more itemized breakout [emphasis added]:
Bottom line, labor can only be a function of sales. If a busy restaurant at lunch serves 150 eaters during the lunch hour, and each person spends $15, the restaurant just grossed $2,250. If labor comprises significantly more than 30%, the restaurant won’t be in business for long. So that allows $675 total for labor for the day, and before the employer taxes we pay that allows $550 or so. At $15 an hour, that allows 36 labor hours, which means four people can work a full day. This assumes that everyone is making the new minimum. Now look around in a busy restaurant serving 150 people—do you see more than 4 employees? Of course you do.
The 16.2% increase in labor cost that first stage represents over Seattle’s current $9.47/hr minimum wage represents a total cost increase of nearly 6%—turning that 4% profit margin into a loss. Even taking Brendan McGill’s (Chef/Owner, Hitchcock, Hitchcock Deli and the gentleman quoted just above by the Seattle Eater) estimate of 30% labor costs, that spike in the minimum wage coming in a week or so works out to just under a 5% increase in total costs, still wiping out that 4% margin. No wonder restaurants are closing.
The question remains: are the targeted low-wage folks better off for being out of an $11-$15/hr job than they are for having a $9.47/hr job? Really?
Another question: how many other low-wage industries besides the food services one are getting hammered by this minimum wage law?
A final thought: maybe next, to cover Seattle’s minimum wage requirement, Seattle will impose a minimum business profit requirement on Seattle’s taxpayers.
…including AEI‘s Mark Perry, to whom h/t