Restaurant industry unharmed by modest minimum wage hikes

ITHACA, N.Y. – In the past 20 years, whenever federal, state or local laws have modestly raised minimum wages, the U.S. restaurant industry has opposed them. Restaurateurs say higher wages force them to cut staff and increase prices to offset reduced revenue, which in turn makes their customers unhappy, slashes profits and even puts their restaurants’ survival in jeopardy.

Now a new Cornell University study published by the Center for Hospitality Research finds that modest increases to the minimum wage have not had those negative effects. The boosts have had neither a large nor reliable impact on the number of restaurants or employees, even when restaurants have raised prices directly in response to wages increases, the authors said.

“There is no doubt that restaurateurs face higher expenses as a result of minimum wage increases, but if restaurants are raising prices to compensate, those increases do not appear to decrease demand or profitability enough to sizably or reliably decrease either the number of restaurants or the number of employees,” said co-author Michael Lynn, professor of consumer behavior and marketing at Cornell’s School of Hotel Administration. Lynn co-wrote the piece with Christopher Boone, assistant professor of employment relations, human resources and law.

The research looks at the impact of federal and state minimum wage laws, which vary considerably from state to state, and between tipped and not tipped workers.

In 2015, for example, the federal minimum wage was $2.13 for tipped workers and $7.25 for non-tipped workers. However, the New York state minimum wage was $7.50 for tipped workers and $8.75 for non-tipped workers, and the California state minimum wage was $9.00 for tipped and non-tipped workers alike.

Changes in state and federal minimum wage laws have affected tipped and non-tipped minimum wages differently. While the federal tipped minimum wage has remained the same since 1991, the federal non-tipped minimum has increased five times since then. Similar differences in changes to the tipped and non-tipped minimum wages have occurred at the state level.

Boone and Lynn used that diversity in minimum wages to study the links between different levels of minimum wage and various employment outcomes.

The study found that the restaurant industry appears unharmed by modest minimum wage hikes.

“While we don’t see strong impacts on employment, we do find consistent evidence that raising the minimum wage increases the total earnings of the restaurant workforce. Restaurants are likely to see some benefits as well, since better compensated employees tend to be happier, more productive and less likely to quit their jobs. So we think the restaurant industry should support reasonable increases in the regular and tipped minimum wages,” says Boone.

The authors caution that their conclusions apply only to the mostly modest minimum wage increases implemented between 1995 and 2014. Much larger increases, like the $15 minimum wage recently enacted in Los Angeles, San Francisco and Seattle and contemplated elsewhere (including New York), may have more substantial negative effects on the industry.

“The industry may be justified in opposing immediate, large hikes in the minimum wages, but data do not support opposition to all minimum wage increases,” said Lynn, who paid his way through school by waiting tables and tending bar.

