When it comes to minimum wage and the always-testy $15 debate, there’s a solid consensus among restaurants regarding one fact in particular: Menu prices will rise if rates do. But would that be enough to absorb higher labor costs during a COVID-19 recovery stretch? The National Restaurant Association isn’t so sure.
On Tuesday, the Association released findings from a nationwide survey of operators large and small. It questioned the potential impact of the Raise the Wage Act of 2021, and what it might do to restaurants trying to claw out of the pandemic pit.
The sentiment, as far as the Association is concerned, is it’s the wrong bill at the wrong time. The Association sent a letter to congressional leaders Tuesday urging the measure’s removal from the $1.9 trillion stimulus plan currently being discussed by lawmakers.
“Passage of this bill this year would lead to job losses and higher use of labor-reducing equipment and technology,” Sean Kennedy, executive vice president for Public Affairs for the Association, said in a statement.
READ MORE: Restaurant owners face down minimum wage talks, again
The Raise the Wage Act proposes an increase of the federal minimum wage from $7.25 to $15 an hour over the next five years. While many states have lifted rates in recent years, the federal figure hasn’t budged since 2009. The Raise the Wage Act starts at $9.50 (it also hikes the tipped wage from $2.13 to $4.95) before lifting every year through 2025, when it would then index the minimum wage to median wages.
Also, it promises to eliminate a separate minimum wage for tipped workers. The Association said tipped servers make between $19–$25 per hour under the current tipped credit model, suggesting this would actually hurt, not help workers.
Federal law requires employees earn at least the federal minimum wage, or the higher state or local number in 28 states and 55 municipalities. If the combination of the base wage and earned tips does not total the required minimum wage, the employer must pay the tipped employee more to make up the difference.
The Association believes if the tip credit is sliced, many restaurants would simply terminate tipping, raise prices to cover higher wages, and move to an hourly wage-only system. Tipped employees would likely earn less than they currently do, the Association said.
“High quality service and flexibility are hallmarks of the restaurant industry and why nearly 90 percent of consumers enjoy going to restaurants,” it said. “Tipping is why so many employees choose restaurants as a first job, a side job for extra income, a job while in school, a second chance, or a career.”
On the legal front, recent attempts to eliminate the tip credit in Chicago, Maryland, Washington, D.C., Michigan, Virginia, New Mexico, and Maine failed. In fact, no state has eliminated the tip credit in more than two decades.
The Association said the setup helps operators with slim profit margins recruit and retain top talent and creates higher earning potential for workers. From a higher level, it provides incentive for exceptional customer service, the Association added.
“The survey results make it crystal clear that the restaurant industry and our workforce will suffer from a fast-tracked wage increase and elimination of the tip credit,” Kennedy said. “Restaurant jobs will be critical to every local community recovering from the pandemic, but the Raise the Wage Act will negate the stimulative impact of a worthy plan. We share your view that a national discussion of wage issues for working Americans is needed—but the Raise the Wage Act is the wrong bill at the wrong time for our nation’s restaurants.”
The results
The Association surveyed 2,000 restaurant operators and presented them with the Raise the Wage Act of 2021.
In terms of raising the federal minimum wage and tipped wage to the first tier ($9.50 and $4.95), 82 percent said these increases would have a negative impact on their restaurant’s ability to recover from COVID. Only 2 percent said wage hikes would have a positive impact.
Restaurant operators’ assessment of how the initial 2021 increases in the federal minimum wage (to $9.50) and tipped wage (to $4.95) would impact their restaurant’s ability to recover from the coronavirus pandemic
All restaurants
- Positive impact on ability to recover: 2 percent
- Negative impact on ability to recover: 82 percent
- No impact: 16 percent
Full-service restaurants
- Positive impact on ability to recover: 2 percent
- Negative impact on ability to recover: 85 percent
- No impact: 13 percent
Limited-service restaurants
- Positive impact on ability to recover: 3 percent
- Negative impact on ability to recover: 79 percent
- No impact: 18 percent
Independent restaurants
- Positive impact on ability to recover: 2 percent
- Negative impact on ability to recover: 82 percent
- No impact: 16 percent
Franchisee restaurants
- Positive impact on ability to recover: 1 percent
- Negative impact on ability to recover: 90 percent
- No impact: 9 percent
So what happens at $15? The Association asked operators about a fully phased-in $15 federal rate. The overarching feeling is it would lead to job losses and labor-reducing equipment/technology.
As the federal minimum wage climbs to $15 and the tipped wage is eliminated, the vast majority of restaurant operators said they would make changes to their business model. Nearly all (98 percent) said they’d increase menu prices as a result of the higher wages.
Eighty-four percent of restaurants said they’d likely cut jobs and employee hours from normal levels, while 75 percent said they’d slice employee benefits from normal levels.
Sixty-five percent said they’d likely add equipment or technology that reduces the need for employees in their restaurants, things like kiosks, intelligent upselling technology, automation software, and robotics, etc. Franchisees (77 percent) were more likely than independents (63 percent) to say they would add labor-reducing equipment or technology.
Roughly a week ago, the Congressional Budget Office released a report on the potential aftershock from the Raise the Wage Act. It suggested similar threads. It said—across all industries—passage could cost 1.4 million jobs by 2025 and increase the country’s deficit by $54 billion over 10 years. However, it could also bring 900,000 people out of poverty and raise income for 17 million workers. Additionally, some 10 million more workers with wages just above the line could gain increases thanks to the so-called “ripple effect” of raising minimum wage. What it references, in essence, is that employees at multiple levels would see pay bumps to make way for a new bottom-rung wage. Basically, if the newest employees make $15, those making $15 before, with some longevity, might now need to make more, and so on.
The CBO echoed the notion relative prices of goods and services would increase, and the largest upticks, relative to the average increase, “would be for goods or services whose production required a larger-than-average share of low-wage work, such as food prepared in restaurants.”
It also predicted, “When the cost of employing low-wage workers goes up, the relative cost of employing higher-wage workers or investing in machines and technology goes down. Some employers would therefore respond to a higher minimum wage by shifting toward those substitutes and reducing their employment of low-wage workers.”
Breaking down the Association’s survey:
Percent of restaurant operators who say they will likely take the following actions during the next few years if the federal minimum wage rises to $15 per hour and the tipped wage is eliminated
All restaurants
- Increase menu prices: 98 percent
- Cut jobs from normal levels: 84 percent
- Cut employee hours from normal levels: 84 percent
- Cut employee benefits from normal levels: 75 percent
- Add equipment or technology that reduces the need for employees: 65 percent
Full-service restaurants
- Increase menu prices: 98 percent
- Cut jobs from normal levels: 87 percent
- Cut employee hours from normal levels: 88 percent
- Cut employee benefits from normal levels: 78 percent
- Add equipment or technology that reduces the need for employees: 67 percent
Limited-service restaurants
- Increase menu prices: 97 percent
- Cut jobs from normal levels: 80 percent
- Cut employee hours from normal levels: 79 percent
- Cut employee benefits from normal levels: 72 percent
- Add equipment or technology that reduces the need for employees: 64 percent
Independent restaurants
- Increase menu prices: 97 percent
- Cut jobs from normal levels: 84 percent
- Cut employee hours from normal levels: 85 percent
- Cut employee benefits from normal levels: 76 percent
- Add equipment or technology that reduces the need for employees: 63 percent
Franchisee restaurants
- Increase menu prices: 97 percent
- Cut jobs from normal levels: 88 percent
- Cut employee hours from normal levels: 88 percent
- Cut employee benefits from normal levels: 77 percent
- Add equipment or technology that reduces the need for employees: 77 percent
In its letter to congressional leaders, the Association started by offering “strong concerns.”
“At a time when over 110,000 restaurants have closed and 2.5 million servers and employees have lost their jobs, increasing labor costs will push more employees off payrolls, raise menu prices, and force more restaurants to close. Eliminating the tip credit will hurt millions of servers who rely on the current system where they earn between $19-$25 an hour with tips,” Kennedy wrote.
Meanwhile, fast-food workers in 15 cities were expected to strike Tuesday to demand $15 per hour and union rights, according to an advisory from Fight for $15 and a Union. “I felt like we had to take our safety into our own hands, so I decided to walk off the job and go on strike,” Taiwanna Milligan, a McDonald’s worker, said in a statement, speaking of COVID conditions. “Today I’m striking for $15 because workers across the country are being paid starvation wages and not getting enough protections.”
Strikes were planned for Charleston, South Carolina; Chicago; Detroit; Durham and Raleigh, North Carolina; Flint, Michigan; Houston; Miami; Milwaukee; Oakland; Orlando; Sacramento and San Jose, California; St. Louis; and Tampa.
Fight for $15 and a Union said raising minimum wage would boost the incomes of 32 million workers, citing data from the National Employment Law Project. This includes 59 percent of working families with incomes under the poverty line. The organization also pointed to a UC Berkeley study that said raising the minimum wage in the 1960s directly led to a 20 percent drop in income inequality for Black Americans.
Fight for $15 and a Union added raising the rate would reduce turnover (from this Census Bureau paper) and “lead to no appreciable job losses.” (Based on a 2018 policy report from the Center on Wage and Employment Dynamics).
“Proposals to undermine the federal minimum wage by substituting for regional wage floors would leave millions of workers out, cement low-wages in low-wage areas, and exacerbate racial inequality,” the organization said.
It said the gradual nature of the Raise the Wage Act would give businesses of all sizes time to adjust while fueling growth at the same time.
Broadly, lawmakers are also considering direct aid for restaurants this month. Congress reintroduced the RESTAURANTS Act, with the Senate separately passing a budget resolution amendment for relief earlier in February. The House Budget Committee expects to meet the week of February 15 to vote on the legislation. The House of Representatives should vote the following week. The Senate would do so after that.
On the table is a $25 billion funding pool that would be divided into grants. There would be a maximum of $10 million per multi-unit group or $5 million per individual restaurant. Concepts with more than 20 locations wouldn’t be eligible.
Unlike the PPP, the money—determined by the difference between 2020 sales and 2019 revenues—could go toward a variety of operational needs, not focused 60/40 on payroll as the heavy lifter. It sets aside $5 billion specifically for small restaurants, bars, and tasting rooms, making less than $500,000 in gross receipts in 2019. And prioritizes the award of grants to eligible entities that are owned by women or Veterans or are socially and economically disadvantaged businesses.
“This plan is a good first step to help restaurants, bars, and tasting rooms maintain payroll, weather the pandemic, and pay down debts. The proposal recognizes the unique business models of restaurants and bars, which operate on very low profit margins,” the Association and the Independent Restaurant Coalition said last week in a joint statement. “For instance, the proposal allows businesses to use grants on expenses incurred between February 2020, and the end of 2021, giving restaurants and bars the flexibility they need to manage changing demand or new regulations that may come from a surging virus.”
