Minimum wage increased for employees who receive tips will lead to restaurants hiring fewer employees.
Colorado was among the four states where voters approved a minimum wage hike in November. Among the specific provisions for the new wage hike was the stipulation that tipped workers — such as waiters who receive tips and are paid below the standard minimum wage — will receive a mandated wage hike of 99 cents.Naturally, this will lead to an increase in costs for restaurant owners who will then seek to raise prices and/or reduce costs. KDVR in Denver reports:
Kanatzer owns The Airplane Restaurant in Colorado Springs and said he has already increased his kids menu prices. …
“I increased it a dollar — my kids menu prices went from $4.99 to $5.99,” Kanatzer said.
Raising prices can only go so far, however. Contrary to what many non-economists seem to believe, it is not possible to simply “pass on the extra cost to customers.” As any economics-major undergraduate knows, it is only possible to pass on a portion of the increased cost to the customer because higher prices and competition from other firms will lead to fewer sales if the owner simply attempts to “pass on the cost.” And even if all restaurants are subject to the same wage hike, there are always substitutes in the form of take-out and other types of dining.Specifically, in response to the forced wage hike we can expect to see more food-service business go the way of so-called “fast casual dining” which include brands such as Chipotle and Noodles and Company. These are restaurants where patrons order food at the counter, and then take their food to their tables themselves. These places often offer alcoholic beverages and higher-quality food than “fast food” places such as McDonalds, and somewhat approximate the “casual dining” experience at lower cost thanks to the elimination of servers.
Thus, in order to control costs, restaurants that have in past hired wait staff will become more like fast casual restaurants. The KDVR report suggests exactly this, in fact:
Kanatzer estimates most restaurants will adjust prices and change staffing levels as a result, which could mean fewer servers and longer waits.
“I’ve got a friend who has a restaurant and he’s going to do counter service from 2-4 (p.m.) so he’s not going to have a server at all,” Kanatzer said.
…Kanatzer suspects more restaurants will install kiosks at tables in the hopes technology might eliminate the need for most servers.
So, we should expect restaurants to hire fewer servers and move toward more counter service and use of technology to replace servers.Some waiters have become concerned that the new wage hike is endangering their jobs. They should be concerned.