Critics would have you believe that upping the minimum wage in restaurants will lead to massive layoffs and closures. But since raising the minimum wage to US$15 per hour nearly a year ago, the restaurant industry in New York City has thrived.
I’m a professor with a focus on labor and employment law. My research on the minimum wage suggests a few reasons why this might be true.
What hasn’t happened
When worker pay goes up, employers can respond in a number of different ways. They can cut hours, lay off workers, accept smaller profits or raise prices.
With profits so low in the restaurant industry, averaging just 3%-5%, employers may not have the option to accept less in profits without going in the red.
In many industries, increased labor costs may prompt businesses to lay off American workers and move operations overseas where labor costs are lower. But this is not a viable solution in the restaurant industry, since most of the work is done on-site.
That leaves restaurant owners with two options. The first is to decrease the number of hours each employee works, which might explain why income gains from a minimum wage are not as large as one would predict.
Still, massive layoffs in the restaurant industry are unlikely because owners need a certain number of staff to operate a full-service kitchen.
The other option is to increase prices, which many restaurants in New York City have done.
New Yorkers have been fighting for a $15 minimum wage for several years.
Prices go up
Some in the restaurant industry have argued that raising me
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