By Ryan McMaken
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. ...
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.
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:
Even some servers who are recipients of the pay raise fear possible impacts.
The effect on workers will be that many of them will need to move to lower-wage jobs due to there being fewer waiter opportunities. Many people who are now waiters and potential waiters will have to take jobs as cashiers and other workers at fast food and fast casual restaurants instead of waiting tables. As anyone who has worked in food service knows, these sorts of jobs often pay far less per hour than traditional waiter jobs. So, the minimum wage hike will mean an actual pay cut for many people who could have made more as waiters, were it not for the minimum wage hike.
Moreover, it means that in the future, waiter positions that might have existed in the absence of the minimum wage hike will never exist. More restaurants that rely on a large wait staff will change their model, close down, or never be opened at all, further cutting the job opportunities for workers who would benefit from working as waiters.
However, these unseen positions that never came into existence will not show up in any unemployment data, and thus the proponents of minimum wage hikes will claim that higher wages to not lead to less employment. The media will interview the lucky waiters who managed to keep their jobs and wait tables in an environment of higher prices — and higher tips. Competition for these remaining jobs will become more fierce meaning lower-skill waiters will find themselves locked out of waiter jobs. In the end, proponents of minimum wage hikes will declare victory and ignore all the unseen consequences imposed on the most vulnerable, unskilled, and marginal members of the workforce.
This article was originally published at The Mises Institute.