As minimum wage kept growing, restaurants didn’t

Original Article: https://www.crainsnewyork.com/op-ed/minimum-wage-kept-growing-restaurants-didnt

  • Author: Michael Saltsman

  • Publication Date: January 2019

  • Newspaper: Crain's New York Business

  • Topics: Living Wage, Minimum Wage, Tipped Wage

Has New York’s minimum wage experiment been a success or failure?

For Gov. Andrew Cuomo, the verdict is all positive. He described the state’s minimum wage—which in New York City rose to $15 an hour Dec. 31—as a “national example in the fight for economic justice.”

But employment figures paint a less-rosy picture.

New York has more than a dozen different minimum wage rates depending on a business’s size, industry and location. The state’s wage level accelerated at the end of 2015, after a wage board empaneled by Cuomo increased the base wage for tipped employees by 50% overnight. A similar wage board for fast-food employees subsequently approved a $15 minimum for that industry; this was followed by a statewide mandate that also rose to that level.

The anecdotal evidence on these increases’ negative impact is substantial. Lacking the ability to pass costs on to their customers, dozens of businesses have reported scaling back or closing their doors following the state’s wage hikes. Countless more have done the same without attracting media attention. (Many of these stories are featured on my organization’s website, FacesOf15.com.)

In one high-profile story last year, Union Square’s iconic The Coffee Shop (which was featured prominently in “Sex and the City”) closed its doors in October, with the owner pointing to a rising minimum wage as a primary reason. Other restaurants have scaled back dramatically on staffing; one large restaurant franchisee in the region told Fox Business that he had 1,000 fewer employees on staff in 2017 than in 2016, using technology to fill jobs once occupied by people.

The empirical data lends support to New York City business owners’ concerns about labor costs. The state Labor Department reports data on region-specific employment growth, derived from the Bureau of Labor Statistics’ Current Employment Statistics dataset. For full-service restaurants, robust year-over-year employment growth that reached nearly 9% in November 2013 cratered to less than 1% by November 2018. The full-service restaurant industry in New York City is on track to finish 2018 with zero growth.

For quick-service restaurants, the story is similarly depressing. The city’s affordably-priced restaurants experienced year-over-year employment growth averaging 7% between 2012 and 2015. This fall, yearly employment growth in the industry turned negative, with the industry on track to have annual employment growth of less than 1%—worse than during the Great Recession.

While correlation is not necessarily causation, the fact that these steep drops in employment growth corresponded closely with steep increases in the minimum wage can’t be ignored, particularly in light of voluminous supporting anecdotes from employers.

One outlier is the Quarterly Census of Employment and Wages, which showed a statewide jump of nearly 5,000 food service businesses in 2017—a change with no recorded precedent in the state. (Consider that, during New York’s boom years prior to the Great Recession, the state only added about 1,200 such businesses annually.) Supporters of New York’s minimum wage experiment pointed to these unusual numbers as proof that the rising minimum wage hasn’t been harmful.

In fact, they’ve been fooled by a statistical aberration.

I spoke with the Census Bureau office responsible for this data set and was told the unprecedented change was likely caused by a “noneconomic reason”—specifically, the state’s reclassification of businesses as restaurants. (The bureau’s analyst pointed me to state data that supports this.) Put differently, New York didn’t actually add more restaurants in 2017 than at any time in the recent past; rather, the state Labor Department added thousands of businesses that already existed to the “food services and drinking places” industry category.

I’ve filed a public records request with the state to obtain data that sheds further light on this mystery. In the meantime, the preponderance of the monthly data released by the state tell a consistent story of an industry whose growth has been seriously harmed by New York’s minimum wage. While a rollback of current mandates isn’t likely in the cards, the state can avoid adding insult to injury by shelving a proposed increase in the minimum wage for tipped workers, which would jeopardize the jobs and income of servers who earn far more than minimum wage.