How West Coast Businesses are (Trying to) Balance a Higher Minimum Wage

Back Bloomberg Sep 25, 2015 By James Nash

When Seattle voted to raise its minimum wage to $15 an hour, Bob Donegan, who runs a chain of seafood restaurants ringing the Puget Sound, added 21 percent to customers’ bills and told them to stop tipping.

Up and down the West Coast, home to the nation’s first $15 minimum wage laws, Donegan and other business owners are grappling with higher labor costs by experimenting with no-tip policies, employee ownership and trimming part-timers’ hours by working longer themselves.

So far, customers and employees of Ivar’s Acres of Clams don’t seem to mind the change, Donegan said, noting that the chain’s buying power has held prices down even with the surcharge. To the extent customers have complained, he said, it’s about the admonishment not to tip servers — which Donegan partly lifted by merely encouraging smaller tips.

“We wouldn’t have done this if the city wouldn’t have caused $15 an hour to happen, but we know that every restaurant in Seattle is going to have to deal with this in some way,” Donegan said.

Seattle was the first major city to adopt the $15 standard, doing so in June 2014. San Francisco, Los Angeles and Los Angeles County followed suit, while New York state is moving toward a $15 minimum for fast-food workers. In each case, the higher wages are being phased in over several years.

Most businesses are simply absorbing costs and raising prices, said Anthony Anton, president of the Washington Restaurant Association. He said that the two-year phase-in is cushioning many Seattle businesses.

In California, higher state and local minimum wages are contributing to some owners’ decisions to sell businesses, said Bob House, general manager of the San Francisco-based brokerage BizBuySell. The company listed 2,296 businesses for sale in metropolitan Los Angeles between March and June, compared with 2,136 in the same period a year earlier.

The National Employment Law Project, a New York-based nonprofit backing higher wages, said there’s no evidence that raising the minimum pay has depressed business growth.

“The restaurant industry is competitive, with lots of openings and closings and innovation,” Paul Sonn, the group’s general counsel, said by e-mail. “But on whether higher minimum wages spur employers to reduce staff positions or trim hours, the data is clear that in the aggregate, that does not happen to any appreciable degree.”

In Oakland, California, Tsu-Wei Weng will make some employees partners in the Fortune restaurant when he buys the Chinatown institution this year, he said.

“Good employees would get part-ownership,” Weng, a computer software engineer-turned-restaurateur, said in an interview. Yet their take-home pay could drop below minimum wage if the restaurant isn’t profitable, he said.

Other restaurants are allowing customers to enter orders tableside via iPads and other tablets to minimize staff time. And with profit margins squeezed by labor costs, entrepreneurs likely will gravitate toward higher-end restaurants, said AJ Gilbert, who ran the Luna Park restaurants in Los Angeles and San Francisco. The higher minimum wage represents an 8 percent increase in total costs for a typical restaurant, said Gilbert, who sold his San Francisco location in 2005 and Los Angeles in 2012.

Bills at Luna Park averaged $30, and the restaurant was able to eke out a profit through sheer volume, Gilbert said.

“Anybody rationally opening a restaurant in San Francisco now won’t be able to do the same concept we did,” he added.

Down the coast in San Diego, a pending referendum encouraged by business groups delayed a local wage increase. Workers are nonetheless entitled to the state minimum of $9 an hour, which increases to $10 at the beginning of the year. California’s legislature this year failed to act on a proposal to boost the level to $11 after Governor Jerry Brown’s administration objected.

The prospect of voters ratifying San Diego’s proposed $11.50 minimum means that Ann Kinner covers nearly all the shifts at her nautical bookstore.

“You just can’t magically make things work by handing a part-time worker $3 an hour more,” said Kinner, who has owned Seabreeze Books & Charts for 11 years.

Kinner said labor accounted for 27 percent of her costs last year, and that percentage will increase.

“I haven’t had a real vacation since 2009 and don’t expect to see one anytime soon,” Kinner, 70, said. “That’s one way of keeping costs down.”