No Free Lunch

If it were not for a violation of parliamentary procedure that voided its inclusion, we would be adding a new dimension to that old axiom, “there is no such thing as a free lunch.”

Hidden within the $1.9 Trillion Covid Relief Bill passed by the House resided yet another preposterous Democrat proposal to increase the federal minimum wage to $15 an hour.  Interesting in that a body of elected officials, the majority of whom have never worked in the private sector let alone ever run a business, are essentially telling business owners how to run their businesses.  Absurd. You should know if this indecent proposal was acted upon what the ramification would have been, who would be most adversely affected? The service industry, particularly restaurants that are currently reeling under the yoke of pandemic related shutdowns.  It would be,Welcome America, to the era of the 50-dollar sandwich.

 The current federal minimum wage is $7.25 an hour and has been the standard since 2009.  In the restaurant industry tipped workers, such as waitstaff and bartenders, may be paid a sub-minimum wage as low as $2.13 an hour.  

Appalling, shrieked the liberals! But little known is that if the employee fails to reach minimum wage with tip subsidy, the employer is required by law to make up the difference.  Granted, this can create a roller coaster of income troughs and valleys but servers fare well under this system. 

Mr. Swift’s college age nieces are known to bring home $800 a night on busy weekend shifts at more upscale establishments, and gentleman waiters at his white tablecloth haunts in the city have retired well to their lavish homes in seaside communities. And how much of this cash reward is actually reported on income tax returns or is subject to creative accounting?  Who wouldn’t enjoy a tax-free revenue stream? Not a bad deal.

The restaurant industry is not for the faint of heart, and proprietors operate on a slim profit margin.  Rent, insurance, licensing, equipment, food spoilage, and staff salaries all take a huge bite out of the bottom line. Throw in horrific hours of operation, dealing with a fickle public, and managing a staff of mostly twenty-something malcontents, and the risk often outweighs the benefit.  Once a restaurant gets past it’s first year in business, the failure rate tends to drop, but still, according to Cornell University, 26.15% will close their doors before their first anniversary.  The median lifespan of a restaurant startup with fewer than 5 employees based on US Bureau of Labor Statistics is 3.75 years.  According to Forbes, the larger the restaurant, the greater the chance of success, yet the failure rate overall in a CNBC study “seemed to settle at around 60%.”  Yet, here we are in the midst of a pandemic where 1 in 5 restaurants have closed their doors, many forever, average revenue for those that remain open is down as much as 20%, and our government is seeking to increase their overhead.  Genius. 

As the owner of Joe’s Diner in Phoenix observed in a Wall Street Journal article: “Dang if they don’t kick us when we are down.”

The WSJ reports that the wage increase would have the effect of increasing direct labor costs by $5 to $10 an hour. 

Consequences of such an increase in operating costs would result in more restaurant closures, or at the minimum, cost cutting measures that strike at the largest operating cost, and terminate workers.  Again, in that same WSJ article, the CBO reports that raising the federal minimum wage could deliver raises for up to 27 million workers, lifting 900,000 of them above the poverty threshold but at the cost of 1.4 million jobs. And what about other effects downstream?  Will restaurant patrons respond to higher prices on the menu by lowering the traditional tip scale? And armed with the knowledge that the full time waitstaff is being paid at a rate that equals $30000 a year, will diners feel less inclined to fork over an additional 18% in gratuity, especially after being gouged for that 8 ounce sirloin? So add it up: increased cost of items on the menu, and a tip inflated by that increased tab will result in a reduced tip or, here’s a novel idea: let’s stay in.  Reduced traffic, reduced revenue, closed business. And what about the quality of service? With a guaranteed income, and potentially facing a public less likely to reward you for merely doing your job, will the quality of service decline proportionately now that the server isn’t required to grovel for tips? And how about the other long term workers on your payroll that have been loyal and worked their way up to a higher salary? How is it fair that a new worker will start at $15 an hour when the old battle-axe, who has been toiling in the trenches for years working her way up to $10 an hour, will receive the same $15 an hour as the new recruits? She’s going to want more and she has a valid argument in her favor.  Ka-ching!  Did you hear that?  That’s the sound of your profit margin getting squeezed.

We can see what the result would be, like all the other socialist proposals coming out of Washington: we will become Europe, where dining out is a rare event, the dominion of the wealthy, and an expensive proposition at that. The statistics will worsen, where larger restaurants will stay afloat, but the smaller mom-and-pop eateries, the places that are affordable, unique in offering what is often adventurous ethnic cuisine, the places that give a neighborhood charm, will become few and far between.  And ironically, who owns these smaller start-ups? Immigrants and people of diverse backgrounds, precisely the folks that Democrats claim to protect.  NPR interviewed an Hispanic restaurant owner in Boston yesterday, unable to make ends meet in this era of pandemic- forced shutdowns and reduced in-person dining capacity, and now expected to face a $15 minimum wage: “I can’t charge $50 for a sandwich”. We came close to that litany becoming a reality!