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After Massachusetts and New York, California is beginning to experience the negative side of minimum wage hikes, too; job losses.
That’s according to a recent University of California Riverside study, which shows that California’s minimum wage hikes have slowed job growth in the state’s booming restaurant industry.
California was among the first states to launch minimum wage hikes towards the “living wage” of $15 per hour by 2022—a 50% hike over 2012.
“Data analysis suggests that while the restaurant industry in California has grown significantly as the minimum wage has increased, employment in the industry has grown more slowly than it would have without minimum wage hikes,” the study says. “The slower employment is nevertheless real for those workers who may have found a career in the industry.”
The gloomy findings of the study are published at a time the US and the Californian economy are booming, near full-employment.
And the situation could become worse, according to the study. “When the next recession arrives, the higher real minimum wage could increase overall job losses within the economy and lead to a higher unemployment rate than would have been the case without the minimum wage increases.“
Recession or no recession, Phil Kafarakis, President of the Specialty Food Association and former Chief Innovation & Member Advancement Officer at the National Restaurant Association, sees minimum wage hikes undermining job growth in the industry through 2020. “The minimum wage increases could have major ramifications for California restaurants and more broadly, the state’s economy,” says Kafarakis. “There are some 1.83 million restaurant jobs in the state (National Restaurant Association) that represent about 11% of California’s employment base. Given that labor is one of the restaurant industry’s biggest costs, there’s a real danger that the higher minimum wage will stifle job growth, currently projected at 9% through 2020 and adding 164,000 new jobs.”
Worse, Kafarakis sees “the implications to California reach beyond restaurant tables given that for every dollar spent in table-service restaurants provides a $2.03 impact to state revenue compared to the same dollar spent in limited-service outlets, that contribute $1.75 to state revenue per dollar spent.”
To be fair, minimum wage hikes aren’t the only challenge the California restaurant Industry is facing these days. “For Quick Service Restaurants (QSRs), labor challenges have been brewing for some time,” says Corey Chafin, a principal in global strategy and management firm A.T. Kearney. “Though minimum wage hikes only deepen these challenges, it is not their sole challenge. Low unemployment has created cutthroat “labor wars” as QSRs compete to maintain a full workforce amongst a shrinking pool of available labor. (Just this week one QSR announced a partnership with AARP in an effort to hire older workers.).”
The problem, of course, is a strong economy, which gives workers more job options. “As individual workers have more options, restaurant turnover remains high and subsequently operational risks are plentiful from ensuring consistent service levels, product quality, and food safety.”
The solution? Technology, according to Chafin.“Battling these headwinds requires QSRs to adopt a long-term view to reduce labor reliance through technology. Kiosk ordering, kitchen automation, central prep, smarter scheduling, and automated delivery are in various phases of the R&D cycle and expected to ease labor risks in the years ahead.”
The pressure to replace technology with labor will differ across industry segments. “Near-term wage hikes may shift where QSRs prioritize the roll-out of these labor optimization programs,” adds Chafin. “Notably, delivery-based QSRs (e.g., pizza) will face higher long-term pressures from wage hikes than brick and mortar QSRs due to limited options to automate delivery; these QSRs can be expected to trim operations where automated delivery remains uncertain and wage increases extinguish favorable profitability.”
While it’s unclear how far technology will go to ease the burden of higher labor costs in the restaurant industry, one thing is clear: the debate over the positive and the negative side of minimum wage hikes will continue.