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Don't fear modest wage increases

Wage increases don't close down restaurants, but the key may be moderation. The impact of a large income increase, like $15 for fast food workers, is still unknown. 

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Mary Altaffer/AP/File
In this July 22, 2015, file photo, activists cheer during a rally after the New York Wage Board endorsed a proposal to set a $15 minimum wage for workers at fast-food restaurants with 30 or more locations in New York. The impact from such a large increase in unknown.

Do modest minimum-wage increases result in lost restaurant jobs, shuttered restaurants and reduced consumer visits? New research from two Cornell School of Hotel Administration faculty members concludes that they do not. In fact, they argue a wage increase can reduce labor turnover and improve productivity.

But before the “Fight for $15” movement celebrates, the research authors caution that their study covers “modest” (i.e. 10%) increases in the minimum and does not encompass the larger, up to 50% increases being proposed, which they say could have more negative effects on the restaurant business. “The industry may be justified in opposing immediate, large hikes in the minimum wages, but data do not support opposition to all minimum wage increases,” write Michael Lynn and Christopher Boone in their paper, “Have Minimum Wage Increases Hurt the Restaurant Industry? The Evidence Says No!” The paper is published by Cornell’s Center for Hospitality Research.

Among the study’s findings and conclusions:

⇒ “A 10% increase in the regular minimum wage increases full-service restaurant wages by a little less than 1% and a 10% increase in the tipped minimum wage increases full-service restaurant wages by a little less than 0.5%.”

⇒ “A 10% increase in the regular minimum wage increases limited-servicerestaurant wages by a little less than 1% increases in the minimum wage have no large and reliable effects on the number of limited-service establishments or their levels of employment.”

⇒ “Relatively modest mandated increases in employees’ regular and tipped minimum wages in the past t20years have not had large or reliable effects on the number of restaurant establishments or restaurant industry employment levels, although those increases have raised restaurant industry wages overall. Even when restaurants have raised prices in response to wage increases, those price increases do not appear to have decreased demand or profitability enough to sizably or reliably decrease either the number of restaurant establishments or the number of their employees.”

⇒ “[There is] strong evidence that increases in the minimum wage reduce turnover, and good reason to believe that it may increase employee productivity as well.”

Lynn and Boone conclude “the evidence suggests that the restaurant industry should accept reasonable, modest increases in the minimum wage.”

This article first appeared at BurgerBusiness.

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