"I Don't See How We'll Survive" - Rising Minimum Wage Squeezes California Restaurants

Democrats in Washington are trying to push through a bill to raise the federal minimum wage, but around the country dozens of cities and states raised the wage floor at the beginning of the year. And like clockwork, small businesses across the country are already struggling with some of the issues that conservatives warned about. To wit, many businesses, particularly restaurants, which are notoriously low-margin businesses, have been forced to lay off employees, even after raising prices to meet the new wage requirements.


In other words, just like it did in Seattle, a higher minimum wage is hurting the poorest and most vulnerable workers - in other words, its hurting the same people it was supposed to help.

In a piece published this week, WSJ takes us to the Bay Area, where the owner of a restaurant called Patatas Neighborhood Kitchen, situated in the small city north of Oakland. After the city of Emeryville raised its minimum wage from $15 to $16.30 this year, the restaurant's owner was forced to lay off six of his 10 employees and eliminate the dinner shift.

The economy is booming in the Bay Area, but at Patatas Neighborhood Kitchen, located in this small city just north of Oakland, owner Marcos Quezada recently eliminated the dinner shift and laid off six of his 10 workers.

He struggled with the decision but felt he had no choice after Emeryville increased its hourly minimum wage in July from $15 to $16.30, the highest in the U.S. "I just didn’t see how I was going to survive it," said Mr. Quezada, who opened the eatery in 2017.

There's no question that the cost of living in the Bay Area is higher than almost anywhere else in the US. But after several minimum-wage hikes in recent years, business owners are finding themselves stuck between a rock and a hard place.

Proponents say a minimum-wage increase was desperately needed in the hometown of Pixar Animation Studios, where the median rent for a one-bedroom apartment is $2,840, the median home price is more than $560,000, and a salad costs more than $15.

"The Bay Area is more expensive than any other part of the country," said María Moreno, community organizer with the Restaurant Opportunities Center of the Bay, an advocacy group.

But local businesses say several increases in Emeryville’s minimum wage over the past few years have left them nervous about their financial viability.

To offset the cost of higher wages, restaurants have had to raise prices. But they're getting to the point where another round of price hikes might jeopardize their business.



But the wage hikes aren't over yet. Across California, the state minimum wage, currently $12, is set to rise by $1 a year through 2022. The CBO projects that higher wages will lift 1.3 million Americans out of poverty. But it will also destroy 1.3 million jobs.

The city of Emeryville, with its minimum wage higher than the state's baseline, has become a proving ground for these policies, and already they're showing signs of strain.

Emeryville first raised its minimum wage above the statewide floor in 2015, to $12.25 an hour, setting it to automatically increase every year since. Mayor Ally Medina, a Democrat, said the ordinance was meant to help workers cope with the Bay Area’s high living costs.

Sheena Luu, a barista at Polaris Cafe, said Emeryville’s minimum wage makes it possible for her to afford $1,500 in rent for her studio apartment. She also works at coffee shops in two nearby cities, earning about $13 an hour. “If I didn’t have it, I would have to cut back,” she said of the higher pay in Emeryville.

Some local business owners lobbied the city council for temporary exemptions from the new minimum wage laws. But ultimately, the council decided not to grant them, because such a measure wouldn't be politically feasible.

Business owners in Emeryville recently pressured the city council to temporarily exempt about two dozen small restaurants from the wage increase.

But the council on Tuesday night voted 5-0 to keep the $16.30 floor in place. The city council also agreed to convene a working group to help small businesses better cope with the higher costs.

"I just did not feel comfortable telling workers they were not getting a pay increase they expected," said Ms. Medina.

Meanwhile, citizens of Emeryville must now get used to paying some of the highest prices outside of Hawaii. Retailers and other industries with lots of minimum wage workers have adapted to the wage hikes, but restaurants, with their thin margins, are different.

The flip side can be seen on the menus at Rudy’s. Co-owner Doug Smith said he has raised the price of the cafe’s signature Deuces Wild special - two pancakes or two pieces of french toast, two eggs and two bacon slices or sausages - to $14.50 from $11 in 2015, and the Crunchy Asian Salad to $15.50 from $10. But that still isn’t enough to cover increased labor costs, he added.

But might there possibly be a middle ground? Another mechanism for setting higher wages that doesn't make it too onerous for businesses to operate, forcing them to lay off workers?

A few days before the Emeryville story appeared in WSJ, the paper published another piece about how restaurants are being forced to "sweeten pay packages" for employees since record-low unemployment and a shortage of teenagers looking for after-school jobs has left them with a shortage of workers. It's also becoming increasingly difficult for these mostly fast-food and fast-casual restaurants to find and retain workers, as the quit rate for food-and-service jobs is at a record high.

Many restaurants are raising wages by their own volition, whether or not they're situated in a state or city that has been hiking wages.

It almost sounds like the free market is doing a pretty efficient job of setting wages in the labor market - but no amount of empirical evidence, it seems, will stop the social justice warriors (mostly white kids who grew up in the middle or upper-middle class) from demanding higher wages for low-wage workers. They clearly don't realize - or they're refusing to accept - that what they're really doing is taking jobs and hours away from these same workers whom they're supposedly trying to help.