How minimum-wage increases have affected restaurants

(Tables set for a meal at an outdoor hotel restaurant)

Stagnant wage growth has caused legislators in many state and local jurisdictions to propose increases in the mandated minimum wage—and some of those possible jumps are substantial. Many hospitality industry leaders have opposed these increases, warning that such increases will probably force at least some operations to close. We cannot see the future specifically, but two researchers from the Cornell School of Hotel Administration have taken a look at the effects on restaurants of past wage increases. They found that the restaurant industry has generally survived those gradual increases in the minimum wage.

The analysis, published by the Center for Hospitality Research at Cornell’s School of Hotel Administration, does not examine the fate of specific restaurants. Looking at the industry in aggregate, the main finding is that there is no consistent effect of wage mandates on the number of either full-service restaurants or quick-service places. The study, “Have Minimum Wage Increases Hurt the Restaurant Industry? The Evidence Says No!,” was written by Michael Lynn and Christopher Boone, both SHA faculty members. The report is available at no charge from CHR.

The researchers are quick to note that wage increases can cause issues for individual restaurants. They recognize that wage increases usually require restaurants to increase their prices or trim their service. They also note one possible benefit of wage increases, which is that they do expand staff payrolls, which could have the benefit of reducing turnover. But neither overall demand nor the number of restaurants has changed as a result of minimum wage increases in recent years.

Beyond federal minimum wage standards, individual states have their own wage minimums that can be higher than the federal minimum wage. In New York State the minimum is $7.50 for tipped workers and $8.75 for nontipped workers, for example, while the California state minimum wage is $9 for tipped and nontipped workers. California’s minimum rises to $10 this year, and both New York and California, as well as Massachusetts and Oregon, have proposed increases to $15 for some workers. Other states with more modest increases for nontipped employees include Connecticut, Delaware, Hawaii, Maryland, Minnesota, Vermont and West Virginia.

Most of these increases are being phased in, but some jurisdictions are implementing substantial increases that may have different industry outcomes. If past patterns hold, restaurant operators will again be forced to increase prices. The question then becomes one of whether customers will be willing to adjust to those higher prices.