New York City implemented a $15 minimum wage in January and we’re starting to see the results. Minimum wage workers are getting reduced hours and fewer overtime hours, which leads to smaller paychecks even as their pay rates may be higher.
It may seem like a good idea to boost pay rates for the lowest-paid workers by raising the minimum wage to $15 an hour. However, that raises labor costs for employers.
In interviews with business owners, we learn that they are reducing hours for their workers, forgoing hiring, and limiting overtime. For example, Susannah Koteen, owner of Lido Restaurant in Harlem, explains how employers are responding to the wage increase:
“What it really forces you to do is make sure that nobody works more than 40 hours. You can only cut back so many people before the service starts to suffer.”
While the new city-wide minimum wage is $15 an hour, employers have had to adjust to six consecutive annual minimum wage increases, but that's not all.
There have been other mandates that increased labor costs that industry experts explain: the tipped wage — intentionally set low as workers like restaurant servers mostly earn tips — doubled in three years, a $300 increase to the minimum weekly rate for salaried employees, paid sick leave, healthcare, workers’ compensation. Then there are compliance costs, taxes, and other related costs.
This is the backdrop against which NYC employers are making decisions about compensation for their workers.
Employers will respond in various ways including reducing staff hours, cutting benefits, or replacing workers with automation. They will also raise menu prices for customers. There is only so much that a customer will pay for a burrito or fried chicken dinner before they choose to go elsewhere.
When employers can no longer generate enough revenue to cover those costs, they will forgo hiring and begin laying off workers. Plans to expand and open new locations get scrapped which means new jobs don’t get created. Worse, some businesses will close their doors.
According to a 2018 restaurant survey by the New York City Hospitality Alliance, three out of four (76.5 percent) of full-service restaurants said they reduced employee hours, and 36 percent eliminated jobs in 2018. Three out of four (75 percent) said they will reduce employee hours, and 53 percent will eliminate jobs in 2019 as a result of the wage increases. A whopping 87 percent will raise menu prices in 2019, just slightly less than the 90 percent who said they raised prices in 2018.
The fight for $15 has convinced lawmakers and many Americans that we need to pay the least-paid workers $15 an hour with no rationale or reasoning. They have pulled heart-strings and played on the emotions of Americans who simply want to see other Americans earn more and experience economic mobility.
We all want to see every American climb the ladder out of poverty and into independence and prosperity. However, we cannot ignore that $15 an hour is inflicting unintended consequences on the very workers it should help. Minimum wage workers are losing hours, getting smaller paychecks, and finding fewer job opportunities.
If the federal minimum wage is raised to $15 an hour, the Congressional Budget Office (CBO) predicts that 1.3 million workers would lose their jobs by 2025 and that’s a moderate estimate — it could be millions more. In addition, American families would lose $9 billion.
Workers want greater opportunity. As they have more chances to climb the career ladder, they will earn bigger paychecks. Let’s motivate workers to reach for more rather than encourage them to settle for the least available.