The coronavirus outbreak is straining the U.S. economy. Precautions taken by consumers and government have shutdown large parts of American industry. Restaurants and other service businesses are particularly exposed to the economic fallout.
One New York Times reporter notes “many bars and restaurants with daunting rents exist on a margin as thin as a paring knife.” Another New York Times reporter highlighted the restaurant model “is hand-to-mouth even in the best of times; last night’s receipts go straight into tomorrow’s payroll.” These reporters recognize the tight financial foul lines where restaurants operate every day.
The New York Times editorial board once understood this concept. Although a world health pandemic was not on their minds, in 1987 the newspaper editorialized against the minimum wage. They suggested a government wage mandate of $0.00. Yes, zero. The editorial board understood business difficulties as well as dysfunctional policies when they concluded “the idea of using a minimum wage to overcome poverty is old, honorable — and fundamentally flawed.”
Unfortunately, The New York Times editorial board has flipped — most recently supporting a national $15 minimum wage without justification while their reporters chronicle the budgetary realities of the restaurant business. Maybe the editors need to get out more.
Intellectual bankruptcy around the minimum wage is not limited to The New York Times. Colors — a New York City restaurant operated by the union affiliated advocacy group Restaurant Opportunities Center (ROC) — was forced to shutdown earlier this year. A staunch advocate for raising the minimum wage, ROC found out that basic economics didn’t support the progressive policy the group attempted to implement for others. Their entire staff lost their jobs with no notice. So much for the enlightened labor agenda.
The unintended consequences of raising the minimum wage is a topic I’ve written about since the 1970s. Despite the creative and tortured labor market statistics by lefty economists, the math hasn’t changed. Businesses — especially restaurants — do not have unlimited resources or the ability to pass on any cost increases the left supports with their welfare mentality.
Consumers are resistant to price increases. They either trade down or eat out less. Consequent changes come in a mix of small menu-price increases, a reduction in employee hours and worker layoffs. When prices are as high as consumers are willing to endure and payroll can’t be stretched any further, the historic option is to close down. Go to Facesof15.com for evidence.
Last year, New York Gov. Andrew Cuomo realized the negative consequences. After listening to restaurant employees at multiple public hearings, Mr. Cuomo understood what employees already knew. He sided with the workers, rather than labor and Hollywood types who sought mandatory wage increases.
Many restaurant servers make good money with tips and didn’t want to threaten the financial viability of their employers with unmanageable fixed costs. Even Rep. Alexandria Ocasio-Cortez — who has hypocritically called some restaurant jobs “indentured servitude” — made big bucks in the restaurant business as a bartender.
The current coronavirus outbreak highlights just how vulnerable restaurant businesses are to changing economic conditions. Regardless of the current crisis, minimum wage increases threaten the financial viability of restaurants and the millions of Americans they employ. It’s something to ponder. When this health emergency passes and some restaurants are able to recover, the math will still be the same.