Lorraine Salazar. Photo contributed.
In the next few days, as many of us assess how much damage we did to our pocketbooks over the holidays, small businesses in the Central Valley will be doing a different, but much more difficult financial assessment: how to avoid laying anyone off or reducing their employees’ work hours now that the minimum wage has risen again.
For any employer with 26 or more employees, the state minimum wage rose from $12 per hour to $13 per hour on January 1. For those with 25 or fewer employees, it rose from $11 to $12 per hour. Many California cities, especially those in the Bay Area and the Los Angeles area, have raised minimum wage well beyond these figures to $14, $15, and even $16 or more.
Why is this bad news, you may wonder… Isn’t this a good thing for the people getting a raise?
That answer isn’t always yes.
One of my fellow business owners, Chuck Van Fleet, has eliminated lunch service three days out of the week at his restaurant, Vino Grille in Fresno. He decided to limit lunch to just Fridays, Saturdays, and Sundays (three days of the week instead of six) when the state minimum wage reached $12 per hour. That’s because even though Vino Grille remains a popular restaurant, what the restaurant can charge for its menu items during the lunch hour just is not enough to sustain its rising labor costs. As a result of the move to reduce lunch service, three people lost their jobs.
I have a feeling those people would rather have kept their jobs, even if it meant an $11 minimum wage instead of a $12 minimum wage.
At my own restaurant, Sal’s, we’re experimenting with ways to reduce the future need for labor by investing in technology and more efficient equipment. It won’t lead to layoffs, but it can surely help us do more with fewer workers. In other words, we’ll do less hiring in the years to come.
Businesses invest in technology all the time, but there’s a new sense of urgency about this in restaurants because our labor costs have soared in the last few years. There’s only so much of that cost that can be passed down to customers. After all, how much can you really raise the price of a plate of burritos or enchiladas before customers decide that it costs too much?
Chuck and I are not the only ones. There are stories like ours all over California, and it’s worse in metro areas.
Take the troubling example of San Francisco, where the minimum wage rose to $15.59 per hour in 2019 — and will rise again in 2020 with an increase in the Consumer Price Index (CPI.) The number of restaurant closures in that city have outpaced openings, according to data from Yelp, which was analyzed by the Golden Gate Restaurant Association. Another analysis, the Quarterly Census of Employment and Wages, found that San Francisco lost 1,000 full-service restaurant jobs in 2018.
If that doesn’t trouble you, maybe you don’t see the irony: it’s the best-paid restaurant jobs, the full-service jobs, that are going away. Think servers, bartenders, people who make tips on top of their wages. Why? Because restaurants are hanging onto the workers they absolutely need, like cooks, but figuring out ways to do without in the front-of-house by getting customers to bus their own tables, or simply assigning more tables to fewer servers. That’s the tragic irony of year after year of minimum wage hikes in restaurants: the most coveted jobs in the house are the ones disappearing first. It’s no wonder that most of the restaurants that have opened in Fresno recently appear to be limited-service (counter service) restaurants.
That’s something that proponents of the long list of labor laws passed in Sacramento never tell you.
Here’s another thing they don’t tell you: when wages rise, so do payroll taxes and workers’ compensation insurance, which means employing a worker at $15 per hour actually costs a business more than $19 per hour. So, as the minimum wage continues to climb, how many businesses will be eager to take a chance on the youngest, most inexperienced workers? How many will be able to make those numbers work against the notoriously thin profit margins in food service?
These unknowns are discussed in research, which was done last year by UC Riverside’s School of Business. The university’s Center for Economic Forecasting and Development found that employment growth in restaurants has slowed due to the rising minimum wage. And, it predicts trouble for the areas of our state with historically higher unemployment rates – the Central Valley and the Inland Empire – if there’s an economic downturn.
The Fresno City Council recently recognized local restaurants for their contributions to this community – local restaurants provide 22,000 jobs in the city and county of Fresno and they provide countless opportunities to women and minorities to own their own businesses. In the city of Fresno, restaurants generate $977 million in taxable sales – that sales tax helps fund public schools statewide, along with law enforcement and firefighting services. Those are significant contributions to the community from an industry made up mostly of family-owned businesses. As the minimum wage rises again each year, California policy makers should give thought to whether their ideas are really helping people, or just making it impossible for small businesses to keep hanging on.
Lorraine Salazar is owner of one of the Central Valley’s oldest and longest-standing businesses, Sal’s Mexican Restaurant. The business was started by her father, a former migrant farmworker, nearly 80 years ago.