By Matt Johnson
As I reported in my last blog, 12 states raised their minimum wages on January 1, 2017. However, I didn’t get into any specifics about how some businesses might respond, nor did I mention how some American cities are fighting the good fight and raising minimum wages well ahead of the curve. But I always appreciate a good economics experiment.
Well we’re only a couple of days into the new year and this economics experiment is in full swing. San Diego businesses are already responding.
According to The San Diego Union-Tribune, restaurants are already responding to a city minimum wage increase of $10.50 to $11.50 and they’re doing it with a surcharge. To make up for labor costs,
…many of San Diego’s full-service restaurants are introducing for the first time an average surcharge of 3 percent of the meal’s cost to help cover increased labor expenses that some operators say amount to hundreds of thousands of dollars in a single year.
Exactly! As with Newton’s Third Law, “for every action there is an equal and opposite reaction.” Well, it’s more the case that for any economic policy, the market – firms and agents – will respond and not necessarily in the way policy makers and voters think.
Back in June, the citizens of San Diego approved the minimum wage hike to help the city’s lowest wage earners. Indeed, it was an honorable thought. But in response, business owners contemplated and even tried different ways to offset the wage hike.
For some, they cut costs and reduced the hours of their employees. But in the end, restaurant owners felt the surcharge would be the best course of action. As one restaurant owner who owns 5 businesses, 3 in San Diego County, exclaimed,
‘I can’t get to sleep at night wondering where in the heck am I going to get the dollars I need to pay all my employees.’
Of course, he’s not the only restaurant owner participating in this economics experiment. A lot of business owners across San Diego will be looking for ways to absorb this new labor cost into their business expenses. And for the ones who are in the restaurant business, the next couple of years will be telling as the minimum wage approaches $15 because the majority of their employees are service based employees – meaning, they are minimum wage employees.
Photo credit: Wikipedia
Photo explanation: Joe’s Crab Shack, San Diego
Copyright ©2016 – The Systems Scientist
Categories: Urban Dynamics Blog