Latest Posts





Minimum wages go up, Red Robin’s employment goes down

Yesterday I wrote about the demand curve for labor which slopes downwards meaning that, as the price increases, the quantity demanded decreases.

Minimum wages go up, Red Robin’s employment goes down

The examples I used to illustrate this might have sounded a little abstract. They were, deliberately so, to highlight the forces at work. For a real world example, look at burger chain Red Robin, which has five branches in Minnesota.

On January 1, 18 states — from Maine to Hawaii — increased their minimum wage. In Minnesota, for example, it went up from $7.75ph to $7.87ph for small employers and from $9.50ph to $9.65ph for large employers. But if there has been no corresponding increase in productivity, this could be a problem. If a worker added $9.55ph to revenue on December 31st, 2017, the employer made a profit on the hire of $0.05. If that remained unchanged, on January 1st, 2018, the employer now made a loss on the hire of $0.10ph.

Businesses will not keep a worker on if doing so adds more to costs (wages) than to revenue (income). Changes in wages dictated by politicians impact this calculation and businesses will act accordingly. That is what Red Robin is doing. In an effort to save $8 million, the chain is cutting jobs at all 570 of its locations, with chief financial officer Guy Constant saying “We need…to address the labor [cost] increases we’ve seen.”

The unskilled pay the price

The jobs being cut at Red Robin are ‘bussers’, or busboys, who clear dirty dishes from tables, set tables, and otherwise assist the wait staff. Sure, a restaurant that left dirty plates piled up all over would struggle to stay in business, but Red Robin can economize by getting the wait staff to add the busser’s duties to theirs.

This isn’t skilled work so it isn’t well paid work. Hikes in minimum wages – which simply outlaw low wages – are essentially outlawing the hiring of low skilled workers. It is sometimes said that companies that cannot pay these wages to all their staff no matter how productive do not ‘deserve’ to stay in business. Of course, the unskilled, frozen out of the labor force by laws such as this, might like to make their own minds up about that.

John Phelan is an economist at the Center of the American Experiment. 




Upcoming Events

  • Morning in Minnesota Breakfast Series: Winona

    Location: Signatures Restaurant, 22852 County Road 17, Winona, MN 55987

    Please join Center of the American Experiment Friday, March 6 at Signatures for a FREE breakfast with economist John Phelan.

    Register Now
  • Lunch Forum with Amity Shlaes

    Location: Hyatt Regency Minneapolis 1300 Nicollet Mall Minneapolis, MN 55403

    Buy tickets for March 2nd HERE. About This Event: Enjoy our Early Bird Ticket Special through February 23rd! After this date, ticket price will increase to $30. Doors open at 11:30 AM, program and lunch begin at Noon. In Great Society, the New York Times bestselling author of The Forgotten Man and Coolidgeoffers a stunning revision of our last great period of idealism, the 1960s, with burning relevance for our contemporary challenges. Today, a battle rages in our country. Many Americans are attracted to socialism and economic redistribution while opponents of those ideas argue for purer capitalism. In the 1960s, Americans…

    Register Now
  • 2020 Annual Dinner Featuring Sarah Huckabee Sanders

    Location: Minneapolis Convention Center Ballroom 1301 2nd Ave S Minneapolis, MN 55403

    American President: The Unorthodox Approach to Politics that Changed the World. Sarah Huckabee Sanders served as White House Press Secretary for President Donald J. Trump from 2017 to 2019. A trusted confidant of the President, Sanders advised him on everything from press and communications strategy to personnel and policy. For two and a half years, Sanders was at the President’s side, battling with the media, working with lawmakers and CEOs, and staffing the President on every foreign trip, including dozens of meetings with foreign leaders. Sanders is only the third woman and the first mother to hold the job of…

    Register Now