New York restaurants cut staff hours as minimum wage hits $15

If you want to help low paid workers its simple; you just vote in politicians who promise to make it more expensive to buy their labor and employers will just buy the same amount of labor but at the higher price, right?

Wrong. Labor demand curves slope downwards. If you increase the price of labor, ceteris paribus, less labor will be purchased.

Employers have two ways of achieving this. One is simply to lay workers off or refrain from hiring new ones. Another is simply to buy less labor from the workers they have. If a workers does 20 hours a week at $10ph they earn $200 a week. If the minimum wage is hiked to $15ph, the employer can cut their hours to 13.3 and their weekly pay remains $200.

This is what seems to be happening in New York City. As CBS reports,

The legal minimum wage for New York City employers with 11 or more workers rose more than 15 percent on Dec. 31, 2018, to $15 per hour from $13, giving fast-food, retail and other employees a bump in pay. But some New York City restaurant owners say the latest minimum wage hike is forcing them to cut workers’ hours just to stay afloat.

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Jon Bloostein operates six New York City restaurants that employ between 50 and 110 people each. The owner of Heartland Brewery and Houston Hall, Bloostein said the effect of the higher minimum wage on payroll across locations represents “an immense cost” to his business.

“We lost control of our largest controllable expense,” he told CBS MoneyWatch. “So in order to live with that and stay in business, we’re cutting hours.”

Bloostein said he has scaled back on employee hours and no longer uses hosts and hostesses during lunch on light traffic days. Customers instead are greeted with a sign that reads, “Kindly select a table.” He also staggers employees’ start times. “These fewer hours add up to a lot of money in restaurants,” he said.

Bloostein said he has increased menu prices, too. “So as a result [of the minimum wage hike], it will cost more to dine out,” he said. “It’s not great for labor, it’s not great for the people who invest in or own restaurants, and it’s not great for the public.”

A New York City Hospitality Alliance survey of 574 restaurants showed that 75 percent of full-service restaurants reported plans to reduce employee hours this year in response to the latest mandated wage increase. Another 47 percent said they would eliminate jobs in 2019. Eighty-seven percent of respondents also said they would increase menu prices this year.

These types of cost-cutting moves coincide with a U.S. Labor Department report released last Friday showing full-service restaurants in December raised prices the most since 2011, to cover soaring labor and food costs.

“The money has to come from somewhere, and we found that unfortunately, as a result, businesses are making some really tough decisions which don’t only impact them, but have a negative impact on their workers as well as their diners, too,” said Andrew Rigie, executive director of the New York City Hospitality Alliance, which represents restaurants and nightlife venues throughout the five boroughs.

But shaving workers’ hours and killing jobs limits restaurateurs’ ability to offer employees opportunities for growth and development. It also can kill owners hopes of offering a fine-dining experience that delivers both good food and good service.  

Servers also bus tables

Susannah Koteen, who opened Lido Restaurant in Harlem in 2011, said she has already started combining jobs to reduce workers’ hours. She relies on servers to bus their own tables, eliminating one of the lowest-paying customer-facing jobs.

She explained her rationale: “A server can bus their own table, but you can’t ask a busboy to open a bottle of wine and talk about what it can be paired with,” she said.

Koteen said she’s loath to cut these kinds of positions in a community she cares about and from which she has in the past promoted low-wage workers to management positions. “Our current general manager started as a busser the day we opened. English is not his first language, he has his GED. He is smart, hardworking and cares about customer service.”

She also worries that the wage mandate will discourage operators and change the restaurant landscape in New York City.

“If you make it impossible for people to operate, they have to close or take drastic measures or really cut people back. At some point people aren’t going to be opening because you have to look at the bottom line,” she said.

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