http://www.seattlemag.com/article/why-are-so-many-seattle-restaurants-closing-lately
Seattle just set a new minimum wage requirement of $15 for all employees, and it seems this among other factors is having a major effect on restaurants in the area. While the article does discuss location and other factors in restaurant closures, this doesn't seem to go too far beyond the norm (as the article states, throughout the country roughly 60,000 restaurants open each year and 50,000 close) for shutdowns. The only real new factor is the wage increase requirements, which make the average small restaurant unprofitable due to labor costs.
This is interesting too in that it provides some data on restaurant shutdowns that translates to Delaware as well -- namely that the ones that survive are based primarily on establishing a group of regulars. Considering how many restaurants in Delaware go in and out of business, with Hamburger Inn and a few others surviving consistently, this likely explains the majority of the restaurants around here.
All in all, the new minimum wage in Seattle already seems to be having an effect (as people close restaurants before they become unprofitable), and the good and bad effects in the future are something worth watching.
14 comments:
Perhaps Seattle will be the perfect "test market" to see if increasing minimum wage has more benefits than drawbacks. It will be interesting to watch the inflation in this area.
I think it’s a good move to increase the minimum wage as it may help in reducing the wage disparity that exists in the US. However, it also might limit the entry of smaller restaurants that provide competition to larger ones.
It makes sense that the smaller restaurants would be more affected by this. The big chain restaurants have economies of scale to offset some of the costs. Maybe there will be fewer restaurants in Seattle, but it may also lead to more stability in the industry with fewer opening and closings. Having small restaurants is a good thing, in my opinion, so seeing them all disappear would be unfortunate. But, the strong restaurants should be able to adapt to the new cost structure and maintain Seattle's vibrant city atmosphere.
Calvin, this is a good article and it definitely extends beyond restaurants. With a much higher cost of living, it is a necessity to have higher wages in Seattle. As someone from the area do you believe that the minimum wage increase is "fair"? Also, do you think this will change the Seattle business culture?
I do not think this is a good move because as the wage increases, restaurants will have to either cut down the number of employees for go out of business. This would cause a jump in unemployment. Or they'll have to raise the price of food which would lead to the decrease in customers. Either the situation is not good for the economy
It is also important to see if this increase in minimum wage has any impacts on changes(increase) in the service, sales, local and state tax and if the cost of living goes up.
If the change is proportionate then there will be no benefit of having a higher minimum wage.
It is also important to see if this increase in minimum wage has any impacts on changes(increase) in the service, sales, local and state tax and if the cost of living goes up.
If the change is proportionate then there will be no benefit of having a higher minimum wage.
Emily makes a good point. I think it is interesting to see how increasing the minimum wage is effecting business because minimum wage is steadily increasing. Seeing what it is doing to Seattle may open the eyes of some who are pushing for these increases.
I also agree with Emily, in that this might be a good way to test out what higher wages will do to businesses. However, I feel that ultimately, with the higher wages, more and more companies will lose money and be forced to shut down because they cannot pay all employees high wages for lower wage work.
I think Emily has the correct instincts here because when wages artificially increase for a large segment of workers solely because they were mandated to rise, inflation will be the mechanism that brings their real wage back to equilibrium. Instead of efficiency gains or productivity increases, these workers were just proclaimed to be more valuable. I really want to see what happens.
Austin, I think that the increase is interesting and definitely a good case study, but I posted this article showing the cons and some of the ill effects without really having researched much of the "good" yet, which shows my bias in and of itself. I'm wary, but also think that the experiment needed to happen somewhere and Seattle was already kind of set up for it, so...well, we'll see how it goes.
I do think it will change the business culture in Seattle a bit though. It has a few major corporate centers and a few very large companies are based there, but it's also been rather open to smaller/mid-level businesses and owners, especially for restaurants, and I think that this might decrease a bit with the wage increase.
This is definitely an interesting development in Seattle, given that movement sparked across-the-nation rises in minimum wage (Ohio by a few cents, Michigan by a few dollars, for instance). What would be telling is to chart minimum wages on a municipality-wide basis against rate of SMB failures to determine how closely minimum wage rates correspond to SMB development headaches. Also potentially important to examine are local CPI/cost of living levels; $1.50 will buy different amounts in Detroit, Columbus, Seattle, or Phoenix.
Actually, minimum wage sometimes hurts unskilled labor. Labor demand decreases as a result of higher minimum wage. Excess labor supply, which means unemployed labor will be unrest factor of society.
Since they give 7 years for the smaller restaurants to think of a solution I think that they should slowly increase the wage, or menu prices, or other such things to figure out the math problem they have. It is concerning the amount of restaurants closing but for the many people struggling to stay out of poverty or to get out of poverty it is necessary for a working wage and hopefully Seattle can be successful and their will be replicas created through America.
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