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How a Higher Minimum Wage Could Negatively Affect Restaurants

The study says fast casual chains will be hit the hardest.


Is an increased minimum wage bad for restaurants? A new report by research company Moody's Investors Service says yes. According to the Wall Street Journal, raising the hourly minimum wage — as many cities and states have done, or are set to do — will "eat into restaurants' profits." Casual dining chains will be hit the hardest.

The study — which based its analysis on a prospective increase to the federal minimum of $7.25 per hour to $10.10 — says this is because fast casual chains like Olive Garden and Chili's require more servers than fast-food restaurants like McDonald's and Taco Bell. Plus, many states have already eliminated a lower tipped minimum wage, or are set to increase it.  New Hampshire may up its tipped hourly minimum from $3.27 per hour to match a proposed new general minimum wage of $14.50 per hour, which means that restaurants have to drastically increase wages of workers who typically have an incredibly low hourly page.

[I]ncreasing veteran employees' pay "could prove to be more costly than simply raising all hourly workers to mandated minimums."

The study notes that the biggest cost incurred by restaurants due to minimum wage increases "will involve raising wages for veteran employees who already make more than the minimum wage." These employees want to widen the gap between themselves and those who are entry-level. Moody's notes that increasing veteran employees' pay "could prove to be as or more costly than simply raising all hourly workers to mandated minimums."

A number of chefs and restaurant owners have come out against increased minimum wages. In Los Angeles — where the city council recently approved a minimum wage hike — many restaurateurs believe that it spells "doom for the industry." They say that restaurants — which already run on thin margins — will not be able to support the wage hike, causing the establishment to shut down in which case everyone will be out of a job. In Seattle, chefs argue that the only way they can support the increase in pay is by drastically increasing the prices on their menus.