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Study: The Negative Impacts Of California’s Min Wage Increase On The Restaurant Industry

In April, a new study on the minimum wage in California’s restaurant industry was released.

The study, which was conducted by the Center for Economic Forecasting and Development (CEFD) at the University of California Riverside School of Business, set out to examine how the state’s minimum wage law has affected employment in the restaurant industry, and how it might impact it in the future.

In the executive summary, the authors write that due to the California law that will see the state’s minimum wage increase to $15/hour by 2022, individuals who are working minimum-wage jobs will indeed see some wage growth. However, they also write that the increased minimum wage might have a warping effect the economy, leading employers to reduce hours in order to cut costs, and providing "fewer job opportunities" for young or low-skill individuals entering the workforce.

Here’s some of what the study found:

Due to the minimum wage law, from 2013 to 2022, there will be 120,000 "new jobs in the full-service industry." However, there would have been 160,000 if the wage law wasn’t in place and wages instead rose with inflation.

In high-income areas, just over 63,000 jobs will be added to the full-service restaurant economy between 2017-2022. However, if wages were not increased from "2013 levels in real terms," approximately 94,400 jobs would be added.

The authors note that due to the strength of the economy, the 30,000 jobs that won’t be created in the restaurant industry will likely be "absorbed elsewhere." They add, however, that if the economy were to take a precipitous downturn of about "20% off of our baseline growth forecasts," and the wage law remained the same, there would be an ever greater decrease in job creation in the higher-income area.

In lower-income areas, the impact is much more deeply felt. Without the minimum wage law, the full-service industry "would have added 23,509 new jobs" between 2013-2022, but with the law in place, it will only add about 13,700 jobs.

The study found that, as it pertains to long-term restaurant growth, the "20% increase in the real minimum wage reduces growth in limited-service restaurants by .5 percentage point per year, while it reduces growth in the full-service industry by .4 percentage points per year."

Next, the authors calculate the real wage benefits to employees – and the results aren’t great.

Overall, such a 20% increase in the real minimum wage is linked to only a 4.2% increase in incomes in the limited-service sector over 4 years and a 2.7% increase in real average wages in the full-service industry over four years. In other words, if limited services wages had grown by 5% over a 4-year period without the minimum wage, they would grow by 9.2% with it. Likewise, if full services wages had grown by 5% over a 4-year period without the minimum wage, they would grow by 4.7% with it.

When examining the impact that the law may have on low-skill individuals or those who work part-time, a 20% wage increase "would lead to a 1% [decrease] in the share of part-time and low-skilled workers," according to the study.

The study concludes that when increasing the minimum wage, legislators must keep in mind the negative outcomes that can arise in times of economic difficulty that are typically obscured by a strong economy. The authors add that minimum wage law can be more tightly tailored to "local incomes" in order to avoid such negative consequences.

Other minimum wage studies and surveys have come to different conclusions when it comes to the exact positives and negatives of mandatory wage increases.

When Harri surveyed 173 restaurants in late-February and early-March, they found that costs had to be adjusted in some way.

71% of respondents said that they had to pass increased costs on to consumers by raising prices. 64% said they decreased the hours worked by their employees, and 43% cut costs by "eliminating jobs," according to CNBC. It’s unclear if "eliminating jobs" means termination of existing jobs, forced reduction of potential new jobs, or both.

Check out the entire study here.

The Daily Wire reached out to the Center for Economic Forecasting and Development for comment, but as of publication, we have not received a reply.

 
 
 

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