Alex Adrianson explores for the Heritage Foundation’s “Insider Online” blog the impact of Seattle’s minimum-wage policy.
It looks like Seattle’s $15 minimum wage, which goes into effect on April 1, is going demonstrate that the real minimum wage is zero. The city’s restaurants, writes Paul Guppy, are trying to figure out how to adjust to the higher labor costs, and some of them are simply deciding to close:
The closings have occurred across the city, from Grub in the upscale Queen Anne Hill neighborhood, to Little Uncle in gritty Pioneer Square, to the Boat Street Cafe on Western Avenue near the waterfront. […]
Advocates of a high minimum wage said businesses would simply pay the mandated wage out of profits, raising earnings for workers. Restaurants operate on thin margins, though, with average profits of 4% or less, and the business is highly competitive.
When prices rise consumers seek alternatives, a behavior economists call the “substitution effect,” which results in lower demand for the higher-priced product. In the case of restaurants, consumers have access to the ultimate substitution – they can stay home. […]
Restaurant owners seldom cite the minimum wage mandate directly as a reason for closing. Restaurateurs are business people, not politicians, and angering the Mayor over the law he signed is not a smart business move. A spokesman for the Washington Restaurant Association is more blunt, however. “Every [restaurant] operator I’m talking to is in panic mode, trying to figure out what the new world will look like.” He added, “Seattle is the first city in this thing and everyone’s watching, asking how is this going to change?”
Seattle is rightly famous for great neighborhood restaurants. That won’t change. What will change is that fewer people will be able to afford to dine out, and as a result there will be fewer great restaurants to enjoy.
