Seattle has now mandated an increase in minimum wage. The economic ramifications are being felt, especially throughout the restaurant industry.
Several Seattle restaurants have done away with tipping, but are adding a mandatory service charge on a customer’s bill.
Restaurants often operate on thin margins, so higher wages quickly impact profitability. As opposed to tips, a service charge becomes part of the restaurant’s overall revenue. The restaurateurs say the service charge component will be used exclusively for employee wages, benefits and payroll expenses.
While this may solve the economic issue for some restaurants, the mandatory minimum wage increase is causing others to simply close their doors.
Washington Restaurant Association’s Anthony Anton puts it this way: “It’s not a political problem; it’s a math problem.”
“He estimates that a common budget breakdown among sustaining Seattle restaurants so far has been the following: 36 percent of funds are devoted to labor, 30 percent to food costs and 30 percent go to everything else (all other operational costs). The remaining 4 percent has been the profit margin, and as a result, in a $700,000 restaurant, he estimates that the average restauranteur in Seattle has been making $28,000 a year.
“With the minimum wage spike, however, he says that if restaurant owners made no changes, the labor cost in quick service restaurants would rise to 42 percent and in full service restaurants to 47 percent.”
Seattle pizza maker Devin Jeran said he was very excited to be making more money. That thrill was short-lived, though. The restaurant he works for, Z Pizza, is closing, and its owner and her twelve employees will all be looking for new jobs. Ritu Shah Burnham, the owner, explains her dilemma:
I’ve let one person go since April 1, I’ve cut hours since April 1, I’ve taken them myself because I don’t pay myself.. I’ve also raised my prices a little bit, there’s no other way to do it.”
Seattle’s minimum wage was just raised to $11/hour, as part of a phase-in to the $15/hr wage over the next six years. But since Burnham owns one store of a large franchise, she’s considered a big business and must phase in the $15/hour wage over two years.
“I know that I would have stayed here if I had 7 years, just like everyone else, if I had an even playing field. The discrimination I’m feeling right now against my small business makes me not want to stay and do anything in Seattle.”
Many believe that raising the minimum wage is simply a small pebble in a very large pond, but they fail to take into account the inevitable economic ripples.