When the minimum salary are increased, one of the consequences we could see is a reduction in employment. I say could see, rather than definitely see, because employers can adjust according to several margins. Instead of reducing employment, they may reduce hours, reduce benefits, or simply put less effort into providing a pleasant work environment. But consumers can also adapt to the impact of the minimum wage in various ways. The recent minimum wage increase in California is an example.
After the minimum wage for fast food workers in California was raised to $20 an hour, fast food establishments raised their prices to compensate for this increase in costs. But this salary increase only applied to fast food workers, and not restaurateurs in general. This means that catering establishments are not obliged to pay this minimum wage to their workers – including workers of various Restaurants owned by California Governor Gavin Newsom. Restaurants like Governor Newsom’s that offer “a $37 pasta dish and a $67 steak dinner on the menu” are not “considered fast food, so they are not required to pay the minimum wage of $20.”
As a result, these catering establishments were not subject to a sharp increase in labor costs and did not have to sharply increase their prices. And it changed the way Californians eat out, as was described in This history. This article states that the minimum wage increase “certainly marked a major victory for the state’s nearly 500,000 fast food workers,” but it immediately goes on to note that these restaurants “now appear to be taking a hit in regarding customer traffic. due to price increases, making the “major gain” seem a little less than certain. And this decline is a new phenomenon, because “before the new law took effect, fast food consumer traffic in the state was slightly higher than the national average.”
But the drop in fast food traffic isn’t entirely the result of people simply choosing to eat out less. Instead, people make different choices about where to eat out. We’re now seeing that “more expensive casual dining chains like Olive Garden and Chili’s have actually seen increased traffic among California consumers since April.” While it is true that they do not fall into the fast food category and therefore are not required to meet the $20 minimum wage for all workers, their prices remain considerably higher than those of their fast food counterparts. fast food. So why do places that serve more are expensive foods seeing increased traffic, while even cheaper fast food establishments are seeing decreasing traffic?
The answer is that even though the price of chain restaurants has not fallen in absolute terms, it has still fallen in relative terms in relation to fast food. Fast food and dine-in restaurants differ in terms of price, quality and convenience. But as fast food outlets are forced to raise prices due to rising labor costs, the price gap between fast food outlets and fast food outlets has narrowed without no change in the other two dimensions. As a result, people see what it would cost them to get a basic combo at McDonald’s and think, “Well, if I’m going to pay that much just to get McDonald’s, I might as well pay just a little bit.” anymore and goes to Chili’s instead. As a result of this intervention in the labor market, Californians face higher food costs and there has been a shift toward restaurants that are both more expensive in absolute terms to the consumer but also remunerate their employees. less than the fast food minimum wage. This seems to be about the opposite result that proponents of such a law would have desired.
As Don Boudreaux likes to say, who would have thought it?
