Unintended consequences of raising minimum wage

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Restaurants are also where many Americans go to work, more than 13 million people work in the industry – America’s second largest private sector employer after health care. For more than one of four Americans, a restaurant was where we had our first job. Since the minimum wage issue has returned in earnest, we need to put some important facts on the table for discussion.

The federal minimum wage is just that, a federal minimum. States and municipalities can, and have, raised their wage. To put things in perspective, only one state, Washington, and three municipalities: San Francisco and San Jose, California, and Santa Fe, New Mexico, have raised it more than the $9/hour proposed by the president. Only two of those cities have raised it higher than the newest dramatic $10.10/hour proposal from Senator Tom Harkin and Representative George Miller.

Contrary to popular belief, minimum wage employees represent a small proportion of the total restaurant workforce. The most recent figures available from the Bureau of Labor Statistics show that only 5 percent of the total workforce of our industry earns the federal minimum wage of $7.25 an hour. Over a third of these are servers, which means their total earnings are above the minimum wage when tips are included and 80 percent of those earning the minimum wage in our industry are part-time. The average household income of restaurant workers that earn the minimum wage is over $62,000 a year.

The restaurant industry gives many workers their first opportunity. Seventy percent of those earning the minimum wage today are under the age of 25, and nearly half are teenagers. These are young employees who, like many of us, are trained to enter the workforce thanks to the patience and job skills taught by our very first bosses. Through the recent economic difficulties, the industry has worked to create many jobs, at a much higher rate than the economy as a whole. Growth in earnings of non-supervisory workers in the industry outpaced overall private sector wages last year by 37 percent, and industry wage growth exceeded the overall economy six of the last seven years. 
                                                         
We are proud of these facts.

The economy is still recovering, job growth still lags, consumers and businesses have tepid confidence and are bracing for the effects of rising food, fuel and health insurance prices. Even though few in the industry make the minimum wage, the dramatic increase being proposed would have a harmful effect on job creation, pushing labor costs up 22 percent for a typical restaurant. The last thing that policy makers should consider right now are measures that make it even more difficult for businesses to hire employees or increase workers’ hours. 

This is especially true when it comes to the workers who are most likely to get their start at the minimum wage – teenagers. Our industry is the largest employer of teens in the nation, employing nearly one-third of all teen workers. Teenage unemployment stands at 24 percent right now. The dramatic increase proposed in the minimum wage, coupled with the effects of rising costs, could put serious pressure on this in the wrong direction. 

Christina Romer, past chairwoman of President Obama’s Council of Economic Advisors, wrote last week that the economics of the minimum wage are complicated and the potential economic results are far from obvious. She also said that there are better ways of achieving more targeted relief for the working poor and better ways to have policy that is an incentive for businesses to create jobs.

We agree.

The restaurant industry is a collection of businesses, small and large, that, when successful, grow jobs, pay taxes, contribute to their local communities and build futures through training a substantial percentage of America's workforce with basic skills that last a lifetime. There is no other industry where people have the opportunity to learn and grow have a real chance to work their way up. This is an important conversation to have, but one that needs to be done with facts and discussion, rather than soundbites and hyperbole.

Sweeney president and CEO of the National Restaurant Association.

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