Minimum-Wage Increase Could Mean Higher Restaurant Prices

Fast-food workers could soon be making more money.
Fast-food workers could soon be making more money.
Photo by Andinarvaez

Last Tuesday during President Obama's State of the Union address, fast-food workers and their fellow minimum-wage workers were an important topic. Obama called for the minimum wage for federal workers to be raised from $7.25 an hour to $10.10 an hour. He also called for an increase in the minimum wage across the country, a move that would help people in the restaurant, construction and retail industries (among others) to make a "living wage."

But while many see a pay increase as a positive step toward reducing income inequality, the restaurant industry worries that operators will have to raise food prices to respond to the higher labor costs. The National Restaurant Association reports that a higher minimum wage could lead to more expensive food, fewer employees, a drop in the quality of food that is served and fewer franchises.

The minimum wage is currently determined at the state level, and many state governments have already raised it or pledged to raise it above $7.25 an hour to adjust to a changing economy and the cost of living. Texas isn't yet one of these states.

Along with pledges to raise the minimum wage come talks of raising tipped minimum wage as well, from $2.13 an hour to as much as $5 an hour. Because of this possibility, it's not just major fast food chain operators who are voicing their displeasure. It's the owners and operators of much smaller restaurants as well.

Currently, if a tipped waiter or waitress doesn't make an average of $7.25 an hour with tips and their $2.13 wage, the restaurant is required to pay the difference. With the non-tipped minimum wage likely to increase in many states, some lawmakers and restaurant-worker advocates are calling for the first increase in tipped minimum wage since 1991.

Tom Harkin, a Democratic senator from Iowa, has proposed to raise the minimum wage nationwide to $10.10, continually adjust the minimum wage to respond to inflation and raise the minimum tipped wage to 70 percent of the minimum non-tipped wage. He pointed to concerns raised by the restaurant industry in 2007 about the minimum wage increase and noted that the previous raise didn't seem to hurt the industry at all, contrary to what the National Restaurant Association might claim.

Still, restaurateurs large and small say that any wage increases will mean they'll have to cut their labor force and raise prices, even though a recent report from Piper Jaffray restaurant analyst Nicole Regan Miller suggested that the status quo could be maintained with little change to restaurant structure or quality.

"On a broad level, we recognize additional labor costs as an added stress to restaurant operators," wrote Regan, "but ultimately believe potential impacts should be manageable through a combination of menu price and/or operational efficiencies."

Even though Texas hasn't made any headway toward changing the minimum or tipped wages, what do you think is the right way to go?

Should the minimum wage be raised? Should the tipped minimum wage be raised?

And would you be willing to pay more for your Big Mac in exchange for the peace of mind that your server is able to pay her bills?

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