Preliminary results indicate that the increases in the minimum wage this year on the West Coast have had negative employment effects in Los Angeles (for hotel workers, see this CD post) and Seattle (for restaurant workers, see this CD post). There is now additional evidence that the minimum wage increase in San Francisco this year to $12.25 an hour (on the way to $15 on July 1, 2018) is having an adverse effect on the city’s restaurant employment, as Stephen Bronars reports today in Forbes (“Higher Minimum Wages in San Francisco and Seattle Mean Fewer Restaurant Jobs“).
The table summarizes some of the findings presented by Bronars in his Forbes article about San Francisco restaurants jobs, by looking at the year-over-year growth rates for the second quarter this year compared to previous years for several industry categories. Here’s what the data show:
1. Total restaurant employment in the San Francisco area grew by only 0.31% over the last year (Q2 2014 to Q2 2015), and fell by 1.33% for limited services restaurants. In contrast, total San Francisco restaurant employment grew by an average of 4.64% annually over the last three years (Q2 to Q2), and limited service restaurant employment grew by an average of 3.25% per year over that period.
2. In contrast to the anemic growth in San Francisco restaurant jobs over the last year of only 0.31%, overall job growth in the area grew by a healthy 5.01%, about average for the previous three years. So the slowdown in job growth for the city’s restaurant industry is definitely not part of any overall weakness in the city’s labor market.
3. In contrast to the weak growth in San Francisco restaurant employment over the last year (0.31% overall, and a 1.33% decline in limited service restaurant jobs), nationally both total restaurant jobs and limited service restaurant jobs both grew by about 3.6% over the last year. So the weakness in San Francisco restaurant hiring over the last year is not definitely not part of any national weakness in restaurant hiring.
In conclusion, there are some preliminary indications, supported by the employment data, that the San Francisco minimum wage hike is having the expected negative effect on the area’s restaurant jobs. Here is how Steve explains it:
Higher minimum wages will cause restaurants to economize on labor costs and hire fewer employees even in relatively wealthy cities. Competition will encourage food service companies to find less labor intensive methods of delivering prepared meals to their customers. For example, customers placing orders on computer tablets can reduce the demand for food servers.
Restaurant employment grew much less rapidly than in other sectors in San Francisco in the past year (see table above). In addition, had restaurant employment grown at the same rate as in the rest of the U.S., there would be 2,520 more restaurant jobs in the San Francisco metro division.
And here are Steve’s “Tentative Conclusions“:
While results based on preliminary and noisy data should be interpreted with caution, and more detailed studies will be required as city minimum wages increase even more, higher minimum wages appear to be disrupting the restaurant industry in San Francisco and Seattle and causing a reduction in jobs. In San Francisco minimum wages might be diverting customers to caterers and food trucks, perhaps because they are better equipped to adjust to higher labor costs. The first wave of minimum wage increases appears to have led to the loss of over 1,100 food service jobs in the Seattle metro division and over 2,500 restaurant jobs in the San Francisco metro division. These estimates are likely to be conservative, especially in Seattle, because many jobs in the metro division are outside the city limits and not subject to the minimum wage increase.
MP: As predicted by economic theory and supported by much of the empirical evidence, minimum wage increases this year in Los Angeles, Seattle and San Francisco are having their expected effect: fewer jobs for hotel workers in Los Angeles and fewer jobs for restaurant workers in Seattle and San Francisco. It’s not complicated, it’s just basic, introductory supply and demand – the ECON 101 that most politicians (and minimum wage proponents) must have missed (or slept through) in high school and college.
Bonus Minimum Wage Chart: