Friday’s federal minimum-wage increase serves as a small victory for low-income workers but poses potential difficulties for business owners.
According to the U.S. Department of Labor, the hike takes effect July 24, pushing wages from $6.55 to $7.25.
Wage increases are typically lauded as major triumphs for members of the working class, but as unemployment rates continue to soar, some fear more money may translate to more problems for foodservice establishments.
"I have been managing restaurants for 25 years, and I’ve seen the minimum wage go up many times. The response is always the same, we raise prices accordingly," says John Broderson.
As president of the Wisconsin-based Broderson Management Group, Broderson manages 35 Popeyes Chicken and Biscuits units across five states, including Puerto Rico. A seasoned foodservice professional with 25 years of experience, Broderson says the increase is a form of artificial inflation that rarely benefits the employees it’s designed to help.
"The buying power of the minimum-wage earners stays the same because store owners all raise prices to keep their margins and, in the end, the sales increase at these stores. During any type of inflation—even inflation designed for the employee like this minimum wage—the wage earners get hurt and the asset owners get helped. It is a shame that the government doesn’t see the economics behind artificial controls such as these."
Broderson's actions represent one result economists fear. As business owners, particularly small to mid-sized companies, scramble to accommodate wage boosts, many will be forced to increase prices in order to stay afloat.
This practice is especially inevitable during times of economic hardship. According to The NPD Group's Consumer Reports on Eating Share Trends, total restaurant-industry traffic declined by 2.6 percent over last year.
While food professionals remain optimistic, vice president of media relations Mike Donohue says the industry feels the pressure, and mandated minimum wage hikes only make the recovery process more difficult.
“It’s harder for businesses to hire workers at higher wages due to sluggish sales and increase in labor costs,” he says. In fact, Donohue says wage increases often lead to job elimination and higher menu prices, as in Brodersen’s case, which economists argue only further dampens the job market and strains consumers’ pockets.
“It’s really unchartered territory,” Donohue says. “Congress certainly didn’t know that two of the three increases to minimum wage would come during one of the worst economic slumps since the Great Depression.”
Seven states have laws mandating a $7.25 minimum pay while 14 states and the District of Columbia already exceed the new minimum. As many as 29 states will be affected by Friday’s wage increase. Whether federal or state, employers have to pay the highest minimum.
For 19-year-old Chanel Boulware, a cashier at a Taco Bell/KFC in Washington, D.C., an increase, no matter the consequences, is a good thing. Boulware says it’s important the government recognize the need to pay service employees more money.
“We work really hard. I think we need to raise the minimum more,” she says. “I have a child I’m struggling with and I go to school. Increases to minimum wage take some of the worry off me.”