While President Barack Obama’s proposal to raise the federal minimum wage to $10.10 an hour would increase costs for restaurants, it’s not clear how much. Labor makes up about one-third of restaurants’ total costs, but only 5 percent of restaurant workers earn the federal minimum wage, according to the National Restaurant Association. The average wage for non-supervisory restaurant workers is $9, which isn’t much below the president’s proposed level.
Association executives speaking at a Bloomberg Government breakfast yesterday said the real concern with a higher minimum wage is what they call the cascade effect: Workers higher up the wage scale will see their lower-paid colleagues making more, and demand higher pay as a result.
That seems like a flimsy argument; after all, if restaurants raised people’s wages just because workers demand it, then we wouldn’t be having this conversation. But let’s assume it’s true, and that a higher minimum wage would raise labor costs not just for the lowest-paid workers but across the board, pushing up prices. The better question is: What happens next?