A tale of two cities: Does a minimum wage hike grow or kill restaurant employment?

This month, the American Enterprise Institute released an analysis of the latest Seattle area job numbers that was striking: Since that city began incrementally increasing its minimum wage this year, restaurant employment has plummeted.

We’ll take a harder look at that revelation, as well as how it compares to another city that has raised its minimum wage, in just a moment.

But first, some local context about why we’re talking about this.

In Portland, of course, the effect of a minimum wage increase on restaurants has been a point of serious debate in recent months.

The City Council voted last month to implement a new citywide minimum wage of $10.10 per hour starting on Jan. 1, 2016, a wage which will increase to $10.68 per hour a year later and then be tied to the annual rise in inflation.

(The federal minimum wage is $7.25 per hour and the state minimum wage is $7.50 per hour.)

In Portland, which is a heavily progressive city, the discussion was almost never about whether to implement a citywide minimum wage higher than the statewide wage, but rather by how much and whether to extend that new minimum wage to tipped employees, like restaurant waiters.

During a public hearing a year ago, restaurant owners in attendance urged Mayor Michael Brennan — who spearheaded the local minimum wage effort — to exempt tipped workers from the citywide wage limits.

They argued that because of Portland’s vibrant culinary scene, waiters effectively take home between $12 and $23 per hour in tips, despite making only $3.75 per hour in their paychecks as allowable under state law (tipped workers can be paid half the minimum wage as long as their tips at least make up the difference).

The restaurant owners said increasing the local minimum wage for tipped employees would shift the burden of payroll costs from diners — who now cover most of those costs directly through tips — to restaurants without really providing the workers any more money.

That led to an argument often heard when the subject turns to raising the minimum wage: That increasing the payroll costs per employee would force the businesses — in this case, restaurants — to keep fewer employees on staff.

While Brennan seemed sympathetic to that argument and pursued a minimum wage ordinance that would indeed exempt tipped employees, the language ultimately approved by the council did apparently extend the extra pay to tipped workers.

(The debate isn’t over — the City Council may decide in the coming months to amend the ordinance as it pertains to tipped employees. Stay tuned.)

So the question of how restaurant employment levels react to a local minimum wage hike is one of interest to Portlanders.

Back to Seattle.

The AEI reviewed data from the U.S. Bureau of Labor Statistics and Federal Reserve Bank of St. Louis and found that, from January through June of this year, during which Seattle implemented its first two incremental wage raises, the number of restaurant jobs in the Seattle area fell by about 1,300.

That’s the biggest dropoff in restaurant jobs there since the Great Recession in 2009, and came during a time when restaurant employment nationally was increasing by 1.2 percent.

The simplest conclusion one could reach when looking at those numbers is that, indeed, raising the payroll costs per employee forced restaurants to keep fewer employees on staff.

However, the simplest conclusion isn’t always the correct one.

In a subsequent analysis for Forbes magazine, economics writer Erik Sherman called the AEI report “riddled with problems.”

Sherman wrote that while Seattle area restaurant jobs experienced their most significant fall in April — dropping by 1,000 jobs as the local minimum wage went from a Step 1 $9.47 per hour to a Step 2 $11 per hour — the job count bounced back by 800 in May.

“If the higher minimum wage were such a job killer, why would there have been a rebound,” he questioned.

Sherman wrote that the overall slump in restaurant jobs there could be attributed to any number of factors other than a minimum wage increase, such as an industrywide consolidation of many part-time positions into fewer full-time positions, or oversaturation of a restaurant scene that had finally reached its peak.

He furthermore noted that overall job numbers in the Seattle area increased by 21,800 during the same January-June time period, so by AEI’s own logic, the minimum wage increase had a positive economic impact on the city as a whole — and there were plenty of new jobs for any former restaurant workers who may have been looking for employment.

Now, there may be some readers who keep glancing back up at the headline — “A tale of two cities” — and wondering when I plan to get to a second city.

For the sake of comparison, Sherman applied the AEI analysis approach to San Francisco, which similarly implemented two phases of an incremental minimum wage increase over the first five months of the year.

San Francisco went with a Step 1 minimum wage increase to $11.05 per hour in January, followed by a Step 2 increase to $12.25 in May. So what happened in terms of restaurant job numbers in the San Francisco area between January and June of this year?

They increased by more than 5,000 positions.

Does this mean a minimum wage increase necessarily grows restaurant jobs? No more than the Seattle area figures mean a minimum wage increase necessarily kills them, Sherman argued.

“[I]t’s not that higher wages cannot possibly depress hiring. They might … or they might not,” he wrote. “[I]n either case we don’t know what caused shifts in employment, whether up or down. All we can say is that higher minimum wage, at least in some cities, can coexist with an increase in the number of restaurant jobs. But such a statement doesn’t have the drama, and it doesn’t lend itself to a particular political argument.”

Seth Koenig

About Seth Koenig

Seth has nearly a decade of professional journalism experience and writes about the greater Portland region.