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Background on minimum wage
January 17, 2014 - Harry Eagar
Bloomberg News has a piece on the probable effects of raising minimum wages for restaurant workers. Since I was once a minimum wage restaurant worker, I read it with interest.
And since I also was a subminimum wage restaurant worker, I read it with more knowledge of what goes on in restaurants than most of the boobish commenters.
But let's add a little reality to the recipe. Restaurants are among the riskiest of all businesses. Failure rates are sometimes estimated at up to 90%. Whatever the real figure is, it's high. And that's with no increase in minimum wages, and with legal minimums (where paid) relatively much below what they were (in comparison to living expenses) when I was making 75 cents an hour at Shoney's Big Boy in 1963.
Obviously, something other than wage levels determines the success or failure of restaurants.
What could it be?
How about location? One of the crazy things about the restaurant business (aside from the hours) is that entrepreneurs keep opening new restaurants where old operators failed time and again. This does not say anything good about the alleged ability of the free market to direct capital to where society benefits the most.
In Kahului, there is a location that has, in the 27 years I've been here, been the site of at least 6 restaurants. What were the last 2 or 3 operators thinking?
I initially thought the underlying problem was that the landlord was ensuring turnover by refusing to adjust lease rents downward to account for expectable income, because the landlord had a reputation for being inflexible when circumstances changed; but then I learned one tenant was, in effect, paying no rent because he was offered the space as payment for a debt the landlord owed him. He failed.
It cannot only be location, either, because while 5 (or more) restaurants have failed in this location, a restaurant (same landlord) across the alley has been operating successfully for over 40 years. (A free RtO business card to local readers who can figure out which location I am referring to AND name all the restaurants that have been in it.)
The best thing that could be done to help restaurant operators make a profit would be to get the Reaganomics crowd out of public policy. In early 2008, Kahului fast food restaurants were paying $12 minimum, far above the legal requirement, and not filling jobs. One Jack-in-the-Box took down its banner promoting the latest iteration of the Jack burger and replace it with a banner offering a $20,000 signing bonus to anyone wanting a job as assistant manager.
This restaurant was, I am pretty sure, making profits, since it was crowded at all hours. Then the Republicans crashed the economy. Today, although workers are no longer being offered $12 and up, and assistant managers are not needed, I doubt the lower expenses have been good for the bottom line, since the place is nearly empty. The landlord has demolished a restaurant that had been operating next door for at least 30 years, and replaced it with a pharmacy.
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