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View Diary: Warren politely SCHOOLS businessman at Senate hearing who tries to explain wage economics to her (219 comments)

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  •  A lot of talking across each other. (3+ / 0-)
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    theotherside, Sparhawk, Shockwave

    Rutigliano is a chef/restauranteur from Connecticut, which has one of the highest minimum wage standards for tipped employees in the country. He notes that his servers are making $25 an hour including tips, which is reasonable - his average bill is probably $20 a person so tip is at least $3 and wait staff only need to average about 7 patrons an hour on their shift to make $20. The Conn min wage for tipped workers is $5.69, so.... So why does he care about the min wage when his workers are making so much more? He is probably actually paying all his waitstaff and most of his line chefs and bussers minimum, so a couple dollar increase in min wage would increase his labor costs by more than 20%. Full service restaurants typically pay out about a third of their gross in labor costs, so his costs could actually increase by nearly 10% in response to an increase in the minimum wage to $10.25. If he passes the full cost on to customers the average meal price would increase from $20 ($23 with tip) to $22 (25.30 with tip).

    There is a pretty big difference between 8 cents and $2.30.

    On the other hand, this guy is completely unrepresentative of minimum wage employers. Even among full service restaurants, the usual minimum wage for tipped employees is $2.33 and the impact of an increase in the general min wage would be nominal for those employees. Few full service restaurants manage to staff their non tipped positions at minimum so he is sort of the worst case scenario, and really not relevant to the national min wage discussion at all. For McDonald's for example, the labor share of gross receipts is closer to 10% than 30. That is where the pennies per item calculations come from.

    •  I don't know if your numbers are accurate (1+ / 0-)
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      but your general point is well taken, at least by me.  The largest takeaway is that you can't just extrapolate the $.04 price increase per meal for the $7.00 fast food meal to the $14 sit down restaurant meal and come up with a price increase of $.08 per meal.  It would be very interesting to find out how close your $2.30 figure is to being accurate.

      On top of that there IS an inflationary effect like Rutigliano may have been talking about.  Now he was apparently talking about the macroeconomic view but, for the sake of argument, let's limit it to the restaurant business.  There is a hiearchy of wage rates within a restaurant.  If you bring up the bottom earners there will be inflationary pressure to raise the rates of the other people that are just slightly above the new minimum wage.  So, if you are going to calculate the effect of raising the minimum wage you can't merely figure the cost of getting everyone up to the new minimum wage rate because there are other costs to consider.

      For those that are unclear on what I'm talking about, if a dishwasher was making a minimum wage of $7.25 an hour and a cashier was making $9.00 per hour and the minimum wage was raised to $9.00 an hour some people would be tempted to say that the cost to increase the minimum wage to $9.00 an hour was merely $1.75 for every dishwasher hour worked.  When, in actuality, the cashier's wage would also go up.  And then you would have to calculate the additional taxes on those new higher wage rates.

      We cannot solve our problems with the same thinking we used when we created them. Albert Einstein

      by theotherside on Mon Mar 18, 2013 at 12:26:13 PM PDT

      [ Parent ]

      •  I think 10% is worst case (0+ / 0-)

        In response to a 25% increase in min wage. Basically assumes the highest percentage of costs go to labor found in the restaurant industry and that almost all wages are tied directly to minimum wage - but that might be true in his case.

        That said, the argument for inflation is much harder to make. Overall, very few workers wages are directly tied to minimum wage, and very few products costs are really impacted. The potential for higher restaurant prices eroding a substantial portion of the increase in wages for these workers is pretty much nil.

        The tipped wage thing is a big deal here. A lot of his costs are paying servers and barkeeps $6 an hour. If he has to pay $8 and hour that is a big deal to his labor bill, and he correctly states that they are already taking home several times that in tip income. Most states allow very low min wages for tipped employees, and lots of those folks are seeing much lower tip income. His type of full service moderate cost restaurant in a state with a high in wage for tipped employees is the absolute worst case for the min wage. Which is of course why he was testifying.  

        In most states, the tipped workers would get a tiny portion of the increase in the min wage. In fast food joints the labor bill is a much smaller share. In high end restaurants, the min wage is a tiny part of the overall bill.

        •  Thanks, what you write makes sense (0+ / 0-)

          If you are so inclined and have the time at some point, I would be interested in hearing your take on the debate that was started by that Applebee's/Pastor flap about the automatic gratuity.

          Do you know of any studies that have been done if we tried to eliminate the tip economy with just moving to a system where tips are discouraged and all people are paid a "decent" wage?  I heard this is somewhat common in some parts of Europe but I don't know if it produces a system where restaurant workers are better compensated or not and whether service improves or declines.

          Probably all academic because the tipping model of restaurants is likely not going away but I was intrigued when I heard some countries don't have this type of restaurant model.

          We cannot solve our problems with the same thinking we used when we created them. Albert Einstein

          by theotherside on Mon Mar 18, 2013 at 02:05:17 PM PDT

          [ Parent ]

    •  So was he bullshitting (3+ / 0-)
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      mrkvica, tardis10, Shockwave

      when he said "I have many jobs, many jobs that pay well above the minimum wage.  We have a retirement plan, we offer health insurance to our salaried employees ..."?

      It seems to me that if all that is true, his percentage increase in labor cost ought to be smaller than the fast-food joint that pays mostly minimum right now.

      “What’s the use of having developed a science well enough to make predictions if, in the end, all we’re willing to do is stand around and wait for them to come true?” - Sherwood Rowland

      by jrooth on Mon Mar 18, 2013 at 12:35:55 PM PDT

      [ Parent ]

      •  No, not bullshitting (1+ / 0-)
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        Almost all of his employees probably make well above the minimum wage, but many are directly or indirectly impacted by it. His servers are paid $5.69 an hour (min wage for tipped employees in Conn). Bussers and line cooks may start at minimum, but he has to give raises to keep experienced workers, so many will make more after a couple months, but if the min wage goes up he will have to maintain the difference, so nearly everyone's salary moves up.

        He is probably the worse case for the percentage impact of a minimum wage increase, even though most of his employees make more (in many cases considerably more) than minimum.

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