The big rise in California’s statewide minimum wage is slowing growth in the restaurant industry, especially among small, locally-owned establishments, according to a new study by UC Riverside.
The state’s minimum wage has increased 50 percent in the past six years, and is set to rise another 25 percent in the next three years, from the current $12 to $15.
The analysis by the UC Riverside School of Business found that corporate-owned restaurants with a national footprint are better able to withstand the impact of rising labor costs while small, locally-owned establishments face challenges.
“The research does not suggest that the minimum wage should not rise or that rising wages do not have any benefits,” said Christopher Thornberg, the study’s author and director of the Center for Economic Forecasting and Development. “However, increases to the state’s minimum wage in recent years have been the fastest since California first set a minimum wage in 1916 — and that pace is creating certain negative consequences for smaller businesses and people who need the most help rising out of poverty.”
Among the report’s key findings:
- Employment growth in the restaurant industry has slowed due to the rising minimum wage. Over time, thousands fewer jobs are being created.
- Despite the 50 percent increase in minimum wage, real gains for restaurant workers equaled only a 4 percent increase in overall pay because restaurant owners responded by cutting hours.
- The geographic areas most impacted have historically higher unemployment rates, including the Inland Empire and the Central Valley.
- Full-service restaurants are experiencing the majority of the negative effects.
“The negative impacts on businesses and their workers appear to be masked somewhat by a robust economy,” Thornberg said. “Today, even when workers lose hours or jobs because of higher labor costs to the employer, they are presumably able to bounce back quickly by finding another job or more hours elsewhere.”
“In the event of another economic downturn, that job loss would be more lasting,” he cautioned.
The study was funded by the California Restaurant Association. The full report is available online.