The Unintended Consequences of San Francisco’s Minimum-Wage Hike

by Austin Yack

On July 1st, San Francisco’s minimum wage will increase from $13 to $14. One year after that, the Golden City will fulfill its promise of a $15 floor. And before too long, it won’t be just San Franciscans who will be earning $15 per hour at minimum. By 2022, the state of California will have raised its minimum from the current $10 rate to $15.

“Fight for $15,” an organization championing the movement to increase minimum wage, argues that employees earning less than $15 are being “robbed on the job by our employers looking to cut corners. Employers that are multi-billion dollar corporations.” But this, in truth, is little more than rhetoric. Not every employer represents a multi-billion-dollar corporation. And many – especially the mom-and-pop outfits that are the backbone of the American economy — simply can’t afford such a drastic minimum-wage hike in the span of just a few years.

According to a study published last week by the Harvard Business School, “Survival of the Fittest: The Impact of the Minimum Wage on Firm Exit,” “a $1 increase in the minimum wage [in the San Francisco Bay Area] leads to an approximate 14 percent increase in the likelihood of exit [from the industry] for the median 3.5-star restaurant.” The study utilized Yelp, a website on which customers review restaurants and businesses, when defining its one-to-five-star rating scale.

The study examined restaurants in the San Francisco Bay Area between 2008 and 2016, and concluded that restaurants with lower Yelp ratings are more likely to go out of business during a time in which the city’s minimum wage is increasing on average $1 per year. The conclusion: That over the next two years, San Francisco’s restaurant industry — the industry with the highest percentage of minimum-wage workers — will likely shrink, as nearly 6,000 restaurant employers contemplate whether paying $15 per hour salaries is feasible.

“A one-star increase in rating is associated with a decline in the likelihood of exit of around 70 percent,” the study states. Which is to say that poor-quality restaurants are almost certain to close once the $15 minimum-wage rate is implemented, while five-star restaurants will likely remain open. (Five-star restaurants can, for example, adjust to the new minimum wage by raising the price of food.)

That, sadly, is typical. In a city where a two-bedroom apartment to rent costs on average $4,650 per month, a $15 minimum wage will do little to help those who are struggling — especially if they lose their jobs. San Francisco already caters primarily to the rich. In an attempt to reverse course, the city has instead guaranteed that it will stay that way.

 

 

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