Researchers from the University of Washington presented before a full City Council their early analysis of the impact of Seattle’s gradual march to a universal $15 minimum wage. The report — the first in a series of several commissioned by the council in tandem with their passing of the original wage hike ordinance — showed that, aside from a roughly 7% price increase in Seattle’s restaurant industry, there hasn’t been runaway cross-industry price inflation like some critics predicted. So, what do Capitol Hill’s bar, restaurant, and retail business owners have to say about the findings?
The report surveyed 567 Seattle businesses (the majority of whom have less than 500 employees, the city’s definition of ‘small business’) and 55 employees between the months of January 2015 and May 2015. During that period, the ordinance raised hourly wages to eleven dollars for non-tipped workers and ten for those receiving tips or medical benefits. And while the report didn’t find substantial price inflation (a look at grocery store, gasoline, and retail prices showed no noticeable increase), in addition to the recorded uptick in restaurant prices, a majority of employers surveyed said that they have or plan to raise their prices in order to accommodate the new labor costs.
“The bottom line is if there’s any place we can find price impacts, it is in restaurant sector,” research Jake Vigdor from the University of Washington Evans School of Governance and Public Policy told the council.
Capitol Hill business owners say these findings aren’t shocking. “We all knew that prices would go up and we’re seeing that as a result,” said Pike/Pine nightlife entrepreneur David Meinert. “I don’t think anyone should be surprised at that.”
Rich Fox, co-owner of Poquitos restaurant on Pike and the Rhein Haus on 12th, agrees. “What I see [in the report] is pretty consistent with what we’re dealing with at this point,” he said. “We’ve raised prices to account for the increase in labor.”
Both Fox and Meinert say that they haven’t raised prices universally (like bumping everything up 2% or what have you), but have strategically looked at what has been selling and where they think they can push consumer spending limits. “You pick your battles, where there is acceptable room to move and what you’ve sold in the past,” said Fox.
Nicki Kerbs, chief operations officer for Cupcake Royale, said that the business has already raised prices (cupcake prices were raised by ten cents each this past year with more slated in November) and has mapped out annual increases over the next few years to accommodate increased labor costs.
One reason is that Cupcake Royale is trying to keep its internal pay scale hierarchy proportional. “We have a workforce of 85 employees. 70 of those are hourly employees that get the automatic bump, and then 15 are managers. We’re trying to balance both of those to make it fair,” she said. But, as always, the market is ever constraining, and Kerbs said they have to be aware of their competition when raising prices. “If they’re not moving, we’ve got to really make sure we’re moving a very small well. We don’t want to out price ourselves from our competition.”
At the same time, Kerbs says her company’s strategy isn’t out of line with any of their competition. “I think everyone’s going to be bumping year over year.”
But why did the report show the restaurant industry as the outlier in price increases? Hill business owners didn’t have a definitive answer, but there are few theories.
One is restaurants and bars generally have more employees than retailers (at least small scale retailers). Another is that some retailers, particularly on Capitol Hill, were already paying above minimum wage before the ordinance, so the bump to eleven dollars per hour didn’t affect their bottom line. “We’ve already been above minimum wage, unlike the restaurants,” said Ross Kling, owner of Rainbow Natural Remedies on 15th Ave E. “In Capitol Hill they try and attract smart, educated staff [by paying more],” he said. “We wouldn’t pay minimum wage and wouldn’t feel comfortable doing so.”
Meinert also said that the pre-$15 minimum wage paid labor in the restaurant industry helped keep prices low for consumers. “I think we have an addiction in this society to cheap prices. We’re willing to pay less for something knowing that people working behind that are working for low wages,” he said. Meinert called the higher prices no necessarily a bad thing. “If we want higher wages, if that’s what we value as a society, which i think we should, we’re going to have to pay more,” he said.
One near universal response was that the early round of wage increases from the ordinance didn’t hit too hard on the bottom lines of restaurant and bars on Capitol Hill. But as of January 2016, small business tipped employees should be paid $10.50 per hour and non-tipped small business employees at least $12.00 hourly. And while the ordinance’s scale for tipped small business employees is pretty slow (the base hourly wage goes up 50 cents per year until 2019, when it jumps $1.50 to 13.50 and then to $15 in 2021), non-tipped employees wages will continue to rise one dollar annually until they reach $15 in 2018. This has some businesses a little antsy about either their bottom line or how other restaurants or bars will respond, like substituting a surcharge for tipping (Seattle restaurateur Tom Douglas
attempted this at his restaurants, before walking it back and deciding to raise prices due to public outcry UPDATE: We screwed up. T-Doug has stuck with his 20% service charge ).
“As we see that tip credit go away I think we’re going to see costs go up further,” Meinert said. “You’ll see some lessening of hours, and some other cost cuts in different places, probably some cutting of benefits.”
“That credit that exists, and then we go from $12 to $15 in two years [in 2019] and so the tip credit exists and then there’s a little bit of ledge and then there’s a big jump,” said Fox. “We’re going to manage it with price increases as long as we can. But a service charge is something that we are looking at,” he added. “We want to find a way that allows us to operate within the perimeters established in the city but we also want to keep tipping for the employees.”
Fox also noted that all of his employee wage scales start at or above where the minimum wage is right now ($11 for his businesses). “Our dishwashers, right now the min wage is at [twelve] so our wage scale for our entry level positions was already there or above. That’s why it really hasn’t started to push against that part of the back of the house operations.”
Kerbs with Cupcake Royale said the company is considering implementing a surcharge in the future. “When tips go away, that might mean that we do have to charge a surcharge, because that’s what makes up a lot of that minimum wage criteria.”
Meinert said his businesses have no plans of utilizing a surcharge in order to keep tipping income for servers and bartenders. “Everyone makes more income with tips. So when you move to surcharge, it’s not a bad move for the overall business, but a bunch of employees suffer.”
Of the 567 employers surveyed in the report, only 30% said they are considering using a surcharge to cover the wage increase. And only 30% also said they are considering reducing the number of employees. In addition, only 15% said they would consider eliminate benefits and 10% said they were thinking about relocating outside Seattle, two side effects that detractors of the city’s minimum wage ordinance said would happen with devastating effects.
Some Capitol Hill businesses, like Molly Moon’s Ice Cream and the Central Co-Op on Madison have jumped ahead of the pack and raised their base wage right to $15 already.
Both Meinert and Kerbs said that they’re also cutting into company profits to make ends meet. But they say it’s not done with bitterness.
“Part of it is definitely cutting into profit margin. But that’s okay. Our goal is to have great staff and take care of them,” Meinert said.
The full UW report is below.