What some Capitol Hill businesses are saying about the Seattle minimum wage study

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.

Minimum Wage Report by Justin Carder

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17 thoughts on “What some Capitol Hill businesses are saying about the Seattle minimum wage study

  1. Tom Douglas didn’t walk back his surcharge policy on all of his restaurants – Serious Pie still charges 20% in lieu of a tip.

    I don’t mind the prices going up (I mean, I do, but I get it – economics), but when a business owner makes it a point to extrapolate that out into some line item and place it separately on the bill to call attention to it – like saying “See! Look what they made me do to you!” it’s just petty and annoying.

    • I work in SLU and I’m boycotting Douglas’ restaurants. He’s lost a once a week patron. Team get together are happening elsewhere. The reason is – the prices have been going up steadily and I did not get a surcharge for ‘food is costing more’ or ‘rent was raised’. I paid and I tipped. Sorry, I just do not ‘do’ Seattle passive-aggressive bs.

  2. “Meinert also said that the pre-$15 minimum wage paid labor in the restaurant industry helped keep prices low for consumers.”

    Huh? Restaurant prices haven’t been low in Seattle for years. It might seem “cheap” but go to any other large city like NYC or SF and you will get much better deals.

    The more I hear from Meinert, and I know he’s probably reading this, the less I trust him. For the most part, these restaurants, especially those with a bar, were already making a killing and I’m not convinced that they aren’t just using this as an excuse to raise prices. Especially when a place like Molly Moon’s, which has no bar (although it is very popular) has no problem raising wages to $15. I don’t mind paying .10 more for a cupcake but, these restaurants and bars are not hurting in the slightest.

    • “Support local businesses, unless they defy my preconceived notions of their profitability.”

      Over 60% of new restaurants, bar or not, still fail within three years. Are some “making a killing?” Probably. Are most? Probably not.

  3. After 10 years of business, we have our highest customer counts ever, however individual spending per person is down. We believe many of our customers in more lucrative jobs are not getting raises because of the minimum wage increase. Although it seems fair on the outside, wage compression does have a rippling effect on the economy. Everyone is feeling it.

    Even with reductions in staffing, our labor rate has climbed to more than 40%, which is a combination of our decreased $ sales and increased costs. Other costs such as rent and utilities, have slowly been creeping up over their target percentages.

    For now, I am absorbing these costs by missing paychecks and reinvesting some of my personal savings, but I still can’t afford health insurance. Luckily, I am healthy, but I do ride my bike to work daily putting me at risk for a big hospital visit that I will have to pay full price for because small business owners don’t get to deduct their expenses.

    We will soon be making another substantial price hike, which will invariably hurt our sales for our price sensitive customers. Hopefully, this will be short term. However, my staff has been absolutely amazing at helping us work together to control costs, and I hope one day to be able to financially reward them for their amazing contribution to our goals to make scratch products that are fresh and delicious daily.

    Businesses out there making artisan products I think are hit the hardest. Big chains can absorb a lot more easily. Although I believe wage compression is a fair course of action, unfortunately, I see a bleak future for artisan products in Seattle. I will hold on as long as I can, but it’s a really tricky position to be in as an entrepreneur. However, despite the financial hardship, I am still passionate about what I do, and am extremely thankful to have such great staff and a wonderful bunch of regular customers.

    • That part at the beginning where you make the assumption that your decline in sales is directly attributable to the minimum wage keeping high-wage workers from seeing raises?

      That is a really huge assumption to make that would require a really broad negative impact from the wage. Obviously it is early, but so far studies on the impact do not seem to be finding any evidence that the higher wage is leading to wage growth stagnation in higher-wage positions.

      I sympathize with your struggles and I’m sure the wage really is putting a squeeze on your business, but that kind of speculation avoids any of the numerous other explanations for a decline in individual spending per customer.

    • I definitely agree with Jesse that it is a huge assumption, and probably very naive since we do not have access to actual data regarding any raise freezes. I know my higher waged staff are on a wage freeze right now. I know some of my friends are. I am spending less for sure because I am making less. No more second beer.

      I simply know that more people are walking through my doors, and they are spending less each time.

      What reasons do you have for why my customers want to spend less?

    • Tech workers are in high demand around here and between changing jobs and employers worrying about losing staff, the raise in incomes are steady, actually. The rent, however, is taking a huge bite in income.

  4. Customers are spending less for the same reasons you are Stephanie. We are all economizing. Cost of living in Seattle is high and getting higher. People who make far above minimum wage may well afford eating out, but if their salary aren’t matching the rent hike, the tax hike, the utility hike, etc., they are going to pull back on spending too.

    I want to include wasted time stuck in traffic as another economic hit. I’m finding going out with friends means looking at places with easy parking, cheaper parking, safe at night, or cheap uber ride. We have changed our hangout places and reduced our get-togethers these days. I’ve have friends who won’t venture up the Hill anymore because how long it takes them to get here from W. Seattle or N. Seattle, even QA. Downtown is become a no go scene too.

    • Might be time to bring on some more unpaid interns at sugar. It’s a great way to get around the minimum wage.

  5. Are you all blind? I have a huge problem with the assumptions derived from this article. The “data” was collected from that study mostly last year and some this year. You can’t make any assumptions until next year at the earliest to find out what the impact is.

    It even has a disclaimer about the opinions are of the researchers and not of the university (who got a sweetheart deal to do this “research”).

    So, according to the “research” there are about 10% hikes in restaurant prices to combat 20% hikes in wages. You are telling me that no one in the grocery business (with small margins) are raising prices? In addition, assuming we use that as a median per year that could mean up to 30% hikes in prices and 40% hikes in wages. How is this mandate helpful?

    The less fortunate will make more, spend more while we all pay more and most not making min wage make the same or less. We can do better to help those in need.

  6. What’s happening in the restaurant business is that tipped workers who had incomes of $25-$50 per hour, are getting raises from $10 the business was paying them to $15 (in steps). A few in the back of house are getting raises from $11 or $12 up to $15, but most in back of hours, the cooks, already made $15 or over. Now the dishwashers will too. But most of the increases are going to people already making good money. So prices have to increase to cover that. Of course people making over $15 are not getting raises to compensate for the higher prices. So most people get no raise, and pay more.

  7. This 20% service charge that is placed on your check when you dine at one of Tom Douglas’ joints is placed on your check pre-tax. Said charge then goes to the “house” which then is partially distributed to the FOH staff. The skilled and knowledgeable person that just served you, suggested some nice wine, explained food items to you, cleaned up after your screaming child, took a photo of you with your cell-phone….. sigh.. is taking home just 14% of that charge. The little blurb on the guest-check and on every menu mentions something about some of that other 6% going to help pay for employee health benefits, but what about the employees that are not on the plan?
    Keep in mind that this service charge is put on pre-tax which is logical.. but when I dine out I usually look at the bottom line on the check and tack on an 18 to 20 percent tip on that figure. So if the bill is 40 bucks (including tax) I almost always leave 6 to 8 bucks. Maybe I am too generous, but thats how I roll.. I work for tips so I tend to tip well.
    Anyways, it does not take a math whiz to figure out that with this model FOH peeps are making less money regardless of the higher minimum wage.
    Don’t get me wrong.. Seattle does have a very high minimum wage for tipped employees so I am grateful for that. We still make a decent living and really cant complain. I just tend to prefer the old method where I feel like I am earning a good tip due to the level of personalized and professional service that I am providing. With this new system you will still get the same level of professional and personalized service from me, but I know in the back of my mind that a cap has been somewhat placed on how I am going to be financially rewarded. Its hard to talk about this subject without sounding greedy, but the bottom line is that this service charge model has its flaws, just as the old policy of tipping your server has its flaws as well.

  8. Wasn’t so long ago that, say, a grilled chicken sandwich in a bar/pub/restaurant was about $10. Now, more often in the range of $13-15. It’s hard to find happy hour drinks that are under $5 these days.

    Yes, I make more than the minimum wage. But I haven’t had a raise in 2+ years.And you know what, I’m starting to tip less, too. Tipping has always been to make up the difference for very low pay. Now, with higher pay and higher prices, there is no way I can justify a 15 or 20% tip. Even 10% seems high now. The minimum wage might not be livable in Seattle, but it I’m going to be able to continue living in Seattle, and doing things like supporting local businesses, then my tipping is going down. Servers are making more, so I don’t feel guilty or bad about tipping less.

    And let’s be real, nearly $5 for a cupcake is outrageous, especially when you consider the quality of desserts you can buy in restaurants for the same amount or even slightly more. Recently, I wanted to buy a dozen to to take to a friend’s birthday party. When I found out the cost, and the fact that CR does NOT do baker’s dozen, I just bought one for the friend and that was that. I get that your overhead is higher, but you’re pricing yourself out of customers. I’m not going to spend $30+ dollars for cupcakes when I can buy a large cake for less than that!