Early evidence suggests that DC’s minimum wage law is having a negative effect on the city’s restaurant employment

From Mark Perry.

"This CD post was inspired by Jed Graham’s article in today’s Investor’s Business Daily “6 Big Cities See Hiring Fade After Minimum Wage Hikes,” here’s the opening (emphasis added):

U.S. cities that implemented big minimum-wage hikes to $10 an hour or more in 2015 have seen a strikingly similar aftermath: Job gains have fallen to multiyear lows at restaurants, hotels and other leisure and hospitality venues.

The data aren’t, for the most part, stark and reliable enough to amount to smoking-gun proof. But Chicago, Oakland, San Francisco, Seattle, Los Angeles and Washington, D.C. — all on the leading edge of the push for big minimum wage hikes — all show worrisome job trends.

Here’s more:

The strongest evidence comes from the nation’s capital, where leisure and hospitality employment, which rose at least 3% annually over the prior four years, fell an average of 1% from a year ago in the three months through November. So instead of adding 2,000 or more jobs per year, restaurants, hotels and the rest of the leisure and hospitality sector have lost about 700 jobs.

The timing coincides with the $1 minimum-wage hike to $10.50 an hour last July. That jump followed a boost from $8.25 to $9.50 an hour that took effect in mid-2014. Another jump to $11.50 is set for this July. 

The D.C. data are key because they reveal outright job losses confined to the city limits. Researchers studying the latest round of citywide minimum-wage hikes generally have had to rely on data for a big chunk of the broader metropolitan area, making the analysis more speculative.

As Ned points out, the DC area jobs data are unique because, unlike other metro areas such as Seattle, the BLS reports restaurant (and other industry) employment figures for both: a) the greater DC metro area with a population of about 6 million that is defined as the Washington–Arlington–Alexandria, DC–VA–MD–WV MSA area (data here), and b) the city of the District of Columbia (population about 675,000) separately from the DC MSA (data here). And because the DC minimum wage (currently at $10.50 an hour) only affects the city and not the rest of the MSA, this allows for the natural comparison highlighted in the chart above of: a) restaurant jobs in DC only vs. b) restaurant jobs in the rest of the DC MSA, where the minimum wage is lower. The current minimum wage in Virginia is $7.25 an hour (same as the federal minimum wage) and the minimum wage in Maryland is $8.25 an hour (although the minimum wage increased on October 1 to $9.55 an hour in two of the nine Maryland counties included in the DC MSA – Prince George’s and Montgomery).



Now that DC restaurants are paying employees minimum wages that are 45% (and $3.25 an hour) higher than restaurants are paying in neighboring Virginia suburbs ($10.50 vs. $7.25 an hour), and 27% (and $2.25 an hour) higher than restaurants in many parts of the Maryland suburbs ($10.50 vs. $8.25), can we detect any differences in restaurant employment? Yes, and the graph above helps to tell the story of two very different employment hiring trends in the DC metro area. (Note: The data in the graph are monthly figures for “Food Services and Drinking Places” employment in DC only and the DC MSA without DC, and the figures are three-month moving averages to smooth out some of the month-to-month volatility.)

1. First, let’s start the analysis by looking at the DC area restaurant employment picture during the Great Recession (December 2007 to June 2009). In the DC suburban areas in Maryland and Virginia, restaurant employment took a huge hit from the effects of the recession and there was a significant loss of more than 5,700 restaurant jobs between mid-2008 and early 2010 (see arrow in the chart). It wasn’t until early 2011 that the DC suburban restaurants were able to bring staffing levels back to the mid-2008 level. Over the same period when nearly 6,000 jobs were lost at suburban DC restaurants, restaurant employment in the city increased by almost 1,200 jobs. And except for a short period between the end of 2008 and the middle of 2009 when DC restaurant employment fell slightly, the Great Recession had a very moderate effect on the food service industry in the city. Whereas it took almost three years for suburban restaurants to recover from the Great Recession and return staffing to early 2008 levels following a loss of 5,700 jobs, the city was never more than about 800 jobs below its 2008 peak, and those jobs were recovered in only a year.

2. In 2012 and 2013, restaurant employment in both DC and the suburbs was healthy and growing annually at about 4% in the suburbs and almost 5% in the city. But then starting around the time that DC passed its minimum wage law in January 2014 that mandated a $9.50 an hour minimum wage starting July 1, 2014, followed by additional $1 an hour increases to $10.50 on July 1, 2015 and $11.50 an hour in July this year, restaurant job growth in the District started to stall out and decline while restaurant hiring in the DC suburbs continue to increase at a healthy clip. Here are some comparisons:

a. Between July 1, 2014 when the DC minimum wage increased to $9.50 an hour and November 2015, restaurant employment in suburban DC has increased by more than 8,900 jobs (and by 5.3%) while restaurant employment in DC increased by only a few hundred jobs and by less than 0.50%.

b. In the first 11 months of last year, restaurants in suburban DC have added almost 5,000 new employees while DC restaurants have shed more than 230 jobs (see arrows in chart above).

c. Since the DC minimum wage increased to $10.50 an hour last July, restaurant employment in the city has been flat with no net hiring between July and November, while restaurants in the rest of the metro area have increased hiring by more than 1,700 new positions during that period bringing restaurant employment in the DC suburbs to a new all-time record high in November.

Bottom Line: Being able to compare restaurant employment in the District of Columbia following two minimum wage hikes (to $9.50 an hour July 1, 2014 and $10.50 an hour on July 1, 2015, with a scheduled increase to $11.50 an hour this July 1) to restaurant employment in the surrounding suburban areas of Virginia (where the minimum wage is $7.25 an hour) and Maryland (where the minimum wage is $8.25 an hour, except for two counties) provides a natural experiment to test for the employment effects of DC’s minimum wage law.

While it might take more time to fully assess the impact, the preliminary evidence so far suggests that DC’s minimum wage law is having a negative effect on employment levels at the city’s restaurants. At the same time that suburban restaurants last year increased staffing levels by nearly 5,000 new positions, employment at the District’s restaurants contracted by more than 200 jobs.

The analysis above also demonstrates that employment levels at DC restaurants were barely affected by the Great Recession during a time when suburban restaurants experienced devastating job losses. But now the District’s minimum wage law is apparently having a pretty devastating effect on the city’s restaurants jobs while suburban restaurants are booming. In other words, it might be the case that it was easier for the District’s restaurant industry to withstand the negative effects of the Great Recession than they are now able to withstand the devastating negative effects of the Great Minimum Wage Hike!"