Who’d a-thunk it? Restaurant recession looms with coming wave of minimum wage hikes?

By Mark Perry.

"Rich Duprey writes on The Motley Fool about the pending restaurant recession from the tsunami of pending minimum wage hikes on January 1:

As if the restaurant industry doesn’t already face enough headwinds, come January 1 it will face a tsunami of hikes to minimum wage rates. Some 24 states and the District of Columbia will increase the base rate in 2020, just as restaurants will likely be entering a recession (see table above).
The industry is already slowing to a near crawl, and though comparable-store sales rose over the last two months, it’s all been based on higher prices and a better product mix; guest traffic is still falling. The profit picture for many chains may turn very ugly soon.
While the Fight for $15 movement to double the federal minimum wage to $15 per hour has not been successful in Congress, despite the House of Representatives passing the Raise the Wage Act this past summer, activists have had better luck at the state and local levels.
…….
The problem, of course, is that these laws imposing ever-higher wages are a burden for restaurants as business slows. Restaurants are also introducing more technology to do jobs workers used to do, such as the robots McDonald’s is testing to dunk fries and chicken nuggets in oil for cooking, and the self-ordering kiosks it and Wendy’s have introduced.
Restaurants have limited options. Raise prices, cut hours, cut jobs, or all three, assuming they don’t just close their doors. That’s what’s occurring in New York City after the $15 rate was imposed. The New York City Hospitality Alliance found over three-quarters of survey respondents cut staff hours and 36% eliminated jobs.

Related 1: See CD post “Canary in the coal mine? NYC small businesses struggle to survive $15 minimum wage hike: ‘They’re shutting down.’”
Related 2: Fron the NPR article “99 Bottles Of Beer On The Touch Screen: The Spread Of Self-Serve Taps“:

Walters Sports Bar is a gleaming new pub just blocks from the largest stadium in Washington, D.C. The decor is industrial chic — exposed ducts and poured concrete floors — and it’s spacious enough to accommodate the enormous throngs of elated fans who crowded in after the Washington Nationals’ recent World Series win.
On a recent night, the bar was quieter. Still, customer after customer strode up to a stainless steel wall lined with beer taps to insert a card, touch a screen and pour a glass of self-serve beer. No waitstaff. No waiting.
Pour-your-own technology has been featured in bars and restaurants for years, but its appeal has never been more obvious to owners staring at balance sheets that include astronomical rents in desirable locations and new mandatory minimum wage increases in 18 states this year.
“If you have 50 self-serve taps, then you essentially have 50 employees you don’t have to pay to service your customer,” says Josh Goodman, who runs a company called PourMyBeer that sells this technology.

Related 3: The front-page article in City Pages (Minneapolis-St. Paul) last week was “Your favorite restaurant is closer to going under than you think. Here’s what they’re trying to do about it.” The term “minimum wage” was mentioned in the article ten times and this quote from the article sums up the challenges facing restaurants perfectly: “Diners don’t want prices to go up. Restaurant owners want to stay in business. Costs—for almost everything—are climbing. How is this going to work?”

In other words, the economic reality is basically an issue of “restaurant math,” and the pending minimum wage hikes in half of US states will make that math increasingly unworkable for restaurants already struggling to survive on razor-thin profit margins. But that doesn’t stop lawmakers in the fantasy world of politics from arrogantly engaging in “political wage-setting” that will cripple struggling restaurants with higher labor costs and put some out of business while pretending to be so compassionate towards the many workers who will be priced out of the market and lose their jobs.

Bottom Line: It’s really unfortunate that there’s no academic discipline that has studied labor markets, price theory, and government price controls for hundreds of years that could have predicted these adverse outcomes from the misguided, mischief of political wage-setting."