Today, many states in the US have a minimum wage standard that is established on the federal level. At the same time, states have the right to independently increase wages to employees. If non-tipped workers are to receive at least $ 7.25 per hour, for tipped employees, this hourly standard is only $ 2.13 (Even & Macpherson, 2014). With the growing economy and the overall rise in the cost of life, it becomes evident that the minimum wage is insufficient for people to satisfy their basic needs and ensure an appropriate standard of living. The identified issue is complicated by the fact that the political climate in Washington is not beneficial to increasing wages. This paper aims at discussing the potential increase in the minimum wage to employees working in the restaurant industry.
The theme of the minimum wage is controversial since there are supporters and opponents of its augmentation. On the one hand, it is argued that the increased wage will promote employee satisfaction, increase in their earnings, as well as the economic activity in the mentioned sector (Dube, Lester, & Reich, 2016). One of the key problems of the US related to employment – unequal income – is likely to be addressed or, at least, minimized as a result of the better payment.
Also, the latter is associated with improved productivity stimulated by the opportunity to earn more. On the other hand, such changes may lead to employee layoffs and force businesses to close. In case companies would decide that pay is too high to afford it, they may prefer replacing people with cheap robots (Dube et al., 2016). It should also be emphasized that wage raise may disproportionately damage the poorest regions of the US, which may encounter an increase in the costs of products and services. Therefore, it is critical to understand the specified topic in an in-depth manner based on the relevant studies conducted by scholars and official organizations.
While several states, including California and New York, have already raised their wages, the research was performed in order to reveal the effects of changes on employees and the market. In their study, Allegretto, Godoey, Nadler, and Reich (2018) examined the restaurant industry that is considered to be the major provider of low-wage jobs in six large cities of California, where the minimum wage was increased to $ 10-15 per hour.
The mentioned initiative was driven by the local authorities, while on the federal level, the wage remains minimal. Based on synthetic control methods and an event study, the authors investigated each of the cities and pooled the information together to present the accumulated findings. It was found that “a 10 percent increase in the minimum wage increases earnings in the food services industry between 1.3 and 2.5 percent” (Allegretto et al., 2018, p. 39). In other words, the increase in wages has a positive impact on employment effects. These results are consistent with the previous studies, as reported in the mentioned article.
One of the limitations to boosting minimum wages is that employers may replace qualified workers with low-skilled employees, thus avoiding additional costs. Even though such a threat exists, it is reported that employment levels are likely to remain without significant reductions (Allegretto et al., 2018). In fact, low-income people will definitely benefit from better pay compared to potential employment losses. In this connection, one may assume that the rest of the states should also consider the rise in minimum wages. Specific policies are to be introduced on the state level to ensure that people receive an adequate amount of pay sufficient to meet their needs that may vary, depending on a certain community.
Another limitation is the fact that many studies exclude respondents who work overtime since there are several ways to pay for it. In other words, the majority of the existing studies fail to clarify how a minimum wage affects overtime and related issues. It seems that additional research needs to be provided to make sure that the interests of tipped employees who work overtime in the restaurant industry are also taken into consideration.
The main channels to adjust minimum wages are associated with reinventing labor environment, hours, and payment. As practice shows, employees working for a minimum seem to be less committed to their work as they know that they can always find something similar (Hirsch, Kaufman, & Zelenska, 2015). Donald Trump, during his election campaign, did not adhere to the classical Republican principle that not with the minimum wage but inflation should be combated.
He repeatedly stated the need to raise the federal minimum to $ 10 and make every effort for further growth. In this connection, it is important to clarify the connection between the national minimum and the leverage of the Federal Reserve System (Allegretto et al., 2018). If the interest rate is raised too often, then the current $ 7.25 per hour will be insufficient for the restaurant industry employees to survive as, most likely, products and services will grow in price. Therefore, the identified issue should be taken into account in the context of the general economic course of the country and particular states.
Since the majority of workers in the restaurant industry receive a minimum wage, its increase may lead to higher costs and prices for manufactured products. According to Even and Macpherson (2014), the reason for low wages is that workers are predominantly young and have no experience. They are likely to work overtime, as electronic payroll data shows. The overall overtime in the mentioned industry is likely to decrease from “12% in 2007 to 7% in 2009, and average overtime falls from 0.74 to 0.45 hours” (Even & Macpherson, 2014, p. 5). Restaurants that practice overtime has better pay per hour and fewer employees working in a full-time manner.
As for enhancing their wages, the above article suggests that overtime should be paid more fairly since employees spend more time and effort to perform their work. Accordingly, some companies may reject using overtime and focus on hiring more employees, which will prevent employees who want to work more from receiving better pay (Hirsch et al., 2015). A seasonal factor should be taken into account as restaurants in resort towns and cities have a huge influx of customers only during summer vacations.
To conclude, some employees and economists argue that increasing the minimum rate can enhance labor productivity, reduce staff turnover, and assist low-income families in improving their standard of living. The opponents of this proposal parry that prices will eventually rise and companies in which wages take up a significant share of costs will suffer. Thus, further policies should be developed to ensure benefits both for employees and employers, and studies are to be conducted to reveal and anticipate the potential effects of increased minimum wages.
References
Allegretto, S., Godoey, A., Nadler, C., & Reich, M. (2018). The new wave of local minimum wage policies: Evidence from six cities. SWED Policy Report. Web.
Dube, A., Lester, T. W., & Reich, M. (2016). Minimum wage shocks, employment flows, and labor market frictions. Journal of Labor Economics, 34(3), 663-704.
Even, W. E., & Macpherson, D. A. (2014). The effect of the tipped minimum wage on employees in the US restaurant industry. Southern Economic Journal, 80(3), 633-655.
Hirsch, B. T., Kaufman, B. E., & Zelenska, T. (2015). Minimum wage channels of adjustment. Industrial Relations: A Journal of Economy and Society, 54(2), 199-239.