For Hospitality Businesses, a $15 Min. Wage is... Complicated.
The movement to increase the federal minimum wage has dominated airwaves of late after finally arriving on Capitol Hill. This is long overdue as federal policy plays catch-up with cities and states that have already put such progress in motion. Leadership in favor of the measure point towards corporate financial abuse to justify workers’ pay bump, while opposition has cited small businesses to squash the amendment, particularly bars and restaurants still stinging from COVID-19. How should the Hospitality sector feel?
Casually talk to any bar or restaurant owner about the prospects of increasing the minimum wage and within a few seconds of their pure, un-filtered, Jon Taffer-esque hospitality mini-lecture, you'll begin to see the tip of the iceberg--and the monstrosity that lurks beneath.
If you're a guest-- a patron that’s never waited a table, fired food, or mixed a cocktail-- there's a recurring slogan you’ll recognize throughout the hospitality industry, whether it's uttered by your local bar and restaurant owner, or echoed in the latest episode of Chef's Table:
"Owning a restaurant is a labor of love. We're not in this for the money."
Nothing has driven this truth beyond the edge reason than what the hospitality industry has endured during the COVID-19 pandemic. Sean Kennedy, Vice President of the National Restaurant Association, recently framed the extent of the disaster in an article from the Wall Street Journal:
“No industry has lost more jobs and more revenue than restaurants,” he said, pegging the sector’s revenue losses at $255 billion. “We were the first industry to be shut down, we’ll be the last to reopen, and we have a very long road to recovery in front of us.”
While Kennedy's comments acknowledge the financial depths of last year’s nightmare and the journey that lies ahead, they arrive at a moment where owners and operators appear to have some federally-backed hope on the horizon, as restaurants and other hospitality ventures appear to be some of the primary benefactors of a $1.9 trillion coronavirus package that squeaked through the senate this past weekend.
As some might recall, this next package is the sequel to the controversial $2 trillion CARES Act of last year, a faulty, frantic piece of legislation publicly skewered by the hospitality community for whiffing on providing productive support specifically to the small businesses that desperately needed it.
The blunder doomed bars and restaurants by tacking on unfeasible protocol and shamefully doling out massive checks to publicly traded companies like Potbelly, Shake Shack, and Axios (Note: After public backlash, many of these companies sent their checks back--a rare phenomenon in the hospitality industry, clearly indicating the extent to which this bill was botched from the get-go).
Act II of relief includes a revised emphasis on the bar and restaurant industry, but if you hadn’t heard a thousand times already, what is notably missing is an increase in the federal minimum wage, which would have pushed hourly wages to $15, including previously (and currently) unemployed hospitality workers that could probably use a raise.
To guests, the decision to provide policy-backed financial relief to restaurant owners--but not to their staff--appears counterproductive. And in many ways, it is.
However, the current state of the American bar and restaurant industry is one of complexity, frail from decades of operational atrophy, and hampered by an increasingly fragile foundation due to the Coronavirus pandemic of the past year.
Job loss in the hospitality sector has been unprecedented, and workers that remain unemployed will be looking to be rehired during the recovery period ahead.
In March and April of 2020 alone, 8.2 million American jobs were lost in hospitality industry, and as a whole, the U.S. unemployment rate reached its highest level since the Great Depression. According to the Labor Department, a reported 20.5 million people abruptly became jobless, dwarfing what the experienced during the Great Recession nearly a decade ago.
Following a catastrophic year, it's impossible to overlook the daunting deficit bars and restaurants will be dragging into an ensuing recovery period, and the responsibility owners and operators carry to put hospitality workers back on their schedules.
But simply "bringing the gang back" won't be so easy with looming pay increases, as small business owners in many cities will already be facing an increase in minimum wage, regardless of what can or can't be agreed upon in Washington D.C..
Small hospitality business owners often claim that an increase in wages would be an insurmountable cost for the business--and as their current business model is structured, it’s hard to argue otherwise. In Chicago, for example, an increase from the current tips-wage to minimum wage would represent an immediate 118% spike in labor cost.
In any industry, especially one with businesses reliant upon personalized service and attentiveness, an increase in labor cost that substantial is about as unfeasible as rent, but even with the city of Chicago retaining the “sub-minimum” wage, hourly labor is set to increase 31% this year.
With cities gradually lifting in-door capacity constraints and the general public approaching satisfactory levels of immunization, there is plenty to be hopeful and optimistic about for the hospitality industry as a whole, and while everyone is eager to see their favorite bars and restaurants back to full-service, it will be a difficult road for ownership to mediate labor costs when their staff, in many ways, has had as difficult a year as they have.
The operators that maintain elements of their flexible business model (online ordering, steam-lined service, digital menus, and takeout ordering) will be the most prepared to welcome guests and staff back to work, while still decreasing the hefty deficit they've inherited from the COVID-19 pandemic as the nation forges ahead on the road to economic recovery.