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That's incredibly naive. Most business owners won't eat the cost. They'll cut hours. How do I know? Because I used to work in the fast food industry as a GM. Wh

by greedo 12y ago

That's incredibly naive. Most business owners won't eat the cost. They'll cut hours. How do I know? Because I used to work in the fast food industry as a GM. Whenever CA increased the min wage, the first thing our owner would do is ask us how much more this was going to cost us, then he'd instruct us to cut the number of hours scheduled. Because in fast food, it's not like it only affects the workers making minimum wage, it bumps the entire pay scale. So if min wage is raised by $1, everyone working hourly gets a $1 bump. For a restaurant that has say 100 man hours of labor a day, that means $100 extra cost per day right out of the owner's pocket. Multiply that by 365 and you have a pissed off owner. He can't always raise prices, and labor costs are the largest controllable expense. So what happens is that each store manager is told that they need to make everyone work harder, and they have to cut $100 worth of labor each day. So the survivors get more money, but they get worked harder; the losers get their hours cut, or they don't get hired as the positions/hours are not replaced when attrition occurs. TANSTAAFL!

tzs 12y ago
I don't understand why the restaurant waited until there was a wage hike to do that. If they were able to cut hours and make the remaining people work harder in order to make up for the extra costs due to minimum wage, couldn't they have cut hours and made the remaining people work harder long before that, when instead of the savings going to offset a new expense, they would have gone into profit?
- fragmede 12y ago
  Well, first off, maybe the restaurant doesn't run on greed? Hopefully there's room in your philosophy for that to be a possibility. Outside of that though, raising prices immediately hurts sales, but worse customer service due to the restaurant being chronically short-staffed takes longer to hurt sales. Being chronically short-staffed also makes for a worse working environment which leads to employee turnover, which is more costly in the long run, but when you're struggling to make rent this month, the long term costs may not be as apparent. Finally, if it's a small restaurant where the owner also helps with the day-to-day operations of restaurant (maybe they're even the chef), it mean's they'll have to work even harder. The owner may just find it worth the cost to have an extra employee and be able to work just a little bit less.
  - greedo 12y ago
    Another issue is the misperception of franchisees as fat cats. Our owner had five franchises; each cost over $2M back in the 80's. The average annual sales were around 1-2 million, and he would net around 10%. So he invests $10M to make $750K a year before taxes. That's 7.5% return. Not exactly AAPLesque. So if you increase his labor costs from 20% to 30%, you just wiped out his return. If you double it to 40% like a $15 increase would do, then he's got to either automate or cut to the bone. And yes I realize I'm conflating figures from the 80s to today, but the percentages still hold.
    - Mikeb85 12y ago
      Sounds like he overpaid for the franchises themselves. That's just called a bad investment. I'd generally expect a restaurant to do twice as much in sales (or more) in a year compared to the initial cost, and be able to recuperate the initial investment in 5-10 years (one of the more recent restaurateurs I worked for paid back his investors in 3 years, and has a second location 5 years in). But even using his sub-par numbers, $750K a year since the 80's means he's already recuperated his costs and made some serious profits since. What more does he expect? He could close them all tomorrow and be ahead. If anything, this anecdote does show just how greedy some people are.
      - greedo 12y ago
        The franchise business is just wacky really. The parent corporation owns the land you use, so they become real estate tycoons, and they can cause huge headaches to franchisees who don't play ball with their latest initiatives. It's really hard to compare them to regular restaurants though. I'm not sure if it's much different in Canada, as I've lost touch with a cousin who owned some White Spots in BC when I was a kid.
- greedo 12y ago
  I can't speak for all owners, but our franchisee had relatively higher standards than many. He expected QSC (quality, service, cleanliness) to surpass the minimum expectations of the parent corporation. However, he was only willing to pay so much in salary. Just because we made the remaining people work harder didn't mean that things were the same in terms of QSC. Service was slower, and the place wasn't as clean. Quality didn't drop as much as the other two metrics. Also, he had a lot of longer term employees who were making more than min wage, but still would benefit if it was raised. So it became more economical to let them go, despite the loss of their higher productivity. Also, you can't just think in terms of the hourly rate. Increases in the hourly rate also affect worker's comp rates, Social Security contributions, etc. So an $8 increase would probably be at least a $10 cost increase to the owner.
anigbrowl 12y ago
I worked in fast food as well for a while. There ain't no such thing as a free lunch for the restaurateurs either - at some point people want more for the demands of increased productivity, and if they don't get it they'll quit. Employers have been in a buyer's market for most of the last decade, while a great many employees have done a great deal of belt-tightening. If labor pricing is such a concern for a restaurant owner, it may be time to consider raising prices or raising the quality of the offering, or watch your employees walk across the street. there's enough churn in the restaurant business that anyone who thinks they're the employer of last resort is lying to themselves.
- greedo 12y ago
  Owners are limited by franchise agreements to what they can charge, as well as limited by what the market will bear. As wages got pushed lower and lower in fast food, QSC declined dramatically. Owners have already invested a lot in automation (steps that ironically have damaged quality), and there's only so much blood you can squeeze out. The issue isn't that owners will fare worse, but that raising the min wage while it makes us feel good won't necessarily help lower income workers. Doubling the salary of an entry level position will only reduce the number of entry level positions. And as I'm sure your experience in fast food illustrated, there's some people who aren't even worth paying min wage. Except for a few management folks, it shouldn't be a long term job or career.
  - anigbrowl 12y ago
    I'm fine with people exiting the market in that situation. They're not providing jobs any more, but their departure leaves underserved demand that can be met by someone else.
    - greedo 12y ago
      Just because demand is underserved doesn't mean it can be met when it's unprofitable. I used to love flying flight sims back in the Falcon 4.0 days, and I expected flight sims to progress as hardware advanced. Nowadays the flight sim market is DOA, despite my demand.
Mikeb85 12y ago
Most will and do, judging by the amount of fast food outlets that still are in operation, and still hire people, despite the numerous wage hikes over the years. Sounds like you just worked for an asshole. Also sounds like you guys eventually adapted to the wage hikes (I'm assuming he's still in business?). Of course no one's happy when things become more expensive. Here they just announced a new tax on gas (making it as expensive as before the price of oil went to shit), and a new tax on booze. Guess what - people still drive, and drink beer (hopefully not at same time).

by greedo 12y ago

tzs 12y ago

I don't understand why the restaurant waited until there was a wage hike to do that. If they were able to cut hours and make the remaining people work harder in order to make up for the extra costs due to minimum wage, couldn't they have cut hours and made the remaining people work harder long before that, when instead of the savings going to offset a new expense, they would have gone into profit?

fragmede 12y ago
Well, first off, maybe the restaurant doesn't run on greed? Hopefully there's room in your philosophy for that to be a possibility. Outside of that though, raising prices immediately hurts sales, but worse customer service due to the restaurant being chronically short-staffed takes longer to hurt sales. Being chronically short-staffed also makes for a worse working environment which leads to employee turnover, which is more costly in the long run, but when you're struggling to make rent this month, the long term costs may not be as apparent. Finally, if it's a small restaurant where the owner also helps with the day-to-day operations of restaurant (maybe they're even the chef), it mean's they'll have to work even harder. The owner may just find it worth the cost to have an extra employee and be able to work just a little bit less.
- greedo 12y ago
  Another issue is the misperception of franchisees as fat cats. Our owner had five franchises; each cost over $2M back in the 80's. The average annual sales were around 1-2 million, and he would net around 10%. So he invests $10M to make $750K a year before taxes. That's 7.5% return. Not exactly AAPLesque. So if you increase his labor costs from 20% to 30%, you just wiped out his return. If you double it to 40% like a $15 increase would do, then he's got to either automate or cut to the bone. And yes I realize I'm conflating figures from the 80s to today, but the percentages still hold.
  - Mikeb85 12y ago
    Sounds like he overpaid for the franchises themselves. That's just called a bad investment. I'd generally expect a restaurant to do twice as much in sales (or more) in a year compared to the initial cost, and be able to recuperate the initial investment in 5-10 years (one of the more recent restaurateurs I worked for paid back his investors in 3 years, and has a second location 5 years in). But even using his sub-par numbers, $750K a year since the 80's means he's already recuperated his costs and made some serious profits since. What more does he expect? He could close them all tomorrow and be ahead. If anything, this anecdote does show just how greedy some people are.
    - greedo 12y ago
      The franchise business is just wacky really. The parent corporation owns the land you use, so they become real estate tycoons, and they can cause huge headaches to franchisees who don't play ball with their latest initiatives. It's really hard to compare them to regular restaurants though. I'm not sure if it's much different in Canada, as I've lost touch with a cousin who owned some White Spots in BC when I was a kid.
greedo 12y ago
I can't speak for all owners, but our franchisee had relatively higher standards than many. He expected QSC (quality, service, cleanliness) to surpass the minimum expectations of the parent corporation. However, he was only willing to pay so much in salary. Just because we made the remaining people work harder didn't mean that things were the same in terms of QSC. Service was slower, and the place wasn't as clean. Quality didn't drop as much as the other two metrics. Also, he had a lot of longer term employees who were making more than min wage, but still would benefit if it was raised. So it became more economical to let them go, despite the loss of their higher productivity. Also, you can't just think in terms of the hourly rate. Increases in the hourly rate also affect worker's comp rates, Social Security contributions, etc. So an $8 increase would probably be at least a $10 cost increase to the owner.

anigbrowl 12y ago

I worked in fast food as well for a while. There ain't no such thing as a free lunch for the restaurateurs either - at some point people want more for the demands of increased productivity, and if they don't get it they'll quit. Employers have been in a buyer's market for most of the last decade, while a great many employees have done a great deal of belt-tightening. If labor pricing is such a concern for a restaurant owner, it may be time to consider raising prices or raising the quality of the offering, or watch your employees walk across the street. there's enough churn in the restaurant business that anyone who thinks they're the employer of last resort is lying to themselves.

greedo 12y ago
Owners are limited by franchise agreements to what they can charge, as well as limited by what the market will bear. As wages got pushed lower and lower in fast food, QSC declined dramatically. Owners have already invested a lot in automation (steps that ironically have damaged quality), and there's only so much blood you can squeeze out. The issue isn't that owners will fare worse, but that raising the min wage while it makes us feel good won't necessarily help lower income workers. Doubling the salary of an entry level position will only reduce the number of entry level positions. And as I'm sure your experience in fast food illustrated, there's some people who aren't even worth paying min wage. Except for a few management folks, it shouldn't be a long term job or career.
- anigbrowl 12y ago
  I'm fine with people exiting the market in that situation. They're not providing jobs any more, but their departure leaves underserved demand that can be met by someone else.
  - greedo 12y ago
    Just because demand is underserved doesn't mean it can be met when it's unprofitable. I used to love flying flight sims back in the Falcon 4.0 days, and I expected flight sims to progress as hardware advanced. Nowadays the flight sim market is DOA, despite my demand.

Mikeb85 12y ago

Most will and do, judging by the amount of fast food outlets that still are in operation, and still hire people, despite the numerous wage hikes over the years. Sounds like you just worked for an asshole. Also sounds like you guys eventually adapted to the wage hikes (I'm assuming he's still in business?). Of course no one's happy when things become more expensive. Here they just announced a new tax on gas (making it as expensive as before the price of oil went to shit), and a new tax on booze. Guess what - people still drive, and drink beer (hopefully not at same time).