A January 24 item in the East Bay Times, which serves the San Francisco East Bay area, wondered: "What’s behind the spate of recent restaurant closures?"
While it didn't ignore the problem, the article made only glancing references to current and planned increases in state and city minimum wages. Preliminary year-end statistics at the U.S. government's Bureau of Labor Statistics show that Bay area restaurant industry employment and even general retail employment have fallen, and are possibly headed towards a steep decline. One has to wonder how obvious things will have to get before the press takes the negative effects of the area's mandated sky-high minimums seriously.
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The opening paragraphs of Annie Sciacca's writeup only vaguely referred to employment costs (HT Breitbart; bolds are mine throughout this post):
While new restaurants have further solidified the Bay Area as a foodie destination in recent years, many others have succumbed to a perfect storm of economic challenges that shows no sign of abating.
Upward of 60 restaurants around the Bay Area have closed since the start of September alone, with many citing difficulties like the cost of finding and keeping good employees, rising rents, new requirements for providing health care and sick leave, and doing it all while competing with the slew of new dining options.
Minimum wages finally got mentioned in Paragraph 13, but Sciacca never disclosed any per-hour figures:
... While local and state-mandated minimum wages have risen via legislation in recent years, the so-called labor shortage itself is driving up costs as well, said Borden of the Golden Gate Restaurant Association.
(Paragraphs 17 and 18)
... San Jose’s De La Cruz Deli, the last remaining location of a long-lived family of 12 delis, is slated to shut its doors in April after a 41-year run. Randy Nelson, who opened the first of the De La Cruz delis in 1974, said the costs of doing business are tougher than ever. He’s facing a 50 percent rent increase on the deli space when his lease is up, and a San Jose minimum wage ordinance will drive his labor costs up 45 percent in the next several years. Nelson, 73, will close or sell the deli and retire.
Jeffrey Stout, restaurant industry veteran and the chef-owner of Orchard City Kitchen in Campbell, said it’s frustrating to see mandated minimum wage increases without tipped minimum wages, a practice in many states (but not in California) in which tips can be credited toward meeting the minimum wage.
Last time I checked, several meant "more than two" — and it still does. San Jose's minimum wage will hit $15 in on January 1, 2019. That's just under two years from now, not "in the next several years." That's up from its current $10.50, which will increase to $12 on July 1 of this year. That's much a quicker increase to $15 than for the state as a whole, where the minimum is set to hit $15 in 2022, and went from $10 to $10.50 on January 1.
Incredibly, San Francisco's flight up to $15 per hour will occur even more quickly. Its current minimum, which is already $13, will go to $14 in July and $15 in July 2018.
On top of all of this, California is one of just eight states which require employers to pay tipped employees the full state minimum wage before tips.
These huge, government-mandated hikes would all be great if they had no associated negative consequences, but the data which follows below from the BLS through December is starting to indicate otherwise.
This data, which went up at BLS's web site ahead of its scheduled February 1 Metropolitan Area Employment and Unemployment data release, shows that year-over-year gains in San Francisco-area restaurant and retail employment turned into declines during the latter part of 2016. The figures presented are not seasonally adjusted, so month-to-month comparisons are not useful — but year-over-year looks most certainly are:
To be clear, a couple of the smaller data elements presented above may be subsets of one of the larger ones. Regardless, they collectively represent quite a few Bay Area employment categories — including general retail, which is outside of the restaurant industry — which had been growing at decent rates during the past several years but have very recently moved into year-over-year contraction.
Though there are some indications of slowing job growth, the analogous data for San Jose isn't showing year-over-year decreases — yet. But San Jose's minimum is currently lower than San Francisco's, so any negative minimum-wage impact would be expected not to show up as quickly.
To be fair, the other factors cited in Sciacca's East Bay Times article, such as outlandish rent increases, are certainly relevant. But it's still reasonable to contend that Bay Area employers are reacting more quickly to minimum-wage hikes because they are occurring more quickly. In effect, this would appear to make them the canary in the coal mine. If so, that foreshadows very bad news to come elsewhere, first in cities like San Jose which are moving more quickly to $15-per-hour than the rest of California, and then to the remainder of Governor Jerry Brown's once-Golden State.
So while it's not definitive, it's starting to look as if struggling San Francisco-area employers at the low-paying end of the labor market, even beyond those who are calling it quits, are doing exactly what sensible economists have predicted they would do in response to large minimum-wage increases. They're cutting jobs.
Cross-posted at BizzyBlog.com.
