Job losses in Seattle offer a glimpse of the future for the restaurant industry in $15 Now cities

Oct 27, 2015

A recent article in the Puget Sound Business Journal exploring the impacts of the city’s new $15 minimum wage law concludes the predictions of an economic hit on businesses in Seattle never happened.  Instead, the article, “Apocalypse Not: $15 and the cuts that never came,” says the industry most impacted by the new wage law—the restaurant industry—has actually grown:

“…the thunder in the city’s already booming restaurant scene contrasts with the early fears of shuttered cafes and empty tables.”

According to the PSBJ story, 5,227 permits for food service establishments (which new and existing restaurants must get each year) in Seattle have been issued so far this year.  The PSBJ notes that is “well on the way to surpassing” the 5,458 permits issued in 2014 and the 5,415 issued in 2013. 

The fact the number of food service establishments in Seattle has not taken a nose-dive is offered by the PSBJ as proof that the $15 wage has had little impact.  But looking at the number of food service establishments does not tell the real story of the impact of a higher minimum wage in Seattle.  The real story is the number of jobs in the restaurant industry.

Since implementing the $15 minimum wage law this year, the Seattle area has lost 700 restaurant jobs (as of September).  That is the largest decline over the January-September period since the Great Recession in 2009.  Meanwhile the rest of the state gained a whopping 5,800 new jobs in the restaurant industry.  

This fact contradicts the PSBJ’s headline assertion that “the cuts never came.”  Tell that to the 700 Seattle area workers who found themselves unemployed.

To put the loss of 700 restaurant jobs in the Seattle area between January and September in perspective, in previous years jobs in this industry have multiplied.  The average job gain during the same period over the previous five years was almost 3,000, and over the previous three years the job gain was nearly 4,000.

That 700 restaurant workers in greater Seattle have found themselves without a job since the city passed the $15 minimum wage law should not come as a surprise given the warning by Moody’s Investor Service of the negative impacts of a higher minimum wage on the profit margins of an industry that relies heavily on minimum wage workers.  In an independent analysis on the impact of rising wages on restaurant companies, Moody’s estimated the operating profit margins of restaurants could shrink by one to four percentage points as a result of cities and states increasing the minimum wage.  That is significant hit, considering the average profit margin for a restaurant in this state is only around 4%, with fast food establishments averaging about 7%.  With such slim profit margins, logic dictates these employers would be compelled to mitigate their higher wage costs by reducing their labor force.

But the impact on workers is much greater than the loss of 700 restaurant jobs.  There are also the lost future job opportunities as restaurants opt to expand in other cities.  The CEO of Wild Buffalo Wings says while her company has one restaurant in Seattle, “we probably won’t be expanding there.  That’s true of San Francisco and Los Angeles, too.” 

This means the 700 restaurant workers around Seattle who lost their jobs will have a more difficult time finding a new job in the future.  And as the city’s wage continues to creep closer to the full $15, it will only get worse.  Even the restaurant owners quoted in the PSBJarticle who are still expanding say a full $15 wage will have a significant impact on their business.  Perhaps a better headline for the PSBJ article would be Apocalypse…Not Yet.