You are on page 1of 8

January 2014

MINIMUM WAGE
IN SAN JOSE:
Measuring the Impact on
the Restaurant Industry
THE $10
Introduction
I
n March of 2013, the city of San Jose increased its
minimum wage by 25 percent from $8 an hour to $10
an hour, creating the second highest local minimum
wage in the state of California. (San Francisco, its
neighbor to the north, had the highest at $10.55.)
Te mandated wage increase was the result of a 2012
initiative on the ballot in San Jose. Students from San
Jose State Universitywith fnancial and organizational
assistance from the South Bay Labor Council
conceived of and campaigned for the ballot measure. Te
students and their supporters argued that the measure
would boost the local economy by putting more money
in the hands of lower-wage employees who would then
spend it immediately.
Tey dismissed the arguments of economists and business
groups that a mandated increase in labor costs could
have unintended consequences such as higher prices or
reduced employment. One labor-aligned research center
afliated with the University of California-Berkeley
echoed the claim of economic stimulus in a policy paper.

Understanding San Joses experience with a $10 minimum
wage is important as Californias state minimum wage
rises to that level over the next two years, as signatures
are collected for a ballot initiative to create a $12-an-
hour minimum wage, and as cities such as San Diego
and San Francisco consider raising their minimum wages
even higher.
MINIMUM WAGE
IN SAN JOSE:
Measuring the Impact on
the Restaurant Industry
$10 Minimum Wage in San Jose Employment Policies Institute 3
THE $10
4 Employment Policies Institute $10 Minimum Wage in San Jose
Survey Description
Te wage increase in San Jose was unique in that the
$2-per-hour bump happened all at oncethere was no
phase in period as has occurred with past increases in
the federal minimum wage. San Joses minimum wage
will continue to rise with infation in future years, but the
single largest increase happened in year onesuggesting
that the worst of the potential consequences, should
they occur, would be clustered in this early period.
To gauge the impact of this one-shot 25 percent increase,
the Employment Policies Institute (EPI) surveyed the
citys restaurant industry during a one-month period at
the end of 2013. EPI was specifcally interested in the
experience of businesses covered by the new law, so the
restaurant industrygiven its opposition to the ballot
initiative and concerns about consequencesseemed
an ideal test group.
Te California Restaurant Association provided EPI
with a phone list for every restaurant it had recorded
with a location in San Jose, yielding 1,209 unique phone
records. (CRA did not provide fnancial support for
this survey and was not involved in the data collection.)
EPI contracted with a survey research frm to contact
either an owner or hiring manager at each location for
a brief survey about their experiences with the $2-an-
hour increase.
Surveys were conducted over fve days in December
2013 and on one day in January 2014, until the list
of phone numbers was exhausted. Te fnal results
represent 163 locations, split roughly evenly between
fast-food locations and table-service locations. (See
table at right). Te vast majority of respondents (85%)
had fewer than 100 employees on staf at all locations.
(See appendix for a full table of employer sizes.)
Because we surveyed every restaurant we had a record
for in the city, and participation wasnt mandatory, its
possible that restaurants that were unhappy with the law
were more likely to participate. Additionally, responses
could vary across industries.
Nevertheless, our resultswhich represent roughly 1
in 8 of San Joses restaurantssuggest that proponents
of the $2 increase were not honest when they told San
Jose residents that a wage hike to $10 an hour would
occur without consequence. In the industry surveyed,
the increased costs were signifcant, and employers
took a number of steps to ofset those costsincluding
price increases, employment reductions, and even
closed locations. Additionally, a number of employers
indicated that they were limiting future expansion plans
in the city.
Results
Business Costs
Tough proponents of the minimum wage increase
portrayed the added cost of the law as minimal,
the higher minimum wage clearly brought with it
considerable new costs for the citys restaurants. Asked
to describe the increase in their total labor costs, two-
# %
Full Service 69 42.3%
Quick Service 72 44.2%
Other (Food Trucks, etc) 21 12.9%
Refused 1 0.7%
Describing the Increase in Labor Costs
from a $10 Minimum Wage
# %
Big Increase 107 65.6%
Small Increase 46 28.2%
No Increase 7 4.3%
Undecided or Refused 3 1.8%
4 Employment Policies Institute $10 Minimum Wage in San Jose $10 Minimum Wage in San Jose Employment Policies Institute 5
thirds of respondents said the higher minimum wage
caused a big increase. Just four percent of surveyed
employers that were afected by the law said it caused no
increase in their labor costs.
EPI also asked afected businesses to quantify the
additional cost of the new law on each location. Te
responses are given below. Notably, 40 percent of
businesses described the added per-location cost as
being between $10,000 per year and $69,000 per year.
For a handful of businesses, the added cost exceeded
$100,000 per location.
Adapting to New Costs
Because restaurant proft margins average between three
and six percentmeaning the business keeps three to
six cents in proft from each sales dollar afer paying
expensesnew labor costs from a $10 minimum wage
would be expected to require cost ofsets. Historically,
thats either meant higher prices for customers or less
customer service as businesses adapt by reducing work
hours or staf levels. Te results of this survey suggest
that both occurred in San Jose.
Two-thirds of responding businesses raised their prices
to adapt to the laws cost. Roughly 30 percent responded
that they had limited future expansion plans in the city
as a consequence of the new law, and 12 restaurants had
even closed locations in the city in response.
Employer Responses to a $10 Minimum Wage
Some of the consequences afected the employees
in other ways. For instance, nearly 45 percent of
respondents reduced employee hours to adapt to the
cost, and 42 percent reduced staf levelseither the
number of employees per shif or the overall number of
employees at the restaurant.
Describe the Additional Per-Unit Cost
from a $10 Minimum Wage
# %
Under $10k 26 15.6%
$10k - $29k 37 22.7%
$30k - $49k 15 9.2%
$50k - $69k 12 7.4%
$70k - $89k 2 1.2%
$90k - $100k 1 0.6%
More than $100k 2 1.2%
Undecided/Refused 68 41.7%
Increased Prices
# %
Yes 108 66.3%
No 53 33.5%
Refused 2 1.2%
Reduced Employee Hours
# %
Yes 73 44.8%
No 88 54%
Refused 2 1.2%
Reduced Stafng Levels
# %
Yes 69 42.3%
No 92 56.4%
Refused 2 1.2%
Closed Locations in San Jose
# %
Yes 12 7.4%
No 148 90.8%
Refused 3 1.8%
Limited Future Expansion Plans
# %
Yes 49 30.1%
No 90 55.2%
Refused 24 14.7%
Conclusions
Further study is necessary to determine whether theres a
long-term impact of the $2 wage increase and the subsequent
annual increases. Future studies using government data
will be able to isolate whether there was an impact across
industries. But taken together, these survey results suggest
that the impact of a $10 minimum wage on a key service
industry employer in San Jose was not nearly as innocuous
as proponents claimed it would be.
References
David Neumark and William Wascher. Minimum Wages.
Cambridge: Te MIT Press, 2008.
Deloitte and National Restaurant Association.
Restaurant Industry Operations Report: 2010 Edition.
https://s3.amazonaws.com/s3.documentcloud.org/
documents/291534/t288-nrarept2010.pdf
Distribution of Survey Responses
Fewer than 10 employees 18.4%
10-49 employees 55.8%
50-99 employees 10.4%
100-499 employees 6.1%
500-999 employees 1.2%
1000 or more employees 3.7%
Undecided/Refused 4.3%
Appendix 1: Business Size (All Locations) of Survey Respondents
6 Employment Policies Institute $10 Minimum Wage in San Jose
Appendix 2: Survey Questions
Phone surveys were conducted by Connection Strategy
over six diferent days in December 2013 and January
2014. Of the 1,209 records provided, 163 were contacted
and completed the survey. An additional 79 respondents
answered no to the frst question, and were thus
excluded due to the surveys focus on afected employers.
674 respondents were classifed as refusals. Te remainder
were either unreachable or the number was not in service.
Question: Did you have to increase hourly pay for
anyone on your staf in response to this increase?
Question: Would you say that this $10 minimum
wage caused a big increase in your total labor costs, a
small increase, or no increase?
Question: What best describes the additional cost
of the $10 minimum wage for each location of your
business?
Question: In response to the $10 minimum wage,
have you raised your prices at locations in San Jose?
Question: In response to the $10 minimum wage,
have you reduced employees hours at locations in
San Jose?
Question: In response to the $10 minimum wage,
have you reduced employees per shif or overall
stafng levels at your locations in San Jose?
Question: In response to the $10 minimum wage,
have you closed any of your locations in San Jose?
Question: In response to the $10 minimum wage,
have you limited future expansion plans within the
city of San Jose?
Question: Do you consider yourself a full-service
restaurant, a fast food restaurant, or something else?
Question: Which category best describes the size of
workforce at all locations (both inside and outside
of San Jose)?
6 Employment Policies Institute $10 Minimum Wage in San Jose $10 Minimum Wage in San Jose Employment Policies Institute 7
1090 Vermont Avenue, NW
Suite 800
Washington, DC 20005
www.EPIonline.org
Tel: 202.463.7650
Fax: 202.463.7107

You might also like