Animal’s Daily Unintended Consequences News

Welcome to the wonderful world of minimum wages!  Excerpt:

Red Robin, a popular burger chain, will cut jobs at all 570 of its locations because, chief financial officer Guy Constant said, “We need … to address the labor [cost] increases we’ve seen.”

To put it differently, Red Robin is cutting these jobs because of bad government policy: namely, hikes in the minimum wage. On January 1, some 18 states — from Maine to Hawaii — increased their minimum wage.

Founded in Seattle but headquartered in Colorado, Red Robin hopes to save some $8 million this year by eliminating bussers from their restaurants. (Bussers, or busboys, clear dirty dishes from tables, set tables, and otherwise assist the wait staff.) According to the New York Post, the company saved some $10 million last year after eliminating “expediters,” who plate food in the kitchen.

The Impact of an Increase in Wages

Despite what many people, including policymakers, would argue, this is an altogether painfully predictable response to increased labor costs. It’s basic economics. The “first law of demand” teaches us that when the price of a good or service increases, people will tend to buy fewer units. Conversely, when the price of a good or service decreases, people will tend to buy more. This idea is usually presented no later than chapter 3 in any econ 101 textbook.

Full disclosure:  I like Red Robin.  I like Red Robin a lot.  I took the family there for a nice family lunch only last Monday.  The food isn’t outstanding but it’s good, always reliably so, the prices aren’t bad, and the service (at least at our local outlet) is always good.

But yes, they want to make money:

Some might say, “Well, why can’t Red Robin just make a smaller profit and stop being greedy?” Consider, however, that pretax profit margins for the restaurant industry typically range between 2 and 6 percent. This means that there isn’t a lot of room for error or cost increases before realizing a loss.

Welcome also to the wonderful world of unintended consequences.

Our own Colorado just had a state-imposed minimum wage hike on January 1st, raising the wage floor from $9.30 to $10.20 an hour.  Note that this state imposition didn’t make a single worker more productive, or gain them additional skills to justify their arbitrary imposure of a higher wage; this forces still more low-skilled and entry-level workers out of the market, resulting in Red Robin (and doubtless many other low-margin businesses) into cutting staff and increasing automation.

Red Robin has already installed little kiosks at each booth and table, enabling diners to quickly and conveniently order appetizers and drinks without waiting for a server.  You can also settle your tab at the kiosk.  This allows wait staff to cover more tables, enabling the restaurant to employ fewer servers in each shift.

Now the bussing staff has paid the price for the arbitrary new wage floor.

The actual minimum wage remains what it has always been – zero.  Labor, like any commodity, is a supply/demand proposition; more to the point, it is an exchange of value.  If an employee does not and can not return value at least equal to their cost of employment, then there will be no employment.  Government-imposed wage floors raise the bar for the employee-side side of that exchange, pricing entry-level and low-skill workers right out of the market.  Examples abound – this is but the latest – but pols and agitators never learn.

Feature or bug?