New research from Harvard shows that increasing minimum wages, despite pundits, only affect one type of business: the ones who don’t do business well.
Minimum wage increases—dubbed living wages by those seeking to, oh, you know, live—have been a contentious subject in Long Beach. Measure N was immediately, before it had even really become a tangible reality, outcast by the Long Beach Chamber of Commerce and Downtown Long Beach Alliance (DLBA) with a frighteningly loud, “Hell no!”
No discussion, no mediation, no research. Just: no.
When I was working over the Long Beach Post, then-editor Sarah Bennett and I were concocting the annual list of Long Beach’s 10 Most Powerful—and we gave the top spot to the hotel workers for achieving a success under a campaign against the Chamber and the DLBA, two powerfully wealthy and politically influential organizations. Infuriated by the list, the Chamber’s head honcho Randy Gordon sent then-publisher Deziré Lumachi a scathing email that said the list was “disappointing” and “didn’t reflect Long Beach at all.”
Now this isn’t to say that both sides didn’t manipulate the situation: living wage advocates brought on wage theft victims to distort the narrative (wage theft has nothing to do with minimum wage) while business advocates screamed that it would decimate business. Despite your side on this political spectrum, there is one thing that is certain and that is the choices made by living wage advocates actually did reflect Long Beach: voters were exorbitantly on the side of proper wages, with nearly 64% of voters supporting the measure.
“I don’t believe the residents really understood how negatively this measure will affect [business],” Gordon once told the Press-Telegram.
Well, Randy, it hasn’t negatively impacted the hotel industry since its passage five years later and, it turns out, Long Beach’s decision to align itself with state minimum wage increases won’t affect businesses either—that is, if you’re a business that does business well.
Husband and wife team Dara Lee and Michael Luca of the Mathematica Policy Research program under Harvard’s School of Business decided to look at restaurants and their viability following minimum wage increases. While overall viability was affected, that affect fell disproportionately on restaurants that were low quality and widely panned by patrons.
In other words: if your business model isn’t one that brings in more money than your overhead costs, then you don’t have a viable business model—and that‘s how minimum wage increases can negatively affect businesses, not just the increases themselves.
“It’s just off that there are hard costs just don’t go any lower,” said living wage advocate Kareema Abdul-Khabir. “Employee wages are just like rent and supplies cost. There should be no exception to the rule by differentiating working humans from those hard costs.”
In other words: if I want to open another Thai or poke place in DTLB—snark intended—and my overhead costs such as rent and supplies force me to have a $20 mini bowl of poke and folks just don’t want to pay for that, your option is not turn toward a contemporary version of forced labor; you find a better business model.
And most have—as long as they maintain their quality of service.
“Our point estimates suggest that a one dollar increase in the minimum wage leads to a 14% increase in the likelihood of exit for a 3.5-star restaurant, which is the median rating [on Yelp!], but has no discernible impact for a 5-star restaurant,” the report read.
Sometimes the laws of physics prevent you from getting your costs any lower—and sometimes it’s the laws of ethics that put humans before this intangible thing we created called money. Now, it turns out, you can balance these both. Just have a viable business model and you’ll be fine.