As most of you probably know, I operate a chain of fast-casual restaurants in New York City called Kobeyaki, which feature Japanese "rolls, bowls, burgers & buns." We employ 45 people in three locations and more than 80 percent of them are hourly--which puts me right smack in the middle of the current debate over the minimum wage.
That debate is raging in New York, where the governor has publicly committed to raising the minimum wage to $15 per hour as soon as he can. (It's currently $9 per hour in New York; the federal minimum is $7.25.) I understand the emotional appeal of such a move, and, like most entrepreneurs, I have no problem paying employees as much as the business can afford. My partners feel the same way. But if $15 per hour becomes our entry-level wage, there will be consequences. We will have to make significant changes to our operations to stay in business. Jobs will be lost.
The reason is simple math. Our restaurants will no longer be viable if labor costs rise above 35 percent of revenue. And no, we can't just jack up prices and pass the additional cost along to customers. There are real limits to what people will pay. We can charge only so much for a shrimp tempura roll or a Kobe beef burger before our customers will start looking at other dining options.
Right now, labor costs in each of our restaurants average about 26 percent of revenue. We're paying the minimum wage for entry-level jobs, such as busboy and dishwasher. Other hourly people get more than that, but none as much as $15 per hour. If the minimum rises, not only will we have to pay more to entry-level people, but everyone above them will have to get a raise as well. You can't pay someone who does food preparation what you pay someone who buses the tables and sweeps the floors.
Don't get me wrong. I would like to be able to pay entry-level people $15 per hour and raise everyone else's wages as well. It's just not feasible. Before the government forces us to do it--as seems likely--we have to take steps to protect both the business and as many jobs as possible.
The first options are to automate and outsource, and we're preparing to do both. Much of the ordering is already automated. We have employees taking and inputting orders right now because human contact is important to building customer relationships. But we'll have to cut back on the number of people doing that job. Customers will have to input their own orders either online or at a console in the restaurant. Nor will we be able to have as many people preparing the food. We prefer to do that ourselves, but we can outsource the work. That will eliminate more jobs and allow us to reduce our labor costs.
I realize that these types of changes will have some negative consequences, both for businesses like mine and for society as a whole. Entry-level, minimum-wage jobs are the first rung on the ladder you have to climb to have a career. In all the businesses I've run, we've recruited people for better-paying, higher-level positions from the entry-level pool. A $15-per-hour wage will put some people on more solid economic ground but at the same time make it harder for thousands of others to find work and get started on a career.
Kobeyaki is not an isolated example. Every business with minimum-wage employees faces the same pressures that we do and will be forced to respond. Those who say raising the minimum wage will have no effect on employment are dreaming.