Column: Why minimum wage shouldn’t be increased, from restaurateur’s perspective

We are the owners of a small business on Oahu with about 130 employees. As chief financial officer, the one thing that keeps me awake at night is the very real worry that the Legislature and the governor will devastate our business by forcing through a minimum wage hike. In fact, I voted for the Republican gubernatorial candidate, despite being a registered Democrat, because of this single issue.

At the macro level, the government should stay out of market manipulation. In this case, the labor market. Economic history is replete with examples where markets will not only counteract government intervention but unintended consequences will result, worsening the very problem it sets out to solve. Just look at a recent example of how the Trump administration put tariffs on Chinese goods and now has to bail out Midwest soybean and hog farmers who do not have a market for their products.

Not only would a minimum wage increase result in increased consumer prices (inflation), but it also will lead to lower customer demand, lower business income, lower GET receipts and lower tax revenue for the state. Businesses will hire less, reduce staff and hours paid by having salaried workers perform lower-skilled work, and businesses will invest capital to offset labor costs.

Some businesses will close as their business models were not built for a doubling of the federal minimum wage over five years. In a year or so, workers making $15 or more will be back at square one facing higher prices and higher unemployment, and the state will have less income.

At the micro level, let me explain via an example why raising the minimum wage in our business segment would be ruinous. We own several restaurants. Hawaii has a disproportionate amount of service industry jobs, with a large number of them being tipped positions. It is a fact that our minimum-wage- earning staff is the highest paid among our employee groups because of the tips it earns. In fact, our highest-paid server made $70,000 in income in 2016, of which around $17,000 was the minimum wage. Our non-tipped employees earn around $30,000-$40,000 — already above or around the “living wage.”

Our full-time servers average almost $50,000 a year. Thus, raising the minimum wage in Hawaii would reward a disproportionate number of workers who are already well compensated by virtue of tip income. How can our government not know this? How can it fail to understand that raising the minimum wage does not work in one of the largest sectors of Hawaii’s economy?

In the restaurant business, it is now illegal to “tip-pool” (sharing of tips among all workers), and Hawaii has the lowest “tip credit” of non-zero credits in the nation. This means that restaurant owners have only one way to counteract rising labor costs and that is to simply raise the price of their menu items, leading to the downward spiral described above.

A tip credit is an amount that employers can pay employees less than minimum wage because their tips easily offset the credit. Employers then redistribute those credits to the non-tipped staff. The tip credit exists as a federal law to counter the problem of wage disparity in service jobs where the servers obtain all the economic benefit of tips, despite everyone working together to put the plate of food in front of a diner. Hawaii could solve the micro problems of the restaurant industry with a, for example, 50 percent tip credit, and allow us to pay all our staff a market wage, without any adjustment to the minimum wage.

Moreover, there will be multiplier effects to mandated wage increases. Our staffers already at $15-$20 an hour would want more because they have more experience and skill than a person who has just been employed. Our suppliers have already notified us of price increases for raw ingredients because of the most recent minimum wage hikes and increased health care charges. This inflation will continue, further magnifying the size of our prices increases.

We calculate that if the minimum wage was forced to $15, a menu item that we currently retail for $7.95, will be marked up to $12.95. Intuitively, everyone knows, including legislators who eat out, that they will cut back on dining out with prices rising 63 percent.

Russell Ryan co-owns an Oahu restaurant business with about 130 employees.