Los Angeles City Council Passes $15 Minimum Wage
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Los Angeles has become the biggest city in the country to pass a $15 minimum wage. The city council vote wasn't even close - 14 to 1. The wage doesn't take effect for another five years, but LA's restaurant industry is already anxious. Ben Bergman from member station KPCC reports.
BEN BERGMAN, BYLINE: Very few businesses like higher minimum wages, but restaurants especially don't like them because of their incredibly slim profit margins.
CAROLINE STYNE: The economics of restaurants are pretty ridiculous.
BERGMAN: Caroline Styne owns more than half a dozen high-end LA eateries. She says of every dollar that comes in, 95 cents goes out. There's food, rent and paying waiters, sous chefs, dishwashers - the hundreds of people it takes to keep her restaurants running smoothly.
STYNE: Labor can account for up to 40 or more percent of the overall expenses of a restaurant. Our expenses overall are so high that when you see the net profit at the end of the year you say why on earth are you in this business?
BERGMAN: Styne says she does it because she loves the people and the food, but that love can only go so far. She says a $15 minimum wage may make it impossible to keep going. Styne says she will have to raise menu prices 40 percent, which she's afraid will turn away many customers.
STYNE: I'm actually very frightened. I've been frightened since this whole thing began.
BERGMAN: Despite the higher cost of labor, Styne and many restaurant owners say they would've been OK with a higher minimum wage had the city allowed tips to count towards the wage. But California is one of the few states where tipped workers can't make less than minimum wage, and the city feared a so-called total compensation model would be illegal. Jot Condie, president of the California Restaurant Association, says his lawyers disagree.
JOT CONDIE: If a city decides to create their own super minimum wage - I guess for lack of a better term - that goes well above the state minimum wage that there appears to be some authority for a city to create that kind of a policy.
BERGMAN: Without the tip credit, Condie says a $15 wage would be devastating since so many restaurants already struggle to survive.
CONDIE: I think it will fundamentally change the business model for many restaurants, particularly table service restaurants.
BERGMAN: Condie says you can expect many more mandatory service charges, as is popular in Europe. A study from the Employment Policies Institute, which opposes higher wages, bears that out. It found a third of LA restaurants will be very likely to eliminate tipping altogether in favor of much higher menu prices and a service charge. It also found a quarter of restaurants would be very likely to just close altogether. But Paul Sonn, with the National Employment Law Project, doesn't buy such predictions of doom and gloom.
PAUL SONN: The evidence from cities that have raised the minimum wage significantly is that it's been a manageable transition, and it hasn't resulted in a slowing down in restaurant or other low-wage job growth.
BERGMAN: Sonn points to San Francisco, where the restaurant industry has added jobs in the last few years as the city has steadily raised its minimum wage. But San Francisco is both smaller and much more prosperous than LA, so even Sonn admits a $15 minimum wage puts the city in uncharted waters. For NPR News, I'm Ben Bergman in Los Angeles. Transcript provided by NPR, Copyright NPR.