Unintended Consequence of Minimum Wage Hike
A California minimum wage special

Unintended Consequence of Minimum Wage Hike

As the minimum wage in California recently soared from $16 to $20 per hour, the ramifications of this significant increase are beginning to unfold, and they're not all positive.

While the intention behind raising the minimum wage was to to improve the livelihoods of lower-wage workers, the reality is proving to be more complex.

It's crucial to understand that increases in minimum wage can indeed be beneficial, but only when implemented sensibly, with consensus and in alignment with economic realities, rather than as part of a highly politicized agenda.

Increased Prices

In an already inflationary market there was an inevitable change to menu boards across the state with overnight increases being observed in many establishments. With an already challenging cost base there were very few brands who were in a position to absorb the increase in labor costs which are often the 2nd largest input cost after ingredients.

copyright New York Post 2024 - Prices at In and Out increased overnight


More Kiosks

The wage hike is also likely to increase the use of kiosks, particularly in QSR and fast casual environments. There is a challenge for operators here in that consumers are looking for an improved overall experience in their visits and that includes physical, digital and human elements.

The kiosk is a great digital upgrade for many, allowing for 'device like' browsing and selection and easy customization of items. The operators also like them because of the easy upsells and higher average tickets.

However, without an elevated human experience the value of the kiosk is lost, so with the backdrop of the labor shortage and the wage hike I would expect to see more kiosks but also more omni-channel options for diners alongside brands needing to dial up the human experience elements of service for diners.

Kiosks combined with human 'hosts' to support their use are becoming more common


Moving Jobs Overseas

The rationale behind offshoring is straightforward: by relocating these roles to countries where labor is cheaper, businesses can significantly reduce their operating expenses without necessarily compromising the quality of service provided to customers. This cost-saving measure allows businesses to remain competitive in a challenging economic environment while navigating the implications of higher minimum wages.

In the past smaller businesses were less likely to do this. Having two or three team members posted remotely overseas doesn't sound that appetizing considering that connections around timezone and management of remote teams in hospitality is relatively new.

There is a tipping point though, where the juice becomes worth the squeeze and the latest move in California certainly will push SMEs into considering this option to save on non guest facing overheads for tasks as diverse as Social and Digital Marketing, Graphic Design, Human Resources, Recruitment, Finance and Accounting and even menu R&D.

This inevitable slow but steady drain of jobs out of California to overseas locations is surely an unintended but quite predictable outcome from the wage increase.


Summing up

At the policy level, policymakers must consider the broader implications of minimum wage policies and explore complementary measures to support businesses and workers alike.

The cost-saving measures started many months ago when the policy was announced with hundreds of jobs lost and many more outsourced to lower cost providers or offshored to specialists to provide remote team support.

The menu pricing was applied in the days following the hike and closures have already been reported.

In an industry with already thin and fluctuating margins these kinds of political moves can be devastating. The hospitality industry is nothing if not resilient and adaptive though so I would expect that the storm will be ridden out by the bigger players who will adjust their real estate portfolio, pricing and rosters to the new reality.

That reality is that many important entry level roles will be lost forever. I'm not sure that benefits anyone in California, or maybe the soundbites will carry the governor home come election time.


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