Rik W. Hafer

In late December 2013 and early January 2014, the Employment Policies Institute (EPI) in Washington, D.C., conducted a telephone survey of restaurants in San Jose, Calif. San Jose was chosen because in March 2013, the city leaders enacted an immediate 25 percent increase in its minimum wage, from $8 to $10 per hour. EPI wanted to see how one group of affected businesses — fast food and table-service restaurants — respond to such a wage hike.

As always, we caution against putting too much weight on the outcome of one survey of one industry in one town. With that caveat in mind, what did the survey say?

In response to the higher minimum wage, two-thirds of the responding firms, the majority of which fall in the 10-49 employee size, will (or have) increase prices. More than 40 percent of the establishments plan to reduce employee hours and staffing levels. While 7 percent of the firms are now considering closing locations in San Jose, 30 percent are, after the wage increase, not likely to expand operations.

The EPI survey of food establishments in San Jose offers one observation supporting the predictions of basic economic theory; namely, that a higher minimum wage will lead to undesirable consequences, including higher product prices for consumers and, especially for those workers on the lower rungs of the job market, reduced income.

About the Author

Rik Hafer

Rik Hafer is a Show-Me Institute research fellow and a professor of economics and the Director of the Center for Economics and the Environment at Lindenwood University in Saint Charles, Missouri.