Out of earshot of diners, in the back rooms, walk-ins, and late-night bars frequented by leaders of the New York restaurant community, the anguish and anxiety is palpable. Voices are raised and hands are thrown in the air, as the reality of Governor Andrew Cuomo’s sweeping new minimum-wage law begins to set in.
In April, New York became the second state behind California to raise the minimum wage to $15 an hour, up from $8.75, for all workers in the state, except waiters and others who depend on tips. Under the plan approved by legislators, large New York City employers, defined as those with at least 11 employees — read: most restaurants you and yours eat at weekly — must raise their minimum wage to $15 an hour by 2018. This will be the eighth time that the minimum wage in New York has increased since 2013.
Like many controversies, the new wage law elicits an array of emotional responses, ranging from gloomy predictions of lost jobs and shuttered storefronts to rosy reveries about social change. The more you speak to people in the restaurant industry about the new law, the more the array of reactions begins to resemble the so-called five stages of grief popularized by Swiss psychiatrist Elisabeth Kübler-Ross in her 1969 book, On Death and Dying. Here is a breakdown of the many fervent opinions on the issue:
As much as industry groups don’t like the new wage law, the impetus behind it underscores some hard truths. Consider the broader socioeconomic picture. To be sure, raising the minimum wage will be a boon to the working class in an economy riddled with inequality. An American CEO makes roughly $7,000 an hour (that is, assuming a 40-hour workweek), according to John Komlos, a professor emeritus of economics and economic history at the University of Munich. In fact, CEO-to-average-worker pay has increased by a factor of 15 from the 1960s-era ratio of 20 to 1 to the present whopping 300 to 1. But in some companies, it is even more astronomical. At the Denver-based burrito chain Chipotle, the ratio is 1,522 to 1 (not a typo). “A higher minimum wage is a must-have for our society,” says Komlos. “Some restaurants may close, but ethics have to trump all this. It is unconscionable that such a rich society has so many millions living on the edge of subsistence.”
According to the governor’s office, 2.3 million New Yorkers will benefit from the raise in minimum wage, and an estimated $15 billion in spending will result. Michael Reich, a professor of economics at the University of California, Berkeley, recently coauthored a paper on the $15 minimum wage in New York, which concluded that raising the minimum wage by $6 an hour over six years would have only a “small effect” on employment, and that the improvements in living standards for millions of workers would “greatly outweigh” any job losses.
“This is a grand experiment in uncharted territory.” —Christin Fernandez, National Restaurant Association
For the restaurant industry in particular, this bill helps to shrink the chasm in income between front and back of the house. According to a survey by the New York Hospitality Alliance, waiters make an average hourly income of $28 (though those at high-end fine-dining restaurants can clear more than $40). Cooks are making much less, averaging $12 an hour. This disparity is a big part of the reason many restaurants have switched to a no-tipping model, an issue that has inspired its own industry-wide debate.
Higher wages and more equality between front and back of the house might seem like a very good thing, but restaurants run notoriously slim profit margins, hovering on average between 3 and 6 percent, according to the National Restaurant Association (NRA). A typical restaurant’s budget breaks down something like this: one third on food, one third on rent and operating costs, and one third on labor. Given that equation, it’s easy to understand the industry’s nonacceptance of the new law. “More than doubling the federal minimum wage in an industry where profit margins are thin? I don’t know what the outcomes are going to be,” says NRA spokeswoman Christin Fernandez. “This is a grand experiment in uncharted territory.”
Many restaurateurs see the “grand experiment” as a doomsday death knell that will cause varying degrees of fallout, ranging from job loss and an increase in automation to the shuttering of beloved mom-and-pop shops, so vital to the fabric of this city’s dining culture.
“We work on such a thin margin that, if you run the numbers, unless our prices rise dramatically, there is no way to go on,” says Drew Nieporent, whose company Myriad Restaurant Group operates such illustrious NYC locations as Bâtard, Nobu New York and Tribeca Grill. “Look, I was a quarter pound grill man making $2.35 an hour growing up. I was overjoyed. I had no skills. It was entry level and I learned. Now times have changed, I get that, but there has to be some middle ground. You can’t double wages in what is nearly overnight. There is a false sense that certain people were put on this earth to be employers. That is ridiculous. Guys like me had nothing to begin with and 30 years later we have hired thousands of people and you want me to go away? Out of every dollar, 90 to 95 cents we pay out. Are we not entitled to a nickel of profit?”
Dawn Casale, owner of the popular sweets shop One Girl Cookies, with three locations in Brooklyn, is equally troubled. “The law on its face is really a terrific thing, but if people examine it and dig a little deeper and look at the ripple effect, in actuality there will not be a net gain. I can’t see how businesses won’t close because of this. It’s a really big jump in a pretty short amount of time.”
Casale, like many in the business, plans on raising prices, but emphasizes that the higher labor costs are not the only reason she has to make the bump. “For people like us, the final vendor at the end of food chain — no pun intended — we get hit from all sides because all of our vendors will raise their prices, which means we are paying more for our supplies as well. We get hit two times.”
“You’re going to see a lot of $50 chickens.” —Gary Levy, Cohn Reznick
Michael Stokes, chef de cuisine at Insa, a Korean restaurant in Gowanus, agrees with Casale’s double-whammy scenario: “If it were just the minimum wage hike, it would probably be okay, but what people don’t get is that it’s also your purveyors charging you more and your payroll taxes going up,” says Stokes. “When you are looking at labor cost, your cost of goods, and also overall expenses, some restaurants will have to raise prices 35 percent or 40 percent.” He points out that “trickle up” is also a problem. “If your dishwasher is now starting out at $15 an hour, then your line cooks need to make $17, and on and on and up and up.”
Casale also predicts that the wage hike will hamper her ability to offer raises. “Not surprisingly, we use raises as an incentive to reward our employees who have more skills, have worked here longer, or do a better job. So now the guy doing a mediocre job is getting the same as one who is doing a stellar job. With this wage increase, we will probably have to do away with merit increases and reconsider annual reviews.”
Furthermore, operators see a higher minimum wage as eliminating competitive advantage in hiring staff. George Georgiades, who owns the fast-casual restaurant Eons Greek in Murray Hill, says he usually starts his staff at $9.50 an hour, nearly one dollar over the minimum wage of $8.75. “I wanted to pay more than the fast-food industry because I wanted to get a better-quality person,” he says. “I liked having the leeway, and I felt it got me a better crop of people, which is crucial. You want staff to take care of your guests and smile. But now to pay a bit higher than minimum wage, I need to go up into the $16 range. That’s a huge jump.”
Accountant Gary Levy, a partner and hospitality-industry specialist with the firm Cohn Reznick, is even more blunt in his assessment. “You will see restaurants close,” says Levy. “Consumers will pay for this, and restaurants will pay for this, too. No one will win in total.” To put the law into perspective, Levy offers this example. A restaurant employee who currently works a 55-hour workweek earns $562.50; by January 2019, the same employee will be making $937.50. To keep up with that increase in wage, the menu price of a chicken entrée would go up from $25 (today) to $41.67 (2019). “You’re going to see a lot of $50 chickens,” says Levy.
To manage the higher costs, operators will have to look for ways to maximize efficiency and productivity. “There is no room for slacking off,” says One Girl Cookie’s Casale. “Everyone has to work full throttle. We have to evaluate efficiency to make sure we get the best productivity, really cut back on employees and tighten up staff.”
Chef Sara Jenkins, owner of popular East Village spots Porsena and Porchetta, says she has to be wary of things she never took note of before, like waiters switching shifts. “It used to be, ‘I don’t care how you move around as long as your shift is covered,’ but now that might create an overtime issue, so that switch has to be authorized.” Jenkins is a straight talker. She knows the industry has a dark side, but, she says, that’s how it survives. “Look, I think that restaurants are some of the most exploitative businesses out there because we pay so little and people work crazy hours and they don’t have benefits. But that is what our margins are based on.” To help soften the blow of the price hikes, Jenkins believes consumers need to be educated. “People who are not in the business think we are sitting on pots of gold,” she says. “Let me say, we are not.”
Operators who plan on raising prices warn that it will be important to do so as slowly as possible. “The bill calls for an almost a 55 percent increase in minimum wage to be implemented by end of 2018,” says Insa’s Stokes. “People may think they have a lot of time, but they don’t. There is a danger in waiting and not pulling the trigger soon enough, because then you’ll have sticker shock and people will walk out.”
“There is no room for slacking off. Everyone has to work full throttle. We have to evaluate efficiency to make sure we get the best productivity, really cut back on employees and tighten up staff.” —Dawn Casale, One Girl Cookies
Many in the restaurant business insist that you can’t just look at the increase in the minimum wage on its own. “It’s the dozens of new regulations and increased mandated costs thrust on the restaurant industry over the past decade that are taking a toll,” says Andrew Rigie, president of the New York Hospitality Alliance.
Rigie is referring to the 50 percent increase in the tipped wage that took effect at the beginning of the year. Under Cuomo’s current plan, the tipped wage will go up even further, to $10 by 2018. “Many of these employees are already making multiples of the minimum wage when you account for their tips, so they’re getting an increase while the back of house employees, who are not legally allowed to earn a portion of those tips, are making nothing. That increases the disparity, which is a big concern for the industry. There is less money to give increases to those employees unable to earn tips.” What’s more, when restaurants raise prices, the check goes up, and so does the tip. “Once prices go up, tipped employees will be making even more, while back of the house cannot access that tip pool,” says Rigie.
To combat this inequity, Rigie’s organization submitted a proposal to freeze tipped wages for those who earn 1.5 times minimum wage when tips are accounted for; those servers who earn less get a wage increase. His proposal, which was approved by the Minimum Wage Board, was ultimately rejected by the commissioner of the New York State Department of Labor.
But Rigie’s fight isn’t over. As a way of easing the burden on restaurants, his group has proposed that the city and state implement cost-saving reforms including tort reform, eliminating commercial rent tax, providing additional types of tax incentives for restaurants, and when it comes to minor technical labor-law violations, providing restaurants with warnings and cure periods.
“It’s a tremendous issue, but it’s been something that’s been going on forever, and the industry has always adjusted in different ways,” says Cohn Reznick’s Levy. “What’s generally going to happen is that you take it on the chin and deal with it. You will pass the increase on to the consumer, look for efficiencies — being smarter on staffing, looking for ways to trim your menu, minimizing overtime to best of your ability, and looking to technology as a way to increase efficiency.”
One overarching fear of the new law is that it will scare off entrepreneurs who might otherwise open new restaurants in NYC. “New York is the greatest restaurant city, but we can’t just think that restaurants will continue to open here regardless of the regulations and hurdles imposed on them,” says NYHA’s Rigie. “You will see more big chains moving into our neighborhoods and more mom-and-pops shuttering. When you are in a hot kitchen, dealing with the high stress of working nights, weekends and holidays, if you add the stress of always worrying whether you can make payroll and pay back your investors, the industry starts to lose its luster. Operators would rather go to a city that does not have such onerous labor laws. Other cities roll out the red carpet for you.”
While most worry about the impact on restaurants’ shrinking bottom line, Jeff Bank, CEO of Alicart Restaurant Group, which includes Carmine’s and Virgil’s, says the change in minimum wage will do something possibly even more damaging — it will alter the core of the business, which has always been to offer opportunity and to train people.
“We are a business where you can come in and be a busboy and end up running the place,” says Bank. “It was easy to do that, because we could start people out at a lower wage, which allowed us to train them on the job. Now, to hire a young person who knows nothing about the business, I will have to pay them $31,200 a year. Sure, I want people to make a fair wage, but some of these entry-level jobs are meant to be entry level. I understand you can’t live on $24,000 forever, but you start there and you move up.”
The NRA’s Fernandez concurs: “There are countless examples of dishwashers who are now chefs, franchisees, or owners. Eight out of 10 restaurant owners, in fact, started in entry-level positions. We provide these critical entry-level jobs. But $15 will change that landscape, because you just can’t afford to train people at that rate.”
And yet, given all of the fear and fury this law has engendered in the restaurant community, there is a group of operators who are actually embracing the wage hike. For newer operators who were well aware of the impending legal changes, paying a living wage is not as weighty a concern; their business plans have been modeled on the newer wage. What’s more, many have a different attitude toward social responsibility. They believe it’s part of their mission.
At Brooklyn’s Insa, which opened in late 2015, most people in the kitchen are already making between $14 and $16 an hour. It also opened with a no-tipping policy. “Cooks can’t live in this city without making a higher wage,” says chef de cuisine Stokes. “Our intention was to support higher wages for back and front of the house from the get-go.”
Claus Meyer, who cofounded the world-famous Copenhagen restaurant Noma with René Redzepi and has opened several New York City restaurants recently — including Agern, Danish Dogs and Great Northern Deli, all located at Manhattan’s Grand Central Terminal — is also unfazed by the law. “Whatever [Andrew] Cuomo says or anyone else says, we know that we have to take care of our employees,” says Jens Baake, chief operating officer of Meyers’s company, Meyers USA. “A higher wage is built into our business model, which also includes free medical, paid maternity and paternity leave, and a 401K, in addition to two paid days of community service. We don’t just want to change the food culture and how people in America think about food; we want to help our employees.”
“Cooks can’t live in this city without making a higher wage. Our intention was to support higher wages for back and front of the house from the get-go.” —Michael Stokes, Insa
Anna Viertel, the co-owner of Pizza Moto, a wood-fired restaurant that opened six months ago on the border of Carroll Gardens and Red Hook, is an unapologetic supporter of the new minimum-wage bill. “Restaurant workers do backbreaking, long hours of work and should be paid well for their work. It is up to the owners to figure out how to make a business successful while paying a living wage,” she says.
Viertel explains that from the beginning, her business plan was predicated on paying a living wage. “We did a lot of financial planning and modeling to make sure we could pay a living wage,” she says. “We knew our payroll would be high, but we did it because it’s important to us. We are all people who have worked long, hard hours for not a lot of money, and we didn’t want to replicate that experience. We had a vision of having people working for and growing and learning with us for years and years.”
Viertel says part of the way she can afford to pay a living wage is that everyone in her business, which includes just 11 employees, is a multitasker. “We built the restaurant ourselves, so we opened with virtually no construction debt,” she says. “Our sous chef is a butcher and a carpenter, our executive chef is a plumber and electrician, I pull all our permits, and that allows us to thrive.”
The thinking for Viertel is that new operators need to make a sharp break from the industry’s unfortunate past. “Some old-school operators see this as an industry for a couple leaders to shine, and everyone else under that person is a cog in the machine,” she says. “There is a new-school view of an industry in which a small single restaurant can be a values-based operation and can provide opportunity and a livelihood for everyone who works there. This is the direction the restaurant industry is going and should be going because a creative industry can be a driving force for social change. We miss an opportunity to be that force when we hold onto old financial models. It’s all possible.”