In his latest commentary, the National Restaurant Association's Chief Economist Bruce Grindy looks at employment trends in the Washington state restaurant industry since 1998, which is when residents voted to raise the state’s minimum wage and index it to inflation. Restaurants in Washington currently employ an average of 1.7 fewer workers than they did in 1998, which suggests that restaurant operators changed their business models to account for the higher labor costs.
A March 5 Bloomberg Business Week article asserted that because the Washington state restaurant industry continued to add jobs in the years since residents voted in 1998 to increase the state’s minimum wage and index it to inflation, there hasn’t been a negative impact on employment.
While it is true that Washington’s restaurant industry has continued to expand and add jobs in the decade and a half since the minimum wage increase, it doesn’t tell the full story.
Fueled by above-average population growth – which is the key driver of restaurant industry expansion – Washington’s restaurant industry expanded at a rate above the national average during the last several years. Between 1998 and 2012, the number of eating and drinking place establishments in Washington increased 29 percent, compared to a 25 percent gain in total U.S. eating and drinking place establishments during the same period, according to data from the Bureau of Labor Statistics.
Despite the stronger location growth, restaurant job growth in Washington lagged well behind the national average. Between 1998 and 2012, the number of eating and drinking place jobs in Washington increased 16 percent, compared to a 28 percent gain in total U.S. eating and drinking place jobs during the same period.
The significantly weaker restaurant job growth during this period was likely due in large part to the fact that Washington began increasing its state minimum wage above the federal level and indexing it to inflation in 1999. By 2013, Washington’s state minimum wage was $9.19, well above the federal level of $7.25.
Once the state minimum wage began rising above the federal level in 1999, the average number of workers in Washington’s restaurants declined steadily. By 2012, Washington’s restaurants only employed an average of 14.0 workers, or 1.7 fewer employees than they did before the state’s minimum wage began rising above the federal level. In contrast, all restaurants in the U.S. employed an average of 17.2 workers in 2012, up 0.4 from the 1998 level of 16.8 employees per establishment.
Although restaurants in Washington have always employed fewer workers on average than the restaurant industry on the national level, this gap grew even wider in recent years. The most likely explanation for this divergence is that restaurant operators in Washington adjusted their business models to account for the elevated labor costs.
If Washington’s average staffing levels had remained at its 1998 level of 15.7 employees per establishment, the state’s restaurant industry would have employed an additional 22,800 individuals by 2012.
Restaurant employment trends are similar in Oregon, which began raising its minimum wage above the federal level in 1997.
Note that this analysis is not a comparison of Washington’s restaurants versus restaurants in other states. The composition of every state’s restaurant industry is different, and is dependent on each state’s population density and other demographic and economic factors. This is strictly an analysis of employment trends within the Washington restaurant industry between 1998 and 2012, to determine if any changes in restaurant business models are apparent.
Read more from the Economist’s Notebook and get additional analysis of restaurant industry trends on Restaurant TrendMapper (subscription required).