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Drop in D.C. restaurant jobs blamed on higher minimum wage

Restaurant employment in Washington, D.C., fell by 1,400 jobs during the first six months of 2016, in what one economist concludes is the fault of a city law that has raised the minimum wage by 39 percent over the past 2-½ years.

A blog post on the American Enterprise Institute’s website by Mark Perry, an economics professor at the University of Michigan’s Flint campus, said the employment decrease, amounting to 2.7 percent, marked the biggest loss of food-related jobs in the district in 15 years.

“Despite what we hear from unions, the Fight for 15 crowd and other minimum-wage advocates, the evidence from D.C.’s restaurant industry – an industry often considered as ground zero for minimum-wage effects – demonstrates that demand curves for low-skilled workers actually do slope downward,” Perry said in Tuesday’s blog post.

But Courtney Snowden, Washington's deputy mayor for greater economic opportunity, disputed those conclusions.

She told AMI Newswire Friday that her review of statistics for full-service restaurants – as opposed to all eateries –  showed that the city actually added 1,500 full-time restaurant jobs during the first six months of the year.

“We are incredibly proud to be home to a vibrant restaurant industry that continues to be a mainstay of the district’s economy and a top employer for our residents,” Snowden said.

David Cooper, senior economic analyst at the Economic Policy Institute in Washington, told AMI that he was skeptical of Perry’s conclusion. He said modest increases in the minimum wage – in the range of 10 to 15 percent per year – have little to no effect on employment.

“This is the most studied topic in labor economics,” he said.

In 2014, the Economic Policy Institute released a letter signed by 600 economists, including Nobel laureates, advocating an increase in the federal minimum wage from $7.25 per hour to $10.10 over three years. The letter rejected the notion that every minimum-wage increase will kill jobs, Cooper said.

The district’s 2013 law raised the minimum wage from $8.25 to $9.50 per hour on July 1, 2014, followed by additional hikes of $1 on July 1, 2015, and July 1 of this year, according to the district’s Department of Employment Services. The wage now stands at $11.50 per hour and will be increased in future years in proportion to average yearly increases in the Consumer Price Index.

Perry’s research, which is based on Bureau of Labor Statistics data, also examined job growth in the restaurant industry in suburban areas surrounding Washington, which have a lower minimum wage than the district. During the same six-month time period, restaurant jobs in the suburban areas grew by a rate of 1.6 percent, or 2,900 jobs, he said.

The wage differences in the region provide a natural experiment to weigh the effects of Washington’s minimum-wage law, Perry said. The stark reality of the numbers is that more than 1,000 workers have been priced out of their jobs since January, he said.

Cooper, however, suggests there might be other reasons for the disparity in job numbers. He pointed out that tipped workers in Washington, who make up a large portion of restaurant workers, have a base wage that hasn’t gone up: $2.77 per hour.

The D.C. law, however, does require that tipped workers’ weekly pay must reach the level of the minimum wage, or else employers must make up the difference, according to the Department of Employment Services.

Cooper also said that although the minimum wage in adjacent Virginia counties is relatively low, at $7.25 an hour, the difference between the district’s minimum and the minimums in nearby Maryland counties is much less. In Montgomery County, the minimum wage went up on July 1 to $10.75 per hour, while in Prince George’s County, the minimum wage now stands at $9.55 per hour.

Although Cooper acknowledges that minimum-wage hikes that rise beyond 10 to 15 percent per year might be more problematic, some evidence suggests that even larger increases don’t lead to negative job growth.

In 2004, Santa Fe, N.M., boosted pay for some low-wage workers by 65 percent – from $5.15 to $8.50 an hour – and, in the aftermath, employment in the city grew more quickly than the state of New Mexico as a whole, Cooper said.

The Heritage Foundation last month released job-loss estimates that would result from an increase in the federal minimum wage from $7.25 per hour to $15 per hour by 2021. Research fellow James Sherk estimated that employers would respond by reducing the employment of affected workers nationwide by seven million jobs, or about one-fifth.

Sherk emphasized that employers would not be able to pay workers more than the value they produce and that this would lead to workforce cuts.