Restaurant owners feel burnt by minimum wage push, lack of direct COVID-19 relief

Battered industry, still reeling from the pandemic, raises concerns over Biden’s proposal to increase minimum wage

Colonial Cottage proprietor Matt Grimes pictured outside his Erlanger, Ky., restaurant. (Courtesy Matt Grimes)
Colonial Cottage proprietor Matt Grimes pictured outside his Erlanger, Ky., restaurant. (Courtesy Matt Grimes)
Posted January 25, 2021 at 8:00am

Since the COVID-19 pandemic hit, customers have been scarce at Colonial Cottage, a family restaurant known for its fried chicken and catfish in northern Kentucky.

A staff that was 50 strong before the pandemic now stands at 32, with the restaurant allowed to serve at 50 percent capacity. Revenues in the last quarter, typically the busiest of the year, were down 37 percent compared with the same period of the previous year, said owner Matt Grimes.

The battered restaurant industry has been pushing for months for bipartisan legislation that would create a $120 billion fund offering grants to restaurants to cover revenue shortfalls resulting from the pandemic and forced shutdowns.

But when President Joe Biden unveiled his $1.9 trillion COVID-19 relief plan this month, the proposed restaurant fund was nowhere to be found. Instead, Grimes and other restaurant owners found what they considered to be an unwelcome surprise: a plan to more than double the federal minimum wage to $15 an hour.

“It’s just one more blow,” said Grimes, who has owned Colonial Cottage, which opened in 1933, for the past 22 years. To pay those wages, he said, “I would have to increase my prices by no less than 30 percent. How much are you willing to pay for bacon and eggs?”

Grimes said he currently pays a starting wage for hourly workers of $9 an hour — above the federal and state minimum of $7.25. But at $15, he said, “I would do everything I could to cut staff and have only the most efficient workers.”

Grimes shows off a plate of Colonial Cottage’s fried chicken, which he says became his restaurant’s most popular dish during the coronavirus shutdown. He thinks a minimum wage increase will force him to raise prices on his menu. (Courtesy Matt Grimes)

And in what the industry said would be a setback for restaurant servers, Biden’s plan would also eliminate the tipped wage minimum of $2.13 an hour, which is currently paid by employers if that amount, when combined with tips, reaches the federal minimum of $7.25. Grimes, who pays his servers a tipped wage of $3 an hour, said his servers would likely lose income because generous tips would dry up as customers are hit with double-digit price increases.

Biden argued that a higher minimum wage is critical to lift millions of people out of poverty as they struggle to survive the pandemic. “No one working 40 hours a week should live below the poverty line,” he said in a Jan. 14 address outlining his relief plan. “That’s what it means. If you work for less than $15 an hour and work 40 hours a week, you’re living in poverty.”

But in Erlanger, a northern Kentucky city of about 19,000 that sits about 12 miles across the Ohio River from Cincinnati, Grimes said he wasn’t buying it. “The cost of living here is not what it is in the large cities,” he said. “I feel this is legislating toward the big cities.”

Fewer jobs, but less poverty

The Congressional Budget Office found a minimum wage increase would have mixed effects. In a 2019 report, it said raising the federal minimum to $15 by 2025 would boost the wages of 17 million workers and lift 1.3 million out of poverty. But it also said 1.3 million other workers would become jobless.

“When it comes to the restaurant and foodservice industry, the Biden plan may cause more harm than good,” Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, said in a statement. “A nationwide increase in the minimum wage will create insurmountable costs for many operators in states where restaurant jobs are most needed for recovery. And the elimination of the tipped wage could lead to thousands of skilled hospitality workers seeing cuts in their hourly income.”

The effect of a higher minimum wage would hardly be uniform across the country, however. Twenty-nine states, along with the District of Columbia and two U.S. territories, already have higher minimum wages than the federal rate of $7.25. The D.C. minimum is already set at $15 an hour — the highest in the country, according to Labor Department figures.

Janet Yellen, Biden’s Treasury secretary nominee, defended the proposed wage hike at her confirmation hearing last week, saying fears of major job losses are exaggerated.

“Researchers often look at what happens when one state raises its minimum wage and a neighboring state leaves it alone to see how businesses fare in the two different places with different treatments,” Yellen told the Senate Finance Committee. “The findings are that the job loss … is very minimal, if anything. So I think that the likely impact on jobs is minimal.”

And some upscale restaurants would appear likely to withstand any minimum wage increase with little impact. Amanda Cohen, who runs Dirt Candy, a boutique vegetarian restaurant in New York City, said a wage increase would be “a moot point for me” because she has a no-tipping policy and already pays staff well above the minimum.

Even so, she and others said, restaurants ranging from urban chic bistros to rural diners are reeling from a pandemic that has forced shutdowns and restricted service.

Amanda Cohen, who owns Dirty Candy, a vegetarian restaurant in New York City, says a wage increase won’t affect her business because she has a no-tipping policy and already pays staff above the minimum. (Courtesy Amanda Cohen)

As of last month, 17 percent of restaurants — more than 110,000 establishments — have closed either permanently or for an indefinite period, according to the National Restaurant Association. About 87 percent of full-service restaurants report an average 36 percent drop in sales revenue. And about 20 percent of the industry’s workforce, amounting to 2.5 million jobs, was lost in 2020.

“There’s definitely a sense of abandonment,” said Cohen, who watched her business slide from as many as 100 customers per night to as few as six. “We would all like a little more support from our state and federal governments.”

Biden’s plan does offer relief for small businesses that at least some restaurants could tap. It would offer $15 billion in grants to more than 1 million of the “hardest-hit small businesses.”  

And it calls for legislation authored last year by Vice President Kamala Harris, then a California senator, allowing the Federal Emergency Management Agency to work with state and local governments in partnerships with restaurants to help feed the hungry and put more restaurant employees to work.

‘Massive restaurant closures’

But restaurant owners say their industry needs large-scale relief, such as the $120 billion fund that won backing last year from 217 House members and 52 senators of both parties. “If that bill does not pass, you will see massive restaurant closures in the next three months,” said Cohen, a member of the Independent Restaurant Coalition, which represents 500,000 independent restaurants.

Yet even Biden’s more limited relief effort has been put in jeopardy by his call for a minimum wage increase, Republicans say. “We’re not going to do a $15 minimum wage in it,” said Sen. Lindsey Graham of South Carolina, who is pushing for a rewrite.

Democrats are weighing the possibility of using budget reconciliation to pass Biden’s aid package with a simple majority vote, however, and some experts say it may be possible to include a minimum wage boost in the budget bill.

And some Democrats are pushing for restaurant relief even as they back a minimum wage increase. Rep. Donald S. Beyer Jr. of Virginia, vice chairman of the Joint Economic Committee, issued a report this month on the need for restaurant relief, which a spokesman said does not conflict with his push to hike the minimum wage.

“He is a strong supporter of raising the minimum wage, which he believes is the right thing to do for workers to help them achieve a living wage,” said Beyer spokesman Aaron Fritschner. “His focus in terms of restaurants is on relief, which is something both small businesses and their employees need and deserve.”

Back at Colonial Cottage, where the fried half chicken sells for $14.99, Grimes begged to differ. “It’d be very distressing to me,” he said of a minimum wage hike. “Our fixed costs aren’t changing, but my revenue is.”