Survey: $15 Wage Could Shutter 1 in 5 NY Fast Food Joints

Vast majority likely to reduce hours, raise prices to cope

• June 5, 2015 3:20 pm


New York Gov. Andrew Cuomo’s (D.) promised minimum wage hikes for fast food restaurants could shut down one out of every five chain restaurants in the state, according to a new survey.

The Employment Policies Institute, a free market think tank and critic of minimum wage hikes, surveyed nearly 1,000 self-described fast food entrepreneurs about how they would respond to statewide, industry-specific wage hikes. More than 20 percent of respondents said they were "very likely" to go out of business if the state raises the minimum wage for fast food joints to $15, a 70 percent increase from the current $8.75 statewide minimum wage.

Such a hike could spur higher costs for customers and reduced employment opportunities and hours for workers. Business owners responded overwhelmingly that such policies would hurt the very workers that Cuomo and activists claim to want to help.

Only 5 percent of respondents said they were "unlikely" to raise prices to cope with a $15 wage; 70 percent said they were very likely. In order to retain customers and remain competitive, a majority of the owners said they would be forced to cut employee hours or curb hiring.

"Low single-digit profit margins, which are typical for the fast food industry, explain why business owners in the state report considering a series of off-setting measures to adapt to a $15 minimum wage," the report says.

Cuomo is seeking to increase wages on the fast food industry through a three-member board that is debating a potential $15 wage at chain restaurants. EPI analyst and report author Michael Saltsman attended Friday’s hearing, criticizing both Cuomo’s methods and also the policy.

"Our survey shows that a dramatic minimum wage hike would have the same negative effect in New York that it's having on the west coast. Employers and employees should hope the wage board can tune out the noise and take a careful look at the consequences," Saltsman said. "An unelected board hearing where proponents shout down the other side—is this what democracy looks like?"

The fast food industry has come under increasing scrutiny from labor regulators thanks to public campaigns by the Service Employees International Union, which spent more than $20 million in 2014 on organizing committees that staged protests in cities across the country. The SEIU is also a major supporter of Cuomo, contributing more than $100,000 to him since 2008.

Matthew Haller, spokesman for the International Franchise Association, said Cuomo’s targeting of fast food is about politics, not populism. The state, he said, has more than 8,000 local franchisees, many of which are owned by local entrepreneurs, rather than the big corporations Cuomo has portrayed them as.

"Governor Cuomo should worry more about protecting local franchise businesses who are creating jobs and bringing local businesses to New York, rather than protecting his political career by bowing to the SEIU's requests to implement radical wage hikes that unfairly discriminate against one industry," Haller said. "While the Unions and the Wage Board have sought to portray this is as big businesses taking advantage of workers, the reality is these are local franchise business owners and the employees who work for them are the ones who will suffer due to layoffs, automation and businesses closing."

The EPI also found that the size and nature of franchisees skewed toward the traditional definition of small business. About 85 percent of those surveyed reported having fewer than 50 employees, while more than half said they had fewer than 15 workers. Nearly 60 percent reported that their profits were two percent of all revenue after expenses and labor costs.

New York is not the first area that would see fast food joints hiking prices to compensate for high wage laws. San Francisco Subway franchises were forced to abandon the eatery’s famed $5 Footlong campaign because of expensive labor costs.

New York residents have until June 26 to submit public comment on the subject.

Published under: Andrew Cuomo, Minimum Wage