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Red Robin Meets Higher Minimum Wage By Cutting Staff.

The gourmet burger restaurant Red Robin has announced that in light of increased labor costs because of minimum wage increases, the company will end busing staff.

ORLANDO, Fla. — Restaurant busboys, in line to earn a little more dough this year as minimum wage hikes hit across the country, are instead losing their jobs as chains look to cut costs.

One chain axing jobs is Red Robin, which hopes to save about $8 million this year by eliminating busboys at each of its 570 restaurants, the company said Monday.

The problem is that when you artificially increase a wage by government fiat, actual businesses have to respond. Unlike the government which can force people to give it more money through increased taxes, businesses have to compete. One way to compete is to lower costs and that includes the cost of labor.

The profit margins in restaurants are very small. It is natural for a restaurant to look at where it can save money. If that means cutting low wage positions in order to remain competitive, that’s what companyies will do.

“I read that as minimum wage,” Michael Saltsman, director of the Employment Policies Institute (EPI), told FOX Business. “Somebody like Red Robin, which has a lot of exposure in western states [where the minimum wage is rising faster] … this is sort of a burger and beer chain. If they can’t pass those increases off in higher prices … they have to find a way to do more with less.”

Introducing new technologies has been one way restaurants have sought to cut costs. Other chains like Chili’s and Applebee’s have replaced servers with tableside tablets for placing orders.

“From a business standpoint, [Red Robin made a] very smart move. From an employee standpoint, you just cut out $8 million worth of labor,” 1851Franchise.com editor-in-chief Nick Powills told FOX Business. “The interesting thing about the minimum wage hike is that those that made the decisions to do it, did it on behalf of the employee … when intentions are good, and you can’t appease everybody, someone is going to eventually be on the short [end of the] stick.”

Short end of the stick indeed.

While the intentions of lawmakers to increase the minimum wage may be good, in practice the effect is horrible.

Positions that are paid minimum wage are not intended to be career paths. The entry level position is to give companies access to a labor force and at the same time, workers get valuable work experience in a real environment. By raising the minimum wage, you eliminate the entry level job. You also create and sow disharmony amongst workers in that the person who was making minimum wage in an untrained and low skill level position is now making the same amount as a valued and skilled worker.

There are also questions as to whether the increases in minimum wage hurts or helps employment:

There are conflicting reports on how rising minimum wages affect the labor force. Earlier this year, a study conducted by EPI, which analyzed employment trends from 1990 through 2017, found that each 10% increase in the minimum wage in California has resulted in a corresponding 2% decline in employment for affected employees. The impact was larger, 5%, for lower-paid workers.

However, the Institute for Research on Labor & Employment (IRLE) at U.C. Berkeley found that a higher minimum wage would actually add a small amount of jobs to the state economy by 2023.

While the two studies mentioned seem to offer conflicting results, the EPI study is based upon historical data while the IRLE study is based on what may happen and what may happen 5 – 6 years down the road.

No matter what, you are going to see more and more companies seek to lower their labor costs at the expense of low wage, entry level workers.

Maybe the legislators that voted for these increases could hire the people that were let go.

Let them see how life in the real world of business works.



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