Menu Prices and the Raise the Wage Act: What Would Be the Outcome?

August 9, 2021

Photo courtesy of Restaurant Business

Talk of higher menu prices has been thrown around every day for the past couple months, especially as the supply and labor shortages continue; what will also affect prices, especially now but also in the long run, will be higher wages – a factor that has been somewhat lost in the sea of other Covid-19 repercussions. While we all understand the larger causal chain between these trends and higher prices in individual restaurants, sometimes a more straightforward, numerical approach can paint a clearer picture. Several teams have attempted to quantify just how much menu prices will rise specifically if the Raise the Wage Act is passed. Here is what they found: 

Background 

The Raise the Wage Act of 2021 (H.R. 603) was proposed in Congress by its sponsor Senator Bernie Sanders (I-VT) at the beginning of this year. According to the Health, Education Labor, and Pensions Committee, the Raise the Wage Act of 2021 would: Gradually raise the federal minimum wage from $7.25 to $15 by 2025; Index future increases in the federal minimum wage to median wage growth to ensure the value of minimum wage does not once again erode over time; Guarantee tipped workers are paid at least the full federal minimum wage by phasing out the subminimum wage for tipped workers, which will ensure decent, consistent pay without eliminating tips; Guarantee teen workers are paid at least the full federal minimum wage by phasing out the rarely used subminimum wage for youth workers; and End subminimum wage certificates for workers with disabilities to provide opportunities for workers with disabilities to be competitively employed and participate more fully in their communities.

Here is another look:



The U.S. has not increased the federal minimum wage in over a decade and, currently, 1 in 9 U.S. workers who work full-time, year-round are paid wages that leave them in poverty. At this point, the Act has only been passed for federal workers, however the prediction is that $15/hour will become a reality for the entirety of the country’s workforce. As such, restaurant owners, especially with businesses located in states that currently have a minimum wage standing at less than half of the proposed hourly wages, fear for their ability to afford this change. 

The Calculator

In an attempt to somewhat quell this fear, RAISE: High Road Restaurants has created a calculator based on data from an independent study conducted by the Institute for Research on Labor and Employment at UC Berkeley as well as data from various Harvard economists. High Road Restaurants, a subsidiary of the nonprofit activist group One Fair Wage, has always advocated for the abolishment of the subminimum wage for tipped workers. According to the president of One Fair Wage Saru Jayaraman, “Many employers across the country are voluntarily raising their wages… because they want to attract workers to come back because workers are saying, ‘we don’t want to come back without a livable wage with tips on top’… so the point of the guide is to show that it absolutely can be done to raise wages and phase out the subminimum wages in a profitable way with moderate price increase of 20% at most.” 
This calculator is dedicated to numerically illustrating just how much owners will need to increase their menu prices if future wage jumps occur – based on current subminimum/tipped wages and non-tipped wages. 

The Findings 

The baseline example provided by High Road Restaurant is that “a restaurant with an average back of house minimum wage of $12.25, a subminimum tipped wage of $2.13, and a burger price of $10 would have to raise their burger price to $11.80, when both tipped wages would be $14.95 per hour and non-tipped wages would be $15 per hour.” 

Here is another look:
 
Nation’s Restaurant News also reported on this calculator and included calculations for a full-service restaurant rather than a quick-service restaurant. This distinction is important because, since quick-service restaurants do not have tipped employees, price adjustments will “come down to pennies and nickels;” on the other hand, full-service restaurants rely on subminimum tipped wages, therefore the difference will be felt much harsher. 
Nation’s Restaurant News inputted data for a restaurant with an average front of house hourly wage of $10.79, an average back of house hourly wage of $12.52, and a stack of pancakes priced at $7.49. If the restaurant adjusted their menu price for $15 wages, the pancake stack would cost $7.62. If they paid the subminimum wage, however, it would raise to $8.84.  
As can be seen, the differences will largely vary based on geographical location and, of course, the revenue and funding of individual restaurants. 

Resources
Below is the link to the calculator, which is embedded on High Road Restaurant’s site, for the public to adjust according to their individual metrics: https://www.highroadrestaurants.org/resources/rtwa-calculator/ 

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