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Restaurants grapple wage increase
By Amy Woodward
awoodwa5@mscd.edu

Photo by Jason Small • jsmall4@mscd.edu Pete Contos, Denver restaurant owner, plans to raise menu prices at some of his restaurants to compensate for losses caused by the minimum wage hike.

Consumers are facing menu price hikes and employees are dealing with schedule cutbacks as Denver restaurants begin to adjust to Colorado’s new minimum wage.

Amendment 42 raised Colorado’s minimum wage from $5.15 an hour to $6.85 an hour, and for those who make their living from tips, their hourly wage increased from $2.13 to $3.83.

In a predominantly minimum-wage area like the restaurant business, an increase in payroll can significantly decrease profit margins. Some restaurant owners said they will not take the hit but rather pass it on to the consumer.

“When the payroll is increased, the profit is less,” said Gene Tang, manager of 1515 Restaurant on Market Street. “Someone has to pay for the profit. We have to increase prices in food, and the consumer is paying for everything.”

Waiters rely heavily on tips, and an increase in their hourly wage hardly affects their paycheck but ends up hurting business. Business drops, tips drop and the benefits of the amendment remain null, Tang said.

Tang has yet to figure out how he will adjust to the minimum wage increase, or what he will do to ensure that 1515 suffers no profit loss because of the new amendment.

“It’s still early yet … we are going to try to hold out as much as we can,” he said.

Down a block from 1515, Two-Fisted Mario’s Pizza is taking a different approach to dealing with the wage increase: cutting back the hours of its employees.

According to Two-Fisted manager Mike Reilly, it’s not easy to increase the price of pizza, so he has to cut costs elsewhere.

“If you’re scheduled for four shifts a week, probably two of those are going to be cut,” Reilly said.

Some restaurant owners are also wary of doling out raises because of future business costs that cannot be anticipated, Reilly said.

“We’re way more careful with our wages … it sucks because we can’t give raises to hard workers,” he said.

Some business owners are taking the increase in stride, but consumers are going to have to foot the bill, according to Alexandre Padilla, an assistant professor of economics at Metro. “Just because you have good intentions doesn’t mean you’ll have good results,” he said of Amendment 42.

“The basic idea is that employers will have to compensate for increasing costs of production resulting from mandatory increases of minimum wage,” Padilla said.

That compensation could have results more negative than some may have hoped.

“Ultimately, it is possible that workers end up worse off,” he said.

Padilla predicts that a good amount of minimum-wage workers could lose their jobs, and the amendment does nothing to compensate those workers.

“It does not matter what politicians’ and others’ intentions are, the fact remains that increasing minimum wage does not reduce poverty and does not help people currently employed. Minimum wage laws tend to increase unemployment and in the best-case scenario have no impact whatsoever,” he said.

According to Padilla, it is likely that owners who increase prices to compensate for the wage increase will lose customers. Owners will then be forced to cut their employees’ hours or let them go.

“In theory, consumers are going to consume less and not adjust,” Padilla said.

For Pete Contos, owner of the Pete’s string of restaurants on East Colfax, it’s not that the amendment is bad for business but rather that it diminishes profits.

“It hurts my bank book,” Contos said.

Since the minimum wage increase affects the profit margins of his restaurants, Contos sees only one solution: raise menu prices.

“Employees have to work eight hours a day, five days a week. All we can do is increase (the price) for food and liquor,” he said.

He has already made menu adjustments at a few of his restaurants.

The new wages are also set to keep going up, as Amendment 42 will adjust wages annually for inflation.

Contos shrugs at this and said the government can do what they want.

“At the end of the year, business has to make up for the increase,” Contos said. “If they increase minimum wage to $10, you will be paying $20 for a hamburger.”