Raising Minimum Wage, a Dilemma

When California’s minimum wage rises to $6.75 an hour Tuesday, one of the highest rates in the nation, restaurateur George Kookootsedes will be ready.

He plans to soon lay off at least five workers at Chanteclair, his French restaurant in Irvine.

Kookootsedes acknowledges that an extra 50 cents an hour per worker isn’t by itself a back breaker for a business with 55 employees and $2 million in revenue last year. But on top of everything else that’s happened this year--receipts have fallen 25% since Sept.11, while energy and insurance costs have shot up--he said it’s enough of an additional expense that he has to take this drastic step.

“For me to keep my doors open, I’ve got to do this,” said Kookootsedes, noting that he has never laid off workers in his 42 years in business.

Nobody knows how many other employers will make such cuts. But there’s no doubt that the wage hike will pinch restaurateurs, hotel owners and other businesses with large rosters of minimum-wage workers much harder than in recent years, when the economy was flourishing and employers were in better shape to absorb the extra costs.

In a reflection of hard times, California’s restaurants and bars suffered a net loss of 8,700 jobs from September to November and now employ an estimated 949,000 workers, according to the state Employment Development Department.

California’s minimum-wage hike “could be the straw that breaks the camel’s back for some restaurant owners,” said Alec Levenson, a labor economist at USC’s Marshall School of Business.

The California Restaurant Assn., which claims its industry has the highest number of minimum-wage workers, has long lobbied against government-mandated increases in the wage, saying they put pressure on restaurants to raise the pay of workers across the board. The increases eat up restaurant profits, sometimes forcing owners to cut workers’ hours or resort to layoffs.

When it takes effect Tuesday, California’s new $6.75 minimum wage--$1.60 above the federal hourly rate--will match Massachusetts’ as the second highest in the nation, behind Washington state’s rate of $6.90.

For the estimated 600,000 Californians earning minimum wage, the increase couldn’t come at a better time. Many restaurant, hotel and other low-wage service workers have seen their hours cut and their tips reduced after the Sept. 11 terrorist attacks devastated the tourist industry.

Rick Ireland is among those looking forward to earning a bit more. The 28-year-old waiter at Ristorante Rumari in Laguna Beach has seen his weekly earnings slump to about $450 from about $600 since October as customer tips have plummeted.

Many customers who used to give him a 10% tip on takeout orders now just smile and thank him, he said. More diners at the restaurant are sharing dinners and sometimes skipping dessert, which also has cut into gratuities.

Ireland said he recently began working an extra shift at Ristorante Rumari and is looking for a second waiter’s job to offset his lower income.

He figures he’ll be taking home an additional $15 a week when the minimum wage goes up. But even a small increase “will definitely help,” he said, adding that there’s a good chance his wife will soon lose her $40,000-a-year job managing another restaurant because of slow business.

With the state’s restaurant industry in a slump, the restaurant association recently lobbied key state legislators and Gov. Gray Davis for a six-month delay in wage hikes for bartenders, waiters and other employees who receive tips, arguing that these workers already earn significantly more than the hourly minimum wage when gratuities are included. Forty-three other states allow restaurants to pay these employees less than federal minimum wage because of their extra earnings, said restaurant association President John Dunlap III.

But the effort, strenuously opposed by organized labor, failed for lack of support.

Even after the increase, $6.75 an hour is a woefully inadequate living wage in one of the nation’s most expensive states, said Art Pulaski, head of the California Labor Federation. To match the minimum wage’s purchasing power in 1968, the rate would have to be raised to nearly $9 an hour, he said.

“A lot of minimum-wage earners are working two or three jobs just to stay afloat,” Pulaski said. “We have an obligation to get these people out of poverty.”

The state’s Industrial Welfare Commission, a five-member panel appointed by the governor, reviews California’s minimum wage every two years. The commission, which gave the green light to a 50-cent hike that went into effect at the beginning of this year and the impending 50-cent increase, will meet in late January to discuss raising the wage again, spokesman Dean Fryer said.

Kookootsedes, the owner of Chanteclair, said he had little difficulty paying the 50-cent wage hike early this year because business was booming. The impending increase is a different story.

In March, sales at his 280-seat restaurant fell about 10% as the economy softened and companies slashed employees’ expense accounts.

To cut costs, Kookootsedes closed the main dining room on most weekends beginning in June and reduced some workers’ hours. He also began buying food, paper goods and spices from a new supplier, which saved about 15%. Kookootsedes even put off replacing a couple of cooks who quit, returning to the kitchen himself and putting in 65-hour weeks.

Business slumped even more after Sept. 11. Kookootsedes said he had to ask employees to take one or two unpaid days off a month so he could control his labor costs, which account for more than one-third of all expenses.

Kookootsedes said he expects Chanteclair’s revenue this year to fall 20% to $1.6 million. Although the minimum-wage hike might not seem like a lot--he estimated it would cost him about $300 a week in increased wages--payroll taxes and workers’ compensation rates are tied to wages and also will go up.

“I feel terrible about having to let people go,” he said. “I like hiring people, not firing people.”