One of the truly hot-button issues of our time is minimum wage hikes. Supporters believe it offers a path to economic justice and provides a livable wage for millions of people across the U.S. who otherwise are forced to struggle to make ends meet. Conversely, opponents believe that the cost increase cripples small businesses, reduces the hours worked by low-wage workers, depresses their economic situation, and, of course, leads to layoffs.
Opponents of the wage increases point to Red Robin Gourmet Burgers and Brews—otherwise known as Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)—as the latest example. Red Robin layoffs are set to affect hundreds of people as part of Red Robin cost-cutting measures implemented in the wake of these wage increases.
Opponents of the wage hike claim that restaurant layoffs in 2018 are expected to rise.
Red Robin busboys are currently on the chopping block, with the company looking to eliminate them at all of its 570 restaurants in order to offset increased salary costs.
Red Robin CFO Guy Constant said at the ICR retail industry conference that the measure will save $8.0 million in 2018 and will help “address the labor increases we’ve seen.”
This follows the company’s previous elimination of expediters, people who plate food in the kitchen, saving Red Robin about $10.0 million last year.
While the most recent round of Red Robin layoffs is being directly attributed to the minimum wage hike, the other job-cutting move was made before the pay increases came into effect at the start of this year.
Red Robin’s 3rd-Quarter Earnings Saw a Year-Over-Year Decline
Red Robin Gourmet Burgers experienced a steep stock price decline in November 2017, following a weak quarterly report. Its stock plummeted by almost 20% in a single day following the company’s dismal third-quarter report. That report showed Red Robin profits decline to the tune of 46.1% year-over-year.
The Red Robin quarterly results were enough to put the company on the back foot, at least on the stock market. The poor performance sent the stock price down to its lowest levels of the year, following what had otherwise been a strong 2017 for RRGB stock.
Some supporters of minimum wage hikes claim that factors other than wage hikes often contribute to job cuts. In the case of the Red Robin layoffs, supporters would point to the company’s poor performance in its third-quarter report as having contributed to the decision to make the cuts, further complicating the debate.
Minimum Wage Hike Led to Closures and Layoffs at Restaurants
Whether the Red Robin layoffs are largely due to minimum wage increases or a variety of factors acting against the company, there is still a fair bit of evidence that supports the idea that restaurant layoffs due to minimum wage hikes are the norm.
After all, it only stands to reason that a company that relies on razor-thin profit margins while also employing a great number of low-wage workers would be hard-hit by such an increase in their operating expenses.
And that increase has spread across the United States. At the start of 2018, 18 states raised their respective minimum wages.
Every cut in the restaurant business in those states is not always immediately attributable to a wage hike, but that hasn’t stopped some from pointing out the deleterious effects that the increase may have. The Employment Policies Institute, a right-leaning think tank, released a study which found that California would see a five-percent reduction in employment in industries with a higher percentage of lower-paid employees if they instituted a 10% minimum wage increase. The study went on to predict that approximately 400,000 jobs would be lost in the state by 2022 due to the minimum wage increase to $15.00.
The same think tank also claimed that the average minimum wage worker in Seattle would see their pay increase but their hours decrease, leading to a $125.00 reduction in income per month.
Another study, conducted by researchers at Harvard Business School, found that restaurant closings due to minimum wage hikes are often lower-rated restaurants, adding another wrinkle to the debate. The study found that the more poorly reviewed a restaurant was, the more likely it would be shuttered following a wage increase.
In any case, restaurants are closing and people are being left without work. Whether the answer is to slow down or halt altogether minimum wage hikes—or simply roll with the punches in pursuit of fairer wages—is still up for debate.
“Red Robin layoffs show how minimum wage hikes put millennial jobs at risk,” Washington Examiner, January 12, 2018.
“Minimum Wage Hikes Take a Toll; Red Robin Announces Massive Layoffs,” The New American, January 10, 2018.
“Red Robin Gourmet Burgers Q3 Earnings Drop 46%,” NASDAQ, November 6, 2017.
“Red Robin (RRGB) Falls on Q3 Earnings Miss, Downbeat View,” Zacks Investment Research, November 7, 2017.
“Minimum-wage hikes do close restaurants. Just not the ones you care about.” The Washington Post, April 24, 2017.