Last weekend, the Wall Street Journal ran an excellent article by Michael Saltsman, director at the Employment Policies Institute. He rightfully noted that the examples President Obama uses of businesses that pay their employees well above minimum wage are businesses that can afford to do so. For example, on a stop at the University of Michigan, he touts Zingerman’s Deli and its generous wages. Why can’t all restaurants and fast food chains offer generous wages like Zingerman’s? The catch is that Zingerman’s charges $14 for a Reuben sandwich. But as Saltsman points out, not all restaurants can raise their prices in order to accommodate substantial wage hikes without losing business.
This article reminds me of the small Texas college town where my best friend resides. Every time I go to visit her, I notice that one restaurant that has been open for a year or two has closed, and another one has taken its place. Interestingly enough, the restaurants that have remained steadfast in this college town are Dairy Queen, McDonald’s, Sonic, Golden Chick and the like. When an upscale steakhouse attempts to make a name in my friend’s small town, it does not stick around for long. Why? I would venture to say that it’s all about the customer and what they can afford. This is a town full of college students who are looking for cheap rent and cheap food. They are happy to get a pizza or a burger and will rarely bother with upscale steak or seafood.
Thus, restaurants that are above the price point of the average college student will go out of business quickly. Similarly, if a restaurant in a college town must raise its prices to accommodate a mandatory minimum wage hike that is more fitting in a city of high-income, high-tech professionals, college town restaurants will be gone in a flash.