No one likes the bad taste of unemployment

By Board of Equalization Vice Chair Diane Harkey

This op-ed originally appeared in the San Diego Daily Transcript

Restaurants provide the flavors that make our neighborhoods great, and they offer a wide variety of dining choices in our communities. They range from your local coffee shop, neighborhood diner or gourmet eatery, but they all face challenges. These challenges include increased costs from workers compensation claims, mandated healthcare, and mandatory minimum wage increases.

170118_Restaurant_Stock_Pic_1.jpgAs a Member of the California State Board of Equalization, the state agency that collects sales tax from restaurants and other businesses, I see the high turnover of restaurants due to the difficulties associated with establishing a successful operation. Nearly 85% of restaurants are local, independent proprietors. Most are family-owned businesses where life savings have been invested to try to establish employment for themselves and others, and provide the public with tasty and varied dining options.

Restaurateurs usually love what they do. Because of their passion, they take risks in the face of low restaurant profit margins, fierce competition from others in the industry, and rising operating costs. While these job creators freely take these risks to find their own recipe for success, one ingredient they should not have to add is the high cost of never-ending government mandates.

Unfortunately, while well-intentioned to try to improve quality of life for working people, government mandated wage increases disproportionately impact restaurants that already operate on razor thin margins. The national average profit margin for a restaurant is 3-5%. Stated differently, for every dollar spent in a restaurant (after paying the staff and the bills) 3 to 5 cents remain with the owner. As economists have found, restaurants have more workers earning closer to the minimum wage, with labor costs as much as 35 percent of operating costs, compared to about 11 percent for retail stores. So, with very little room for error as food and beverage costs spike or customer traffic slows, the owners have to make tough decisions to make sure they remain in business while still being able to pay their employees.

170118_restaurant_stock_pic_2When voters or elected officials increase costs, such as the recent voter approved wage increase from $10.50 to $11.50 in the city of San Diego, restaurants responded with a surcharge to reflect these government mandated costs. The surcharge is not padding the pocket of the restaurateur, but is merely an attempt to remain in business and retain employees.

Following San Francisco and Los Angeles, San Diego is one of the last big cities in California to see restaurants add a surcharge to cope with the rising cost of government mandates. Keeping costs low and customers happy are the highest priorities for any highly-competitive business. And surcharges, while unpopular, are becoming a new norm in the restaurant industry. While having the best intentions, to protect the community, environment or wage-earners, mandated costs force employers to find creative ways to continue to remain afloat. Automation, transferring jobs out of the state or country, substituting products, consolidating and oftentimes simply failing to seek opportunities to expand a successful operation are ways that other industries seek to remain profitable and in business. Unfortunately, most restaurateurs are unable to use the above remedies and have instead chosen to apply a surcharge to pay the increased wages rather than going out of business entirely.

Diane Harkey is vice chair of the Board of Equalization. She represents the 4th
district, which includes the counties of San Diego, Orange, Riverside, Imperial and the southernmost portion of San Bernardino County.

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