Business & Economy

The minimum wage goes up in LA. Will you pay more for food?

Chris Walsh serves a famous pastrami sandwich to Julia Batavia and Alison Govelitz at Greenblatt's in Hollywood. The proposed minimum wage increase in Los Angeles would adversely affect the business, considering the deli is open until 2 a.m. every day and the food takes a lot of time to prepare, owner Jeff Kavin said.
Chris Walsh serves a famous pastrami sandwich to Julia Batavia and Alison Govelitz at Greenblatt's in Hollywood. The proposed minimum wage increase in Los Angeles would adversely affect the business, considering the deli is open until 2 a.m. every day and the food takes a lot of time to prepare, owner Jeff Kavin said.
Benjamin Brayfield/KPCC

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Today, for the first time in its history, Los Angeles will have its own minimum wage of $10.50 per hour.

The increase is modest – a 50-cent rise for businesses with more than 25 employees – but it's the first of a series of yearly hikes that will top out at $15 an hour by 2020.

A higher minimum wage is also going into effect today in the unincorporated parts of Los Angeles County, and the cities of Pasadena and Santa Monica as well as 10 other U.S. cities, including Chicago and San Francisco, and the states of Maryland and Oregon.

Businesses owners have repeatedly warned they will have no choice but to raise prices because of the higher minimum wage and that restaurants will be most sensitive to the wage hikes because of their heavy reliance on low-wage workers. However, after contacting more than a dozen restaurants this week, KPCC found they are generally not yet raising prices.

Multiple restaurant owners said they will likely have to raise prices when the minimum wage sees its biggest one-year jump next year, from $10.50 to $12.00 an hour. After that, it will go up to $13.25 per hour in 2018, $14.25 an hour in 2019 and $15 an hour by 2020.

California's state minimum wage is also going up to $15 an hour, but on a slightly more gradual schedule. It will hit $10.50 per hour on Jan. 1 and goes up $1 every year after that until reaching $15 in 2022.

On Sunset Boulevard, trying to hold off price increases 'as long as possible'

Jeff Kavin, owner of Greenblatt’s Deli-Restaurant and Fine Wine Shop, was a vocal opponent of Los Angeles' minimum wage increase.

“It could force us out of business,” he told KPCC in 2014. “It could force us to cut the number of employees by 50 percent.”

So far, the biggest impact to Kavin's business has been opening an hour later.

"This change was made as part of our effort to cut ongoing operating costs after the minimum wage increase was passed," Kavin wrote this week in an e-mail. "We will probably cut at least another hour of operation sometime down the road as the minimum wage continues to go up."

Prices will likely rise at Greenblatt's as wages get closer to $15 an hour, says Kavin.

"We are trying to hold off on price increases for as long as possible," he said. "We would rather
wait and let other restaurants take the heat for price increases first. The fact that prices have dropped on some food commodities should allow restaurants to be more conservative with price increases for the time being." 

Less peeling potatoes, more cooking

Tender Greens, which operates 13 restaurants in L.A. County, is also holding off on price increases but has tried to make better use of its employees by having them concentrate on more high-skilled tasks.

"The changes we're making in preparation for the minimum wage hike are focused on increasing efficiency while still improving quality, so our people are working on cooking great food instead of peeling potatoes for example," said spokeswoman Christina Wong.

On the beach, customers sensitive to price increases

Fred Deni, owner of Back on the Beach Cafe in Santa Monica, said he is reluctant to raise prices because of a fear of backlash from customers. He considers his restaurant reasonably priced but at the beginning of year, he raised the prices of some items to compensate for an increase in food costs.

“I do get complaints from people that it’s too expensive, and I don’t know what to say,” said Deni.

Deni said he has no plans to raise prices with this wage increase, but will likely be forced to do so in future years - despite complaints from customers.

“I’m not pressing the panic button yet,” he said.

We also asked two groups representing small business owners that lobbied against the wage increase – the California branch of the National Federation of Independent Business and the California Restaurant Association – to identify restaurants raising prices because of the July 1 wage increase. Neither could name any, though they said restaurants that are raising prices are reluctant to talk about it publicly for fear of alienating customers.

"When higher labor costs are mandated without mitigation, employers are forced to adjust their business models in order to manage higher costs," said Sharokina Shams, a spokeswoman for the California Restaurant Association.

In Westwood, still selling ice cream sandwiches for two dollars

If any restaurant would seem likely to raise prices, it would be Diddy Riese, which has been serving inexpensive ice cream sandwiches and fresh baked cookies since 1983. The price of an ice cream sandwich will stay at $2 for the foreseeable future – it went up from $1.50 last year.

For one thing, the restaurant only employs 17 people so it has another year to comply with the $10.50 wage. But even so, new employees already make a starting wage of $10.50 and can move up quickly from there, according to owner Mark Perry.

Perry said he is more worried about when the minimum wage hits $12 and $13.25 an hour, which for Diddy Riese is in 2018 and 2019, respectively.

"That’s when you’re going to start feeling the pinch,” he said. "This is going to have a big impact.”

Perry stressed that he had no position on whether raising the minimum wage was a good idea, but he does think the issue should have been more carefully studied.

“I see both sides of the equation, but I think it has to be methodical,” said Perry. "Everyone wants to see employees happy and satisfied.”

County giving help to small businesses

The Los Angeles County Department of Consumer and Business Affairs has been holding a series of workshops to assist small businesses and answer questions about the wage hike.

"The main questions from businesses are 'does it apply to us?'" said Joel Ayala, the department's chief deputy director. "The important thing to remember is that for small businesses of 25 or less they're given another year."

The county is also launching a five-year small business initiative that includes low-interest loans, workplace development, layoff aversion assistance and help applying for county procurement contracts.