Restaurants digest a possible minimum wage boost

The restaurant industry in the U.S. has long operated outside the realm of standard business protocol – especially when it comes to payment. Europeans that travel to the U.S. and dine at American restaurants are often surprised at the amount of money Americans leave on the table for the server. The opposite is true of U.S. citizens who travel abroad and find that tipping is virtually nonexistent overseas. The reasons for the American business model are likely numerous and convoluted. But the reality is clear – in general, restaurants don't pay their staff as much as other companies do.

In the realm of fast food, this trend is well-documented to the point of being cliché. Whether or not the association is deserved, working at McDonald's is the equivalent of starting from the bottom. But as policy makers in Washington considered raising the minimum wage, food industry experts analyzed how restaurants would hold up. As it turned out, fast food establishments can afford to pay workers much more – and a few of them are taking that to heart.

"Fast food establishments can afford to pay workers much more – and a few of them are taking that to heart."

Fast food could stomach a big minimum wage increase
Common knowledge says that raising the minimum wage from its current $7.25 per hour might hurt small businesses struggling to cover their overheads. But for fast food, that doesn't seem to be the case. In a new report from economists at the University of Massachusetts in Amherst, Congress could more than double the minimum wage without greatly impacting fast food profits, Al Jazeera America reported.

The study found that employers that gradually increased wages from $7.25 to $15 per hour would not limit their profit margins.

"In terms of policy implications, our results offer a straightforward conclusion," the report stated. "Achieving a $15 federal minimum wage within the U.S., phased in over four years, should be seen as a realistic prospect."

Fast food employees have called for wage increases in the last few years, and Seattle and San Francisco have already approved $15/hour wage floors. Other cities have boosted the minimum wage from $7.25. Meanwhile, one growing chain has taken matters into its own hands.

Shake Shack sets a new standard
Recently-public fast food chain Shake Shack can't compete with giants like McDonald's or Burger King when it comes to reach or price point, but the brand has a few other offerings that make it something of a disrupter in the industry. Their motto, "Stand for something good," starts with how they treat their employees. Each entry level worker starts above minimum wage, according to Huffington Post. Now, analysts wonder if the chain can maintain that after going public.

Most of Shake Shack's locations are owned by the company, rather than franchisees. But with stock owners hungry for a return on investment, the fast food chain may come under pressure to increase profits in the near-term.

"One reason is that [private companies] can have a much longer-term perspective," Zeynep Ton, professor at MIT's Sloan School of Management, told Huffington Post. "That is not to say that if you're a public company you can't have a longer term perspective. It's possible, but it's harder."

Shake Shack went public on January 30.Shake Shack went public on January 30.

If the company can navigate its newfound territory without compromising its vision as being a fast food role model, there could be a paradigm shift in the industry. Chains may have to rethink their strategies, particularly if more cities raise the minimum wage. The evidence suggests those brands will make out just fine, while their employees will enjoy the fruits of their labor.

Hospitality and restaurant industry piece brought to you by Marlin Equipment Finance, leaders in food service equipment financing. Marlin is a nationwide provider of equipment financing solutions supporting equipment suppliers and manufacturers in the security, food services, healthcare, information technology, office technology and telecommunications sectors.