Tag Archives: free market

Does increasing workers’ pay also increase profit?

Bradley J / CC 2.0
Bradley J / CC 2.0

We have been hearing a lot lately about the cycle of poverty and the desire to raise minimum wage.

Proponents of the measure say that a $15 per hour minimum wage will give more purchasing power to a huge swath of workers, leading to an overall economic boost; opponents say that simply increasing the dollar amount ignores the real problems and will only lead to inflation. Worse, opponents say it will bankrupt many small businesses and raise the price of basic goods and services for all consumers.

That’s why I found this article so interesting. Fortune Magazine becomes one of many media outlets covering Bar Marco, a restaurant in Pittsburgh that decided to do away with tipping and raise all of its employees’ wages to $35,000 per year. The result? The restaurant’s profits have tripled in just two months.

Of course, increasing wages is not the only change Bar Marco made in those two months. Before drastically raising wages, the owners spent a great deal of time researching and brainstorming ways in which more invested, better taken-care-of employees might be able to increase the restaurant’s profits. In addition to the higher wages, all employees are encouraged to think of ways to improve customers’ experiences and reduce waste and spending.

These ideas are shared at a weekly staff meeting, when staff are also expected to hand in their “homework”: book reports on non-fiction books. The logic is that more educated workers are better able to contribute to the success of the business, and better able to make inspiring conversation with customers.

In addition to all these measures to maximize employees’ contributions along with their well-being, Bar Marco also switched over to local ingredients, which were apparently actually cheaper than outsourced ones, and smaller portion sizes, reasoning that Americans care more about quality of their dish and dining experience than about consuming 1,000 calories in a sitting.

Some still question whether Bar Marco’s model is generalizable. After all, although the owners have vowed to ensure that menu prices don’t increase as a result of these changes, they weren’t exactly low to begin with – most menu items fall around the $15 range. How much of that is a product of doing business in a big city with high property costs is hard to say.

The Washington Post reports on several other restaurants nationwide that have done away with tipping in favor for higher wages for employees. New York City’s Dirt Candy and Michigan’s Moo Cluck Moo are among other restaurants who have done away with tipping and begun a policy of paying employees $15 an hour – about twice our national minimum wage.

These restaurants, like Bar Marco, also made important changes to their workflow structure to maximize employee contribution and cut costs in other areas.

MooCluckMooMoo Cluck Moo trains all staff in a myriad of culinary tasks, making them less burger flippers and more bakers and chefs. This way, all staff members are prepared to perform a variety of duties, all of which contribute to a high-quality dining experience. These guys, unlike Bar Marco, still manage to serve $5 burgers.

Dirt Candy saves from the outset by serving vegetarian cuisine designed to be as delicious as possible, meaning that the restauranteurs don’t have to pay for meat and have a built-in appeal to a niche audience. Dirt Candy’s menu prices also hover in the $15 range, but again, that may be partially a function of paying for property in New York City.

So, could every restaurant improve employee and customer satisfaction alike by paying their employees $15 per hour, in combination with smart measures to cut costs and increase productivity? Could they continue to do this while offering $5 menu items that will fill you up? It’s hard to say.

What does seem evident from business models across the globe is that invested employees contribute far more to a business than those who feel “if these guys could pay me less, they would, but it’s illegal.” The return to an invest-in-employees ethos also promises to create more skilled, motivated professionals, and better-quality product for customers.