Small business owners often find themselves in a tough spot when the minimum wage increases. This dilemma is especially evident in California, where recent hikes have sparked a mix of responses. For some, it’s a step towards fairer pay; for others, it spells financial strain.
Kim Tan, co-owner of Crab Hut, knows this struggle well. She opened her first restaurant in 2007 with her husband and sister to support their parents. “In the beginning, it wasn’t as hard for us because things were still very affordable back then,” Tan recalls.
Crab Hut expanded to a second location and survived the pandemic. However, the recent minimum wage increases are posing new challenges. “Every time minimum wage increases, it’s like that domino effect to all of us. And, you know, we have to raise our prices,” Tan explains. The razor-thin margins mean that without price hikes, closing the business becomes a real possibility.
Customer reactions have been mixed. While some remain loyal, others have stopped coming. To cut costs, the restaurant no longer opens for lunch to avoid paying overtime. Despite these efforts, Tan is determined to avoid layoffs. “There’s a lot of people on our team that’s depending on us, so we have to do everything we can,” she says.
Tan has even taken a personal pay cut to ensure her employees are paid. Workers like Kevin Kean appreciate the wage increases. “I have like five credit cards and I’m down to two. Yeah, I also have car payments, which is about $500 a month. No matter if it’s like just a dollar or a couple of cents more, they always help in the long run,” Kean shares.
Professor Barton Hamilton of Washington University’s Olin Business School notes that wage hikes have mixed outcomes. “You know, not surprisingly, when the cost of labor goes up, we kind of expect employers to hire fewer people. Their ability to handle or to accommodate a minimum wage increase also depends on how much they can pass on their labor cost increases to consumers,” Hamilton explains.
For Tan and many like her, the future is uncertain. “We’re gonna try our best to ride this, but closure is actually in the talks. We hope that it doesn’t get there, but it is something that is lurking around that might happen to us,” she admits.
As the debate over minimum wage continues, the stories of small business owners like Tan highlight the delicate balance between fair wages and economic sustainability.
