Evidence has emerged of an economic dark side to San Diego’s decision last year to vault over the state minimum wage — it may have already destroyed thousands of jobs for low-wage workers even as higher pay helps tens of thousands of others.

Consider the restaurant industry, for example, which economists study because it relies on low-wage workers, yet generally faces no foreign or out-of-state competition.

Amid an abrupt slowdown in growth, nearly 4,000 food-service jobs may have been cut or not created throughout San Diego County from the beginning of 2016 through February of this year, according to an analysis of federal payroll data by Lynn Reaser, chief economist of the Fermanian Business & Economic Institute at Point Loma Nazarene University.

“This was at a time when both overall economies performed similarly well,” Reaser said. “If job growth in the restaurant sector had just kept pace with the state’s performance … the industry could have created 5,200 jobs instead of the 1,300 that took place.” Last month growth turned negative, as the sector actually lost jobs.


I’ll hasten to add that Reaser draws no sweeping conclusions from a relatively short period of economic data. For one thing, restaurants in the region still employed 126,000 people in February, and many of them are enjoying higher wages because San Diego increased its minimum from the statewide $10 an hour in June to $11.50 inside the city as of January.

“Although restaurant employees who are able to retain their jobs or secure employment will be better off, others will find it more difficult to find work,” Reaser said. “People with any kind of criminal record, unskilled, uneducated, or any homeless job seekers will find it more difficult.”

Meanwhile, California is set to raise its minimum from $10.50 now to $15 by 2023. San Diego’s head start, which places many of its employers at a temporary disadvantage, makes the city a test bed for competing theories about whether the overall economy is harmed or helped by large increases to wage floors.


For business owners, academic discussions about trade-offs are all too real.

“Yes, we have raised menu prices. Yes, we’re going to raise them again,” said Jim Phillips, general manager of Studio Diner in Kearny Mesa, who has nonetheless cut staffing from 71 to 65 employees and needs to shed seven more. He’s studying changes like eliminating bussers and greeters, and requiring servers to also clear dishes in smaller sections while keeping an eye on the entrance to help customers.

Phillips said Tuesday that San Diego’s wage mandate, which includes sick leave, was just the latest in a series of legislative moves that increased his operating costs.

“Just in the last four or five years, I believe, the city, state and federal governments have added more costs to operating a restaurant than in the previous 20 years,” he said.


Then there’s Mike Pasulka, a co-owner of Player’s Sports Grill in Poway and San Marcos who has recently assigned himself four shifts a week as bartender to save labor costs.

With locations outside of San Diego, he’s been spared the 15 percent minimum wage increase absorbed this year by competitors across Poway’s southern border. But California has raised its minimum from $8 to $10.50 since 2014, and regulatory burdens have increased steadily.

“It’s real. It’s like balancing a scale; when one side goes up the other side goes down,” Pasulka said.

“When food prices go up in restaurants, people don’t go out as much,” he said. “Restaurants have cut back on their hours, and we are paring staff.”


Such losses typically represent the tip of the employment iceberg. When restaurants cut back, similar reductions are likely in other industries that provide entry-level jobs in construction, retail, call centers and other industries.

So far, job growth has slowed but remains strong for the overall San Diego region, which added 26,000 jobs over the 12 months through February. The big slowdown has been limited to food service jobs.

What happened? Tourism is strong. Foodie culture still booms. Families have more money to spend after years of falling unemployment, while they certainly don’t have more time to cook at home.

The most plausible explanation lies in the response of restaurant owners. A big portion of payrolls shot up in a matter of months, so they are cutting back — just as classical economic theory suggested they would.


“It should be noted that this relates to data for the county of San Diego,” Reaser said. “The impact on jobs in the city, where the wage hike was implemented, could be even larger.”

Last summer, San Diego voters approved a referendum to boost the city’s minimum wage to $10.50 an hour on July 11, and then to $11.50 on Jan. 1, moving well above the California floor, which went from $10 an hour to $10.50 this year.

“San Diegans understand that no one who works full time should have to live in poverty,” the local measure’s architect, former City Councilman Todd Gloria, a Democrat, said at the time. “San Diego voters have chosen to stand with working families to ensure they have access to a decent wage and necessary sick days.”

Now a state assemblyman, Gloria declined my multiple requests this week to comment directly on Reaser’s analysis of the early aftermath of his ordinance. His spokesman, Nick Serrano, pointed me late Tuesday to a state press release that shows jobs are still growing in the overall economy.


Still, Gloria has plenty of company in his view that raising the wage floor will help far more people than it hurts. Before he reached the Assembly, lawmakers last year approved the statewide move to $15 an hour by 2023, a 50 percent increase in just seven years.

California’s $15 minimum is truly historic — a raise this high, this fast, has never been imposed by a state (or federal) government in the United States.

Even prominent economists who support higher wage floors have warned against large, sudden boosts.

“Research suggests that a minimum wage set as high as $12 an hour will do more good than harm for low-wage workers, but a $15-an-hour national minimum wage would put us in uncharted waters, and risk undesirable and unintended consequences,” Alan Krueger, a former chief economic adviser to President Barack Obama, wrote in a 2015 essay about U.S. policy published by the New York Times. “Although the plight of low-wage workers is a national tragedy, the push for a nationwide $15 minimum wage strikes me as a risk not worth taking, especially because other tools, such as the earned-income tax credit, can be used in combination with a higher minimum wage to improve the livelihoods of low-wage workers.”


Yet state lawmakers touted a forecast by UC Berkeley’s Center for Labor Research and Education that said California’s increase would be benign overall, with any lost jobs canceled out by gains elsewhere in the economy.

“The adverse effects on businesses of charging slightly higher prices is largely offset by increased sales generated by the workers who receive raises,” Ken Jacobs, the center’s chairman, told me last year, citing research by Berkeley economist Michael Reich.

Even if such forecasts are correct, there’s plenty of potential for human suffering inside the numbers, especially in high-cost San Diego. If your paycheck drops to zero, a 50 percent raise for your former colleagues provides cold comfort.

Wage gains for the working poor can even cut income, especially for people who lose child care and other public assistance as they creep into higher income brackets. Then there are the robots.


Starbucks is testing an automated barista, McDonald’s is rolling out self-ordering kiosks, and a company promises that a robotic arm called “Flippy” will cook and flip a perfect burger. In San Diego County, brew pubs have already moved to technology that let customers pour their own craft beer and track their purchases using arm bands.

Economic history suggests that, with or without the help of minimum wage policy, such automation will bring higher productivity that ultimately delivers rising standards of living for most people.

Yet there are always victims. With a grand policy experiment starting in San Diego, we will soon know more about them.

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dan.mcswain@sduniontribune.com (619) 293-1280 ▪Twitter: @McSwainUT