On the White House blog, Ann Arbor-based Zingerman’s Deli co-owner Paul Saginaw extols the virtues of raising the minimum wage, here’s an excerpt of his post titled “A Small Business Owner’s Perspective: ‘A High Road on the Minimum Wage‘”:
My partner, Ari Weinzweig, and I never subscribed to the conservative economic theory of Milton Friedman, that “the business of business is business.” To us, the right to conduct business is earned by being a good corporate citizen — by producing products and delivering services responsibly, hiring responsibly, generating profits responsibly, and finally, sharing profits with those who help produce them and with the wider community from which the revenues are drawn.
For more than three decades, our successful businesses have been profitable but never by underpaying our employees or withholding benefits. In fact, my 17 partners and I have always paid wages above the federal minimum and offered company-subsidized health care and paid time off. Rather than obstacles to profit, higher wages and benefits are profit enhancers. Good wages and good profits are interconnected because higher wages are directly tied to reduced business costs. Higher wages enable employees to be attentive and consistent in attendance and performance due to their abilities to meet transportation, health, and housing needs.
I would be an irresponsible employer if I provided jobs that could not support housing stability and health security. Currently at Zingerman’s, we have achieved consensus to gradually raise wages for all our base pay employees to a “thrive-able” level and increase the opportunity for employee ownership of the business brand. We’re motivated to invest in our employees, not in lobbyists who represent our industry associations that work to keep wages low.
I hear many in the restaurant industry say raising menu prices will result in customer loss and diminished profits, but I reject that and question the scale of those profit margins, wondering if the margins are maintained by shorting their employees. Now is a prime time to educate “voters” for ethical employment practices.
Many myths about the industry workforce and the minimum wage create a false reality and highly unproductive debate. The truth is that livable wages and profits are not mutually exclusive, and Zingerman’s are not the only businesses to know this and operate accordingly. RAISE, an alternative restaurant association, is aligning businesses across the nation to adopt “high road” labor practices. Zingerman’s Community of Businesses joined. I sense that there is public readiness to join this growing business leadership and leverage its consumer dollars to “vote” for raising standards for workers.
Every day, I am pained and motivated by the cruel irony that many of the 13 million women and men who produce and serve food in my industry are forced to use federal food stamps to feed themselves and their families. Change is needed now.
1. Perhaps one of the reasons that Paul Saginaw is able to adopt “high road” labor practices and pay high wages at Zingerman’s is because of the extremely “high prices” of his deli sandwiches, many of which are priced in the $16.50 to $17.50 range (see photo above). Add a soda, a cookie, tax and tip, and you’re looking at $30 tab at Zingerman’s for lunch. Mr. Saginaw is also operating his high-end, high-priced delicatessen in one of the most affluent counties of Michigan (Washtenaw), where the median household income is almost $60,000 and the median family income tops $82,000. Zingerman’s Deli is also located conveniently in close proximity to the University of Michigan, which employs almost 7,000 faculty and staff with annual salaries of $100,000 and higher. So it’s pretty easy for Mr. Saginaw to take the “high road” on wages when he’s selling “high-priced” sandwiches to such a “high income” clientele.
2. There are thousands of small businesses and fast food restaurants operating nationwide that don’t have the luxuries that Paul Saginaw enjoys operating Zingerman’s in Ann Arbor, and for them to take the “high road” of charging “high prices” and raising wages simply isn’t an option available to them if they want to remain in business and survive in the extremely competitive market for low-cost fast food. For example, imagine operating a McDonald’s franchise in one of Michigan’s nine poorest counties where median household income is below $35,000. For those fast-food restaurants to survive in low-income areas, many have to offer low-priced food items priced at only $1 (see the Dollar Menu above), and simply can’t afford to pay Zingerman-level wages.
3. Because Mr. Saginaw is already paying wages above the minimum wage, supported by his high-priced $17.50 sandwiches, an increase in the federal minimum wage would likely have a pretty minimal effect on his business and profits. On the other hand, many of Zingerman’s lower-price/lower-wage competitors could suffer significantly if they are forced to pay higher wages. In other words, a higher minimum wage would disproportionately and adversely impact Mr. Saginaw’s rivals, while leaving his business largely unaffected. It’s pretty easy to support raising the minimum wage when it doesn’t affect your business.
4. The fact that Zingerman’s high-price/high-end deli in a high-income market can already afford wages above the federal minimum is really in essence an argument against a national, uniform one-size-fits-all minimum wage, without any adjustments for the significant differences in: a) the cost of living across the country, and b) the types of businesses and industries that hire entry-level workers. As Andrew Biggs and I argued in our American.com article “A National Minimum Wage Is a Bad Fit for Low-Cost Communities,” a single national minimum wage will disproportionately and negatively affect low-skilled workers in low-cost areas of the country, and in low-wage, low-priced industries like fast-food restaurants. Mr. Saginaw might be able to afford wages above the federal minimum of $7.25 per hour because he’s operating a high-end, high-priced deli with an upscale clientele and the market conditions can support those wages – just like the market conditions in Williston, ND allow Walmart to offer starting wages of $17.40 an hour. But the small business owner or McDonald’s franchisee in Benton Harbor, MI or North Platte, NE might not be able to easily afford a 39% increase in the minimum wage to $10.10 per hour for entry-level workers and might even have to shut down – the market conditions for those small businesses in those areas just wouldn’t support the additional labor costs to employers of about $6,170 per year for each minimum-wage worker employed full-time.
Bottom Line: To further make the points raised above, I would challenge Mr. Saginaw to try opening a Zingerman’s Deli in Benton Harbor, MI where the median household income is $17,775 or in Flint, MI where the median household income is $26,000. Although McDonald’s successfully operates restaurants there – partly because they pay low wages and can offer some low-priced menu items for only $1 (see photo above) – I’m confident that Zingerman’s, with its $17.50 sandwiches and higher-than-minimum wages, couldn’t survive in those markets. And it probably couldn’t survive and operate profitably anywhere else in Michigan except at its current location near UM’s Ann Arbor campus, unless of course, it significantly cut both prices and wages. So it’s pretty easy for Zingerman’s to take the “high road” on wages when it’s operating an upscale operation with $17.50 sandwiches (5 times the cost of some sandwiches at Subway) in a high-income market like Ann Arbor. But let’s see them try that business model in Flint or Benton Harbor or Escanaba, Michigan, and they would quickly see that their “high road” doesn’t work so well. They would face the economic reality of many small businesses, who can’t afford the “Zingerman high-price, high-wage, high-income, high road” and can only survive with low prices and low wages, especially when their customers are mostly low-income and can’t afford $30 lunches at Zingerman’s.
Related: See Michael Saltsman’s WSJ op-ed from last April, “Why Subway Doesn’t Serve a $14 Reuben Sandwich.”