LESTER-Inside Monopsony Paper-Full Draft2

7/23/2019 LESTER-Inside Monopsony Paper-Full Draft2

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Inside Monopsony: Employer Responses to Higher Labor Standards in theFull Service Restaurant Industry

T. William LesterAssistant Professor

Department of City and Regional PlanningUniversity of North Carolina, Chapel Hill

!" Ne# $ast %&C '()"*Chapel Hill, NC !+(-

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ABSRA!

While e9orts to in0rease the minim/m #age have stalled at the 4ederal level,do:ens of 0ities have passed or are 0onsidering lo0al in0reases that #ill ;ring theminim/m #age /p to ers in the ?4ight for ers and analysts #ondering a;o/t their event/alimpa0ts. While the impa0t of p/;li0ly mandated la;or standards on employment is#ell st/died and remains highly 0ontroversial, there are still important missingpie0es in o/r /nderstanding of ho# lo0ally2ena0ted la;or la#s impa0t the la;ormar>et. Altho/gh previo/s resear0h sho#s that moderate in0reases in the minim/m#age do not res/lt in net o; losses and red/0es la;or t/rnover in the aggregate,there is still /n0ertainty as to ho# higher la;or standards may reshape employmentpra0ti0es #ithin Brms. Re0ent st/dies sho# s/pport for a model of the la;or mar>etthat is monopsonisti0 rather than perfe0tly 0ompetitive /sing 0o/nty2level dataaggregated for lo#2#age ind/stries %e.g. resta/rants* or gro/ps of #or>ers %e.g.teens*. This paper dire0tly eamines employer responses to higher la;or standardsthro/gh a /alitative 0ase 0omparison of the f/ll servi0e resta/rant ind/stry a0rosst#o f/ndamentally di9erent instit/tional settings. Resear0h #as 0ond/0ted in 8an4ran0is0o=#here employers fa0e the nation7s highest minim/m #age, no tip0redits, a pay2or2play health 0are mandate, and paid si0> leave re/irements=andin North Carolina7s Resear0h Triangle region=#here there are no lo0ally ena0tedla;or standards. Consistent #ith the monopsonisti0 model, eviden0e sho#s thathigher la;or standards led to #age 0ompression in 8an 4ran0is0o even #hile someemployers 0ontin/ed to o9er greater ;eneBts to red/0e t/rnover. $mployers in 8an4ran0is0o ehi;it greater investment in Bnding ;etter mat0hes and tend to see>higher2s>illed, more professional #or>ers, rather than invest in formal in2ho/setraining. 4inally, higher #age mandates in 8an 4ran0is0o have ea0er;ated the#age gap ;et#een front2of2ho/se and ;a0>2of2ho/se o00/pations=#hi0h 0orrelatestrongly #ith eisting ra0ial and ethni0 divisions. 6nitial eviden0e sho#s that someA0>no#ledgementsE This resear0h #as s/pported ;y a grant from the Washington Center for$/ita;le Fro#th. Than>s to the UC Ger>eley 6nstit/te for Resear0h on La;or and$mployment %6RL$* for in >ind s/pport. The a/thor #o/ld also li>e to than> Ni0hola Lo#e,Chris Genner, &ar0 Do/ssard, 6an &/llen, &i0hael Rei0h, en 3a0o;s, 8ylvia Allegretto,Annette Gernhardt, Allison 4or;es, and Ashley Tindall for 0omments and s/pport d/ring theresear0h. Than>s also to the parti0ipants at the AAF and L$RA 0onferen0es for 0riti0alfeed;a0>.
mailto:[email protected]:[email protected]


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employers have responded ;y radi0ally restr/0t/ring ind/stry 0ompensationpra0ti0es ;y adding servi0e 0harges and in some 0ases eliminating tipping.

$IW5RD8E La;or 8tandardsJ Resta/rantsJ &inim/m Wage Ad/stment&e0hanisms.

3$L C5D$8E 3(J3)!J3KK

"# Introduction

As the e0onomy slo#ly re0overs from the depths of the Freat Re0ession, the

la;or mar>et 0ontin/es to sho# #ea>ness even as the /nemployment rate has

fallen to a three2year lo#. Despite optimisti0 a00o/nts of the re2shoring7 of

man/fa0t/ring and a re0overing ho/sing mar>et, ine/ality is on the rise as themaority of o;s 0reated sin0e the oM0ial end of the re0ession in !""1 are relatively

lo#2#age and are in 0omparatively pla0e2;o/nd servi0e ind/stries s/0h as

resta/rants, retail and entertainment %N$LP !"(*. These residentiary7 o;s often

pay lo# #ages, and there has ;een near2:ero gro#th in real #ages for the lo#est2

paid #or>ers in the U.8 %&ishel 8hierholt:, !"(*. A /ni/e feat/re of this

re0overy is the ?missing middle@ in the pattern of o; gro#th #ith relatively fe# ne#

middle2in0ome positions or 0areer path#ays for #or>ers #ho la0> advan0ed s>ills.

As a res/lt, an in0reasing n/m;er of #or>ers remain in lo#2#age positions for longerperiods of time, ma>ing o;s #idely vie#ed as ?stepping2stone@ positions into

relatively permanent pla0ements %Hyatt 8plet:er, !"(*. Arg/a;ly, 0onditions in

the lo#2#age servi0e se0tor are at a histori0ally lo# level #ith stagnant #ages,

/n0ertain #or>ing 0onditions and ho/rs, and a hostile reg/latory environment

to#ards organi:ed la;or. Fiven these trends, a 0entral 0on0ern for poli0y ma>ers is

#hat 0an ;e done to red/0e #age ine/alityO 5ne of the only dire0t poli0y

responses to this pro;lem has ;een to in0rease the minim/m #age. As e9orts to

in0rease the minim/m #age stall at the 4ederal level, many large 0ities in0l/ding8eattle, Los Angeles, 8an 4ran0is0o, and Chi0ago have passed or are 0onsidering

lo0al in0reases that #ill ;ring the minim/m #age /p to ers

in the ?4ight for ers and analysts #ondering

a;o/t their event/al impa0ts %Hol:er, !"(*.

(


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The resta/rant ind/stry, #hi0h employs more than 1.1 million #or>ers,

epitomi:es the trend of relatively high gro#th and lo# o; /ality and is arg/a;ly

the se0tor most impa0ted ;y re0ent minim/m #age in0reases(. Re0ently, the iss/e

of o; /ality in the resta/rant ind/stry has garnered national attention, as

eviden0ed ;y the media 0overage of a series of fast2food #or>er stri>es and the

high2proBle resear0h and advo0a0y of the Resta/rant 5pport/nity Center %R5C*.

Ho#ever, these re0ent e9orts to in0rease #ages and ;eneBts follo# t#o de0ades of

attempts to improve la;or standards thro/gh passage of a host of minim/m #age,

living #age, and related legislation at the 0ity and state levels %see Rei0h, 3a0o;s,

Diet:, !"()*. 6n addition, there are e9orts /nder#ay in several states to pass other

la;or standards, s/0h as raising the #age paid to tipped #or>ers, or mandating paid

si0> leave. While the impa0t of p/;li0ly mandated la;or standards on employment

and other la;or o/t0omes is #ell st/died and 0ontin/es to ;e de;ated among

e0onomists and poli0y ma>ers, there are still important missing pie0es in o/r

/nderstanding of ho# lo0ally ena0ted la;or la#s may have deeper impa0ts not only

on aggregate o/t0omes ;/t also on the #ay employment relationships are

str/0t/red #ithin Brms.

The empiri0al minim/m #age literat/re is vast and has ;een evolving sin0e

the (1+"s, yet most of the literat/re on the minim/m #age, and other la;or

standards, fo0/ses on only one aspe0t of their impa0t=namely on employment. The

maority of this #or> is highly /antitative and relies on aggregate data so/r0es,

in0l/ding the /arterly Cens/s of $mployment and Wages %C$W* or the C/rrent

Pop/lation 8/rvey %CP8*, to analy:e poli0y impa0ts at a state or 0o/nty level %see

Andrait D/;e, Lester, Rei0h, !"("J Ne/mar> Was0her, !""-*.! As a res/lt,

e0onomists m/st /se estimated employment elasti0ities from ind/stry2#ide data or

from deBned demographi0 gro/ps to ma>e inferen0es a;o/t Brm ;ehavior.

Ho#ever, in many #ays the ;ehavior of a0t/al Brms remains a ?;la0> ;o@ for

resear0hers in the Beld. 6n addition, there are many #ays, ;eyond /st the level of

( A00ording to the data from the /arterly Cens/s of $mployment and Wages series of theG/rea/ of La;or 8tatisti0s %GL8* there #ere 1,1"),1!) #or>ers in the NA6C8 +!!, #hi0hran>ed as the largest three digit ind/stry ;y employment in the (st/arter of !"(. Average#ee>ly #ages #as


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employment, that raising la;or standards 0o/ld impa0t the employment

relationship. These other employment o/t0omes may in0l/de 0hanges to the rate

of t/rnover, prod/0tivity, training, ten/re, ind/stry2spe0iB0 norms and performan0e

epe0tations.

An additional motivation for this st/dy stems from 0/rrent poli0y de;ates. 6n

the last year, follo#ing the passage of a

leave=led to #age 0ompression ;oth #ithin Brms and a0ross the resta/rant

ind/stry in 8an 4ran0is0o. Iet, there is also eviden0e that some employers in 8an

4ran0is0o still o9er 0ompensation a;ove the mandated minim/m in order to attra0t

#or>ers. 6n addition, employers in 8an 4ran0is0o ehi;it greater investment in

Bnding ;etter mat0hes and see>ing higher s>illed, more professional #or>ers, rather

than investing in formal in2ho/se training. 4inally, higher #age mandates have

ea0er;ated the #age gap ;et#een front2of2ho/se and ;a0>2of2ho/se o00/pations=

a division of la;or that 0orrelates strongly #ith eisting ra0ial and ethni0 divisions.

6nitial eviden0e sho#s that some employers have responded ;y radi0ally

8pe0iB0ally, 8eattle passed a ne# la# that #ill raise the minim/m #age to


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restr/0t/ring ind/stry 0ompensation pra0ti0es ;y adding servi0e 0harges and in

some 0ases eliminating tipping. Colle0tively, these Bndings provide empiri0al

s/pport for ;oth monopsonisti0 and instit/tional a00o/nts of Brm ;ehavior in lo0al

la;or mar>ets, #hi0h sho/ld ;e a00o/nted for in any prospe0tive analysis of la;or

standards.

$# heoretical !onte%t and &revious Research

The 0/rrent theoreti0al lands0ape of the la;or mar>et remains disointed. 5n the

one hand, the e0onomi0s profession is still dominated ;y the neo0lassi0al vie#point

#hi0h treats the mar>et for la;or m/0h li>e the mar>et for other goods in the

e0onomy=#ith Brms as relatively passive pri0e ta>ers and #or>ers moving freely

;et#een o;s to maimi:e their /tility. 6n this vie#, the la;or mar>et is 0onstantly ine/ili;ri/m and any attempt to raise standards thro/gh p/;li0 poli0y %e.g., the

minim/m #age* #ill res/lt in o; losses. 8in0e the mid2(11"s, ho#ever, e0onomists

have ;eg/n to propose an alternative model of the la;or mar>et ;ased on the

theory of monopsony #hi0h implies that Brms have some degree of mar>et po#er

#hi0h leads to latit/de in setting #age levels, #hi0h allo#s them to 0hoose from a

variety of h/man reso/r0e pra0ti0es to mat0h their 0ompetitive strategy %Goal

Ransom, (11+J G/rdett &ortensen, (11KJ &anning, !""*. The dynami0

monopsony model posits that, d/e to ?fri0tions@ in the la;or mar>et %i.e. the 0ost ofsear0hing for a ne# o;, geographi0 0onstraints, the 0ost of t/rnover, et0.* #e 0an

epe0t to see variation in Brm pra0ti0es even #ithin the same ind/stry as some

employers attempt to hold on to their #or>for0e ;y paying higher #ages andQor

;eneBts %to red/0e t/rnover* and others may 0hoose a ?lo#2road@ strategy of lo#

#ages and high t/rnover. This set of models is /sed to eplain the empiri0al Bndings

that poli0y interventions s/0h as minim/m #age in0reases and living #age

standards do not signiB0antly red/0e aggregate employment.

$#" Monopsony and Lo'('age Labor Mar)ets

6nterest in empiri0ally dete0ting the eisten0e of monopsony po#er #as

spar>ed ;y the #or> of Card and r/ger %(11* #ho #ere the Brst to sho# that

minim/m #age in0reases 0o/ld lead to #age in0reases #itho/t disemployment

)


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e9e0ts. &ost st/dies of monopsony /se nat/ral eperiments fo0/sed on distin0t

lo0ali:ed la;or mar>ets or o00/pations %see Ransom 8ims, !"("J 8taiger, 8pet:,

Phi;;s, !"("*. 4o0/sing spe0iB0ally on the resta/rant ind/stry and /sing data from

the /arterly Wor>for0e 6ndi0ators %W6*, D/;e, Lester, and Rei0h %!"(* dire0tly

test the impa0t of minim/m #age in0reases on la;or mar>et o#s, Bnding sharp

de0lines in t/rnover rates #itho/t signiB0ant 0hanges in employment levels. While

this #or> provides 0onvin0ing empiri0al s/pport for the monopsonisti0 vie# of the

la;or mar>et, there is still /n0ertainty as to ho# s/0h mandates shape ;roader

aspe0ts of employment pra0ti0es #ithin Brms. While this 0aref/l, 0ross2;order

/antitative resear0h is important, these st/dies alone do not f/lly 0apt/re the

motivations of Brms or their epli0it ;ehavioral responses to poli0y 0hanges. This

paper see>s to test the maor predi0tions of ho# Brms in a monopsonisti0 la;or

mar>et a0tively re2shape the employment relationship in response to ;inding lo0al

la;or standards s/0h as the minim/m #age and health 0are mandates.

The relian0e on monopsony models to eplain the ;asi0 Bnding of small or

insigniB0ant disemployment e9e0ts in empiri0al resear0h on the impa0t of minim/m

#age is also theoreti0ally 0onsistent #ith non2orthodo la;or mar>et theories ;ased

on the #or> of instit/tional e0onomists. Geginning #ith #or> ;y s0holars in0l/ding

Doeringer and Piore %(1+(* and ot:, &0Dono/gh and Rei0h %(11)* and others

presented a des0riptive model of the la;or mar>et %e.g. d/al la;or mar>ets, la;or

mar>et segmentation* #hi0h so/ght to eplain str/0t/ral ine/alities s/0h as

persistent ra0ial dis0rimination and o; /ality di9eren0es a0ross and #ithin

ind/stries thro/gh an analysis of instit/tions rather than individ/al agents.

Consistent a0ross all of these instit/tional a00o/nts of the la;or mar>et is the

o;servation that so0ial norms and 0ontets matter and that employers have

0onsidera;le po#er over #age setting and str/0t/ring the 0ore aspe0ts of the

employment relationship %see also Pe0>, (11-J Tilly Tilly, (11K*. Pa/l 5sterman

%(111* /ses a similar instit/tional lens to des0ri;e the maor str/0t/ral 0hanges in

the Ameri0an la;or mar>et over the last half of the !"th0ent/ry. The instit/tional

approa0h is also /sed ;y s0holars #ho do0/ment variation in la;or pra0ti0es and

restr/0t/ring #ithin 0ertain ind/stries %Appel;a/m Gatt, (11)J Carre Tilly,

!""K*. These s0holars have 0onsistently do0/mented the eisten0e of ?high2road@

employment pra0ti0es=often asso0iated #ith higher #ages, ;eneBts, training, and

greater f/ll2time employment=alongside a set of employers #ho p/rs/e a ?lo#2


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road@ strategy aimed solely at lo#ering la;or 0osts. This paper also relies on these

instit/tional perspe0tives in developing hypotheses of ho# employers in the

resta/rant ind/stry are li>ely to adapt to raising la;or standards in their lo0al la;or

mar>ets.

$#$ E%isting research on Employment &ractices in the Restaurant Industry

Altho/gh there has ;een no other st/dy that attempts to test the impli0ations

of the monopsony model and related instit/tional la;or mar>et theories #ithin the

resta/rant ind/stry, a ;ody of re0ent resear0h do0/ments employment 0onditions in

resta/rants. 8pe0iB0ally, resear0h 0ond/0ted ;y Resta/rant 5pport/nity Centers

%R5C* United and aMliated s0holars provides ne# eviden0e on #ages, ;eneBts,

#or>ing 0onditions, the etent of ra0ial and gender dis0rimination, and variation in

employer pra0ti0es. 6n !"((, R5C released a st/dy 0ond/0ted in eight large

metropolitan regions that 0onsisted of s/rveys and intervie#s #ith ;oth employees

and employers that do0/mented the prevalen0e of lo# #ages, la0> of a00ess to

health ;eneBts and si0> leave, and persistent o00/pational segmentation ;y ra0e

%United, !"((*. &ore re0ently, Gatt, Lee and La>hani %!"()* presented res/lts

;ased on a national employer s/rvey a0ross large metropolitan areas fo0/sed on

variation in h/man reso/r0e pra0ti0es a0ross resta/rant mar>et segments. They

Bnd a 0lear lin> ;et#een higher /ality h/man reso/r0e %HR* pra0ti0es and lo#er

t/rnover. 6n a related st/dy Gatt %!"(!* highlights 0ase st/dies of resta/rants that

p/rs/e #hat they 0all ?high2road@ pra0ti0es #hi0h in0l/de higher relative #ages,

more f/ll2time #or>, and more investment in training.

While this gro#ing ;ody of resear0h is 0r/0ial for ;etter /nderstanding the

nat/re of employment in the resta/rant ind/stry, it does not epli0itly analy:e the

role of la;or standard mandates on o/t0omes. This paper 0omplements this #or>

;y 0on0entrating employer s/rveys and intervie#s on t#o 0ases that vary #idely in

the s0ope and magnit/de of la;or standards.

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$#* Hypothesis building: Ho' labor standards might alter the employment

relationship#

Gefore t/rning to a dis0/ssion of the resear0h methods, it is important to note

ho# theories of monopsony and related instit/tional resear0h on la;or mar>ets

#o/ld eplain the impa0t of raising la;or standards on employment o/t0omes.

These theoreti0al impli0ations form the ;asi0 hypotheses that #ill ;e eplored in the

empiri0al analysis proposed ;elo#.

4irst, ;y raising #age oors, minim/m #age and living #age mandates are

predi0ted to 0ompress the distri;/tion of #ages o9ered #ithin the ind/stry. This

e9e0tively red/0es the monopsony po#er of Brms as they have a narro#er range

over #hi0h to 0hoose an optimal #ageQt/rnover 0om;ination. Th/s, a >ey

impli0ation of this 0ompression is the hypothesis that in the a;sen0e of high la;or

standards, Brms in North Carolina7s Resear0h Triangle region=#here there are no

lo0ally ena0ted la;or standards=#ill engage in a #ider variety of employment

pra0ti0es #ith star>er 0ontrasts ;et#een lo#2road employers that are very lo# %e.g.

lo# #ages, high t/rnover* and some high2road employers that 0an tr/ly have their

pi0> of the availa;le #or>for0e. We #o/ld epe0t the opposite to ;e tr/e in 8an

4ran0is0o #here a higher #age oor is predi0ted to res/lt in the 0onvergen0e of

employment pra0ti0es. 6n the latter environment, it is still possi;le that Brms Bnd

non2#age o/t0omes #ith #hi0h to 0ompete for #or>ers. This is an area of in/iry

that is ;est eplored in detail thro/gh intervie#s.

8e0ond, the %dynami0* monopsony model implies that as #ages and other

;eneBts rise thro/gh mandates, t/rnover falls a00ordingly. 6n fa0t, there is already

empiri0al eviden0e that sho#s this to ;e the 0ase %D/;e, Lester Rei0h !"(*.

Ho#ever, this #o/ld also imply that Brms operating in a la;or mar>et #itho/t strong

mandates are more li>ely to hire #or>ers from /nemployment. The impli0ations of

this at the level of an individ/al resta/rant are that for Brms in 8an 4ran0is0o, lo#er

t/rnover res/lts in more #or>ers staying on the o; longer and, 0onversely, a higher

share of ne#2to2the ind/stry #or>ers hired in RTP. Th/s, 6 epe0t that Brms #ill

re/ire more ind/stry2spe0iB0 eperien0e #hen hiring in 8an 4ran0is0o, 0ompared to

RTP and a parallel Bnding of large di9eren0es in t/rnover. This hypothesis is

eplored dire0tly thro/gh a s/rvey of and intervie#s #ith resta/rant managers #ho

#ere as>ed to des0ri;e their re0r/itment strategy, ho# they see> their ?ideal@

+


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0andidates, and ho# they address 0hallenges in Bnding s>illed #or>ers in ea0h

o00/pational 0ategory. This /alitative approa0h #ill also provide insight on

di9eren0es in the norms and epe0tations employers have of their #or>for0e and

highlight ho# s>ills are framed and so/ght after in the hiring de0ision.

Third, ;y red/0ing t/rnover and, ;y etension, raising average ten/re levels

#ithin ea0h Brm, higher la;or standards may also have an impa0t on the in0entive

to o9er additional training to ne# #or>ers, and perhaps, to 0reate formal or informal

internal o; ladders. 8in0e a higher ho/rly #age raises the marginal 0ost of ea0h

additional #or>er=in a monopsonisti0 setting=an employer may have a stronger

in0entive to etra0t prod/0tivity from ea0h ne# #or>er and th/s has an in0entive to

provide more training %Ar/lampalam, Gooth, Gryan, !"")*. 6n parti0/lar, #hen the

#age rate is high, the potential prod/0tivity gap ;et#een a ne# #or>er and the rest

of a more eperien0ed #or>for0e is higher. A 0orollary to this hypothesis is that

employers in a la;or mar>et #ith high la;or standards #ill ma>e less fre/ent /se of

part2time shifts sin0e part2time #or>ers re/ire a longer period of time to gain

eperien0e and /ltimately a0hieve higher prod/0tivity. Ho#ever, there is am;ig/ity

in the literat/re a;o/t the e9e0t of higher minim/m #age levels on training, as

Rosen %(1+!* points o/t Brms may attempt to o9set higher la;or 0osts ;y 0/tting

;a0> on formal training programs. This paper /ses /alitative data gleaned from

intervie#s #ith resta/rant managers to shed light on the training strategies

sele0ted ;y employers and to highlight the potential non2monetary 0osts of training.

*# Methodology

*#" !omparative !ase +esign

As noted a;ove, this st/dy /ses a primarily /alitative resear0h design of the

resta/rant ind/stry a0ross t#o f/ndamentally di9erent instit/tional settings. 6n 8an

4ran0is0o employers fa0e the nation7s highest minim/m #age %ers m/st ;e paid the f/ll

minim/m #age. 6n Resear0h Triangle Par> %RTP* region)there are no lo0ally ena0ted

la;or standards. Th/s, the e9e0tive #age in 8an 4ran0is0o is over e, D/rham, and 5range Co/nties inNorth Carolina.

K


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%3a0o;s, Rei0h and Deit:, !"()* d/ring the st/dy period of 3an/ary thro/gh 50to;er

!"(). Conversely, Brms in the RTP region are ;o/nd only ;y the federal standards

of a

leave or health 0are spending mandate.

The analysis fo0/ses on the f/ll2servi0e resta/rant se0tor only. This sample

restri0tion is applied for several reasons. 4irst, limited servi0e %i.e. fast2food*

esta;lishments are more li>ely to have less ei;ility in adapting to la;or mandates

as they tend to ;e less la;or intensive, th/s leaving less variation to o;serve. 6n

addition, a >ey di9eren0e in #age reg/lations ;et#een the 0omparative 0ases is in

the tipped minim/m #age, res/lting in more potentially o;serva;le treatment

e9e0ts among f/ll servi0e resta/rants. Lastly, fast2food esta;lishments are more

li>ely to ;e part of 0orporate fran0hise 0hains than f/ll2servi0e esta;lishments.

8in0e many HR pra0ti0es are in/en0ed at a 0orporate level, it #o/ld ;e harder to

attri;/te o;served di9eren0es in fast2food esta;lishments to lo0al la;or mandates

rather than eogeno/s 0orporate poli0y. 4or these reasons, this paper fo0/ses on

f/ll2servi0e resta/rants.

*#$ !ase Selection Methodology

While the regional la;or mar>ets of these t#o 0ases di9er on a n/m;er of

dimensions ;eyond the strength of lo0al la;or standards, there are a n/m;er of

similarities that ma>e this 0omparison pla/si;le for dete0ting 0a/sal e9e0ts of la;or

standards. 4irst, ;oth regions are home to many high2te0h employers and ;oth

have 0ompara;ly tight overall la;or mar>ets. Lastly, ;oth 0ases have a similar

n/m;er of f/ll2servi0e resta/rant esta;lishments, res/lting in a similarly si:ed

sampling /niverse.

*#* Research ,uestions and -utcomes o. Interest

As the goal of this resear0h is to add ri0hness to the empiri0al literat/re on

monopsony in the lo#2#age la;or mar>et, the maor hypotheses tested #ill follo#

8an 4ran0is0o voters approved Proposition 3 on Novem;er ) th, !"(), #hi0h raises theminim/m #age to


11/35

dire0tly from the dynami0 monopsony and instit/tional models dis0/ssed a;ove.

8pe0iB0ally, this paper tests the 0laim that variation in employment pra0ti0es=as

eviden0ed ;y variation in #age rates, t/rnover rates, ;eneBts o9ered and non2#age

0ompensation=#ill ;e greater in the RTP region sin0e 8an 4ran0is0o7s la;or

standards are predi0ted to 0ompress the #age distri;/tion. 6n addition, this proe0t

see>s to meas/re the degree to #hi0h employers in 8an 4ran0is0o de0ide to ma>e

stronger ?investments@ in their #or>ers=thro/gh more 0aref/l sear0hing, training,

and /sing more f/ll2time #or>ers=as the monopsony and related instit/tional

models predi0t. Lastly, ;y eamining their ;ehavior and ree0tions dire0tly, this

paper #ill assess the degree to #hi0h employers see> to redeBne o; roles, 0hange

o; epe0tations, and /ltimately reshape the employment relationship in the fa0e of

la;or mandates.

*#/ Intervie' and Survey Methods

The main data 0olle0tion method for this proe0t 0onsisted of a set of semi2

str/0t/red intervie#s #ith approimately ( employers in ea0h 0ase. The intervie#

s/;e0ts #ere resta/rant o#ners, general managers, or other >ey sta9 #ho have

dire0t 0ontrol or in/en0e over the Brm7s h/man reso/r0e strategy. 8/;e0ts #ere

soli0ited from and represent all maor resta/rant mar>et segments %e.g. family2style,

0as/al Bne dining, and Bne dining*, o9ering a range of o;servations a00ording to

pri0e point and reven/e. 6ntervie# s/;e0ts #ere initially soli0ited via a #e;2;ased

s/rvey %des0ri;ed ;elo#* in/iring a;o/t the #illingness of s/rvey parti0ipants to

parti0ipate in a )2min/te intervie#. Additional intervie# s/;e0ts #ere soli0ited

thro/gh phone 0alls and in2person re/ests ;y the investigator and a grad/ate

st/dent resear0her d/ring ;/siness ho/rs. 8/;e0ts #ere 0ompensated #ith a


12/35

6n addition to the intervie#s, a #e;2;ased s/rvey #as 0ond/0ted ;et#een

3/ly (stand A/g/st (st!"() and 0olle0ted a total of (") valid responses. The

s/rvey 0onsisted of ( /estions and #as intended to gather detailed information

on #age levels ;y o00/pation, training provided, s>ill re/irements and ed/0ational

attainment of #or>ers. 6n addition the s/rvey gathered ;a0>gro/nd information on

ea0h resta/rant s/0h as mar>et segment, average entrSe pri0e level, and n/m;er of

seats availa;le. Ta;le ( ;elo# s/mmari:es the n/m;er of respondents in ea0h 0ase

;y maor mar>et segment.

able "# Summary Statistics .rom Employer Survey and !ase

Industries#

R& SFRestaurant mar)et segment 0 1 0 1

!asual 2ne dining (+ ) ! )

+iner3luncheonette - K (

Moderately(priced .amily style (K - (" (1

-ther (" 1

4pscale 2ne dining + () K (

otal valid survey responses " )

Universe comparison.

otal .ull service restaurants (,+" !,)1

otal population 5$6"* estimate7 (,)"!,++)

K+,))!

8o/r0eE A/thor7s Analysis of 5riginal $mployer 8/rvey of 4/ll 8ervi0e Resta/rants in 8an 4ran0is0o andthe RTP Region %N(")*, 4all !"().

/# Findings

/#" a)ing A'ay the Lo'(Road and Shi.ting the High Road Higher

5ne of the >ey predi0tions of the monopsony model is that raising the

minim/m #age #ill red/0e eisting #age variation #ithin a given la;or

mar>et as some employers #ho, #itho/t s/0h a #age oor, #o/ld o9er a

((


13/35

lo#er #age and a00ept higher t/rnover #hile others #o/ld o9er a higher

#age and fa0e lo#er /it rates. As s/0h, a high and ;inding minim/m #age

and related la;or standards #o/ld lead to #age 0ompression and a general

0onvergen0e of employer pra0ti0es. Th/s, raising la;or standards 0an ;e

interpreted as ?ta>ing a#ay the lo#2road.@ This 0laim is dire0tly o;served

from the s/rvey data. 4ig/re ( ;elo# ill/strates that #age variation for

servers is indeed greater in the RTP region than 8an 4ran0is0o.

Figure "# High8 Lo' and Average 9age Rates .or Servers in Full Service

Restaurants in the R& region and San Francisco#

".""

.""

(".""

(.""

!".""

!.""

R& SF

Hourly 9age 57

8o/r0eE A/thor7s s/rvey of f/ll2servi0e resta/rants in the Resear0h Triangle Par> region and 8an4ran0is0o %N(")*. Gars indi0ate the range of #age o9ers %lo# to high* and points indi0ate the mean#age o9er.

(!


14/35

A vis/al 0omparison of the #age distri;/tions a;ove reveals that #hile most

esta;lishments pay servers the respe0tive mandated minim/ms of

in RTP and

the degree of #age variation meas/red a0ross the ind/stry as a #hole, #e 0an also

o;serve the #ithin2Brm #age variation ;y 0al0/lating the di9eren0e ;et#een the

highest and lo#est paid #or>er in ea0h o00/pational 0ategory. Consistent #ith the

ind/stry2#ide Bg/res, employers in RTP o9ered a #ider range of #ages to their

#or>ers 0ompared to employers in 8an 4ran0is0o. This di9eren0e in intra2Brm #age

variation #as statisti0ally signiB0ant for servers and line 0oo>s. This s/rvey

eviden0e s/ggests that la;or mandates=parti0/larly the high and ;inding lo0al

minim/m #age=are asso0iated #ith less #age variation ;oth #ithin and a0ross

Brms in the f/ll2servi0e resta/rant ind/stry. Th/s lo0al mandates seem to ?ta>e

a#ay the lo#2road@ ;y limiting the room that employers have to ;ehave in a

monopsonisti0 manner.

able $# Mean 9age rates by -ccupation and Sta;ng Levels in FullService Restaurants8 Research riangle &ar) 5R&7 Region and SanFrancisco

9A

R&(RE

SA>FRA>!IS!

-

+#-#M#SI


15/35

Lo#est #age .!( (".K" VVV%!.()* %".KK*

Highest #age .! ((.-) VVV%.K* %!.!"*

6ntra2Brm #age

range

!."" ".+1 VV

%."+* %(.-*

Line cooks

Lo#est 1."1 (!." VV%(.)K* %(.*

Highest (!.!+ ().1 VV%!.--* %!.-*

6ntra2Brm #agerange

.(K !.) V

%!."* %(.1*

Dish#asher

Lo#est K.!K ((."( VVV%(.""* %".K(*

Highest 1.)+ ((.K- VVV%(.-* %(.!1*

6ntra2Brm #agerange

(.!! ".K

%(.* %(."K*

ProductivityMeasures

Total seats ()!." 1).! VVV%(".!K* %+.-"*

Total servers (-. (!.) VV%(-.)"* %(".!*

8ales per employee )+,"K! -K,!"- VVV

NotesE &ean val/es for #age rates and staMng levels dra#n from a/thor7s s/rvey of f/ll servi0eresta/rants %N(")*. 8tandard deviations are listed ;elo# mean in parenthesis. 8ales Bg/res peremployee 0al0/lated from re0ords Referen0e U8A dra#n for sele0ted 0o/nties. D.5.& stands fordi9eren0e of means and lists the signiB0an0e level %p2val/e* from a simple T2test ;et#een regions. VVVis signiB0ant at the ( level, VV at the level and V at the (" level.

The s/rvey also allo#s /s to address di9eren0es in the si:e of resta/rant and

overall staMng levels a0ross the 0ases. The average resta/rant si:e is signiB0antlysmaller in 8an 4ran0is0o %1).! vers/s ()!." seats* and, as s/0h, there #ere fe#er

servers employed in ea0h esta;lishment. Ho#ever, this allo#s only a marginal

0omparison of #or>er prod/0tivity as si:e di9eren0es are more li>ely d/e to land

0osts rather than an adaptation to la;or standards. A more dire0t 0omparison of

prod/0tivity di9eren0es 0an ;e made ;y loo>ing dire0tly at reported sales per

()


16/35

employee at the esta;lishment level as reported in the Referen0e U8A ;/siness

listing servi0e. 4/ll2servi0e resta/rants in 8an 4ran0is0o reported signiB0antly higher

sales per employee in !"(), et,

intervie# data reveals eviden0e that s/0h standards also p/sh some employers to

go a;ove the ne# standards. This is parti0/larly evident in ho# some employers

rea0ted to the ena0tment of 8an 4ran0is0o7s pay2or2play health 0are mandate.

Rather than re/iring employers to provide ins/ran0e dire0tly to #or>ers, the 8an

4ran0is0o Healthy 4amilies A0t %!""+* re/ires employers to pay /p to

ho/r #or>ed for ea0h employee. These payments 0an go either dire0tly to the

0o/nty health system=#here resident #or>ers 0an re0eive lo#20ost 0are=or into a

separate health 0are spending a00o/nt set /p for ea0h #or>er. This mandate

involves a signiB0ant ;/t /niform 0ost in0rease for all employers in the ind/stry.

Ho#ever, in the fa0e of this mandate, some employers de0ided to spend more than

the mandated minim/m in order to provide a0t/al employer s/;sidi:ed health

ins/ran0e to all #or>ers, a ;eneBt that is etremely rare in the ind/stry %R5C !"()*.

As one employer des0ri;edE

This year for eample, #e did employee health ins/ran0e for everyone... No#everyone has real ins/ran0e, not /st the 0ity thing. We thin> and hope it #ill helpretain employees.=mid-scale convention center. restaurant manager.

Another employer e0hoed the logi0 of providing f/ll employers sponsored health

ins/ran0e, rather than simply paying the lo#er 0ost option of a per ho/r fee to the

City of 8an 4ran0is0o. The manager of one neigh;orhood2;ased Bne dining

resta/rant eplainedE

Part of o/r de0ision to o9er health 0are goes ;eyond a simple 0ost2;eneBt22#hat7sanother tho/sand dollars if yo/ already have to spend a 0ertain amo/nt of money.

There is a >ind of revol/tionary li>e revolt thing happening in that 67m not going to/st sign a 0he0> over to the 0ity. 67m going to a0t/ally give it to my employees. Andthen the other part is it ;e0omes part of yo/r hiring and yo/r attra0tion is that yo/say hey, #e o9er f/ll ;eneBts.=neighborhood fne dining manager.

Altho/gh this manager7s initial sentiment ree0ts animosity to#ards the City

for ena0ting the Healthy 4amilies la# in the Brst pla0e, the employer7s a0t/al

;ehavior in paying more for f/ll ins/ran0e indi0ates ho# the la;or standard ind/0ed

(


17/35

the employer to go a;ove the minim/m and em;ra0e the potential retention and

morale ;eneBts for their #or>for0e.

Geyond dire0t #age and ;eneBt o9ers, #e 0an o;serve ho# employers in 8an

4ran0is0o reshape other aspe0ts of the employment relationship in an e9ort to

di9erentiate themselves from other employers in the mar>et and to /ltimately

retain val/ed employees. 8everal intervie# s/;e0ts dis0/ssed ho# they attempt to

0reate a /ni/e #or> ?0/lt/re@ that is ?e0iting@, ?f/n@ or o9ers indire0t ;eneBts to

#or>ers, even in 0ases #here employers 0annot raise #ages ;eyond the mandated

level. 4or eample, an o#ner2manager of a small neigh;orhood 0as/al resta/rant

des0ri;es ho# he allo#s line 0oo>s to /se the reso/r0es of the resta/rant to f/rther

their 0areer development and p/rs/e in0ome generating #or> as part2time 0aterers.

Altho/gh #e 0an7t al#ays 0ompete for line 0oo>s on #ages aloneX, #eYre not as

al#ays regimented and st/9y as other >it0hensX, #e have a lot of per>s. 6f someoneneeds to do a private party and they need something from /s, sometimes #e #illo9er some of that prod/0t that they need or let them #or> here in o/r spa0e. And ifthey need their spi0es or other things, /s/ally people pay /s ;a0> if they li>e. Thereare a lot of 0oo>s that do #or> on the side tooZ8o theyYll /se o/r >it0hen spa0e, or#eYll let them order st/9, ;ring them in on an invoi0e at o/r #holesale rate and they0an pay /s ;a0> on that and #e /s/ally donYt mar> that /p. 6tYs not something that#e dis0o/rage, no, 6 mean itYs learning and itYs something that #e 0an provide22 #e0anYt pay everyone ( dollars an ho/r, 6 #ish #e 0o/ld, #ish #e 0o/ld pay themmore.=neighborhood causal restaurant manager.

Another employer des0ri;ed their e9orts to retain >ey #or>ers in lo#er2paid

o00/pations thro/gh the /se of in2>ind 0ompensation that is mat0hed to the spe0iB0

needs of the individ/al #or>er.

Thro/gh #or>ing #ith everyone on a daily ;asis #e try to >eep everyone happy andin a good mood, yo/ >no#. 4or eampleX #e /st started doing an employee of themonth program ;/t not in a traditional &0DonaldYs >ind of #ay. 5/r dish#asherthatYs ;een #ith /s for Bve years and #e never #ant to lose him. HeYs from &ei0oand his familyYs all ;a0> there so #e ;o/ght him22 and #e did a presentation in frontof all the sta9 and gave him 0alling 0ards so he 0an 0all his family more fre/ently,#henever he #ants. And #e a0t/ally /st gave a ;a0>#aiterX the employee of themonth today and sin0e his da/ghter is having a /in0ea[era party 0oming /p, #e

o9ered to host all of the al0ohol for that party and have it here.=mid-scaleconvention center restaurant manager.

While these may seem li>e relatively minor gest/res on the part of some

employers, these forms of non2#age 0ompensation represent additional #ays in

#hi0h #e 0an o;serve the tenden0y hypothesi:ed ;y the monopsonisti0 model and

instit/tional theories of the la;or mar>et for employers to di9erentiate themselves

(-


18/35

in order to retain #or>ers. 6n the fa0e of strong, ;inding la;or standards that

e9e0tively limit the degree to #hi0h this di9erentiation ta>es pla0e via the #age

%i.e. ?ta>ing a#ay the lo#2road@*, #e still o;serve di9erentiation in ho# employers

str/0t/re the employment relationship. 6n these t#o eamples #e o;serve

resta/rante/rs #ho=perhaps impli0itly=are adopting some of the same progressive

h/man reso/r0e pra0ti0es typi0ally asso0iated only #ithin high2s>ill ind/stries or

o00/pations. 8pe0iB0ally, they are re0ogni:ing and see>ing to a00ommodate the

individ/al needs of ea0h #or>er, #hether that relates to the #or>er7s need for

o/tside in0ome thro/gh 0atering or in2>ind s/pport of family o;ligations.

/#$ Stronger Matches and the Rise o. &ro.essional >orms

The greater degree of #age variation o;served in the resta/rant ind/stry in

the RTP region 0ompared to 8an 4ran0is0o is ;roadly 0onsistent #ith the narrative

eplanation o9ered ;y ;oth the monopsonisti0 and instit/tional /nderstandings of

ho# higher la;or standards impa0t the la;or mar>et. Parallel to this o;servation,

#e also Bnd eviden0e that higher la;or standards lead to stronger, longer lasting

mat0hes ;et#een employers and #or>ers. This Bnding is ;orne o/t ;y eviden0e

from a variety of so/r0es in0l/ding p/;li0ly availa;le employment statisti0s on la;or

t/rnover, original s/rvey res/lts on employer hiring epe0tations and re/irements,

as #ell as intervie#s #ith employers themselves. Geyond the dire0t Bnding that

raising #ages and ;eneBt standards red/0es t/rnover, the /alitative eviden0e

dra#n from employers indi0ates that higher la;or standards may have deeper

impa0ts on the prevailing norms and epe0tations in the resta/rant ind/stry.

8pe0iB0ally, employers in 8an 4ran0is0o readily des0ri;e their ideal employees in

lang/age that des0ri;e #or>er traits and ;ehaviors that are typi0ally /sed to

des0ri;eproessionals=meaning #or>ers #ho have re0ogni:a;le ind/stry2spe0iB0

s>ills, typi0ally #or> f/ll time, and invest in their o#n training.

The rate of t/rnover for the overall f/ll2servi0e resta/rant ind/stry in 8an

4ran0is0o #as (.1 in !"(!, a00ording to oM0ial statisti0s from the /arterly

Wor>for0e 6ndi0ators %W6* program. This 0ompares to (.( in the RTP region.

Ho#ever, as seen in 4ig/re ! ;elo#, this star> 0ontrast in t/rnover is largely d/e to

the relatively high rate of short2term #or>ers #ho enter and eit employment at a

given Brm #ithin the same /arter. The di9eren0e in t/rnover rate for ?sta;le@ o;s

(+


19/35

=meaning o;s that last more than one /arter=is m/0h lo#er %(!.1 vers/s

(.K*. This means that the f/ll2servi0e resta/rant se0tor in RTP feat/res a

signiB0antly higher n/m;er of /ns/00essf/l, or #ea>er mat0hes than 8an

4ran0is0o7s resta/rant se0tor.

Figure $# Labor urnover Rate .or Stable @obs and -verall @obs in the Full(Service Restaurant Industry in San Francisco and the R& Region8 $6"$#

84 RTP"."

."

("."

(."

!"."

!."

"."

."

(.1

(.(

(!.1

(.Kurnover

8o/r0eE U.8. Cens/s G/rea/. !"(!. /arterly Wor>for0e 6ndi0ators Data. Longit/dinal2$mployer Ho/sehold Dynami0s Program httpEQQlehd.0es.0ens/s.govQdataQ'#i.

These very short term o;s=lasting less than one /arter=are often

des0ri;ed ;y la;or e0onomists and other o;servers as eviden0e of ;ad mat0hes

;et#een employee and employer %Garlevy, !""!J Fa/tier, Te/lings, \an \//ren,

!"("*. The prevalen0e of these lo#2/ality mat0hes are indi0ative of la;or mar>et

0onditions in the resta/rant ind/stry that feat/re a large n/m;er of potential

#or>ers o#ing into and o/t of employment. While the W6 data do not allo# /s to

o;serve ea0tly #hy a #or>er left a o;, the most 0ommon me0hanisms in0l/de a*

/itting to ta>e a ;etter o; in the ind/stry or similar ind/stry, ;* /itting a o; and

eiting the la;or mar>et, or 0* ;eing Bred ;y the employer. 6n a lo#2#age la;or

mar>et #itho/t ;inding la;or standards, #e #o/ld epe0t all of these eit

(K
http://lehd.ces.census.gov/data/#qwihttp://lehd.ces.census.gov/data/#qwihttp://lehd.ces.census.gov/data/#qwi


20/35

me0hanisms to ;e more prono/n0ed as the #ider #age variation #o/ld ind/0e

#or>ers to 0hange o;s more fre/ently, and as the relatively lo# ind/stry2#ide

#age #o/ld ;e 0loser to more #or>ers7 reservation #age. 4inally, as 6 arg/e ;elo#,

lo#er2#age la;or mar>ets #itho/t ;inding standards engender #ea>er epe0tations

of #or>er /ality on the part of employers #hi0h leads to a lo#er ;ar for entry and

/ltimately more Bring of lo#2/ality #or>ers.

To address these eplanations of 0ontrasting la;or mar>et 0onditions ;et#een

reg/lated %8an 4ran0is0o* and /nreg/lated la;or mar>ets %RTP*, #e need to move

;eyond the high2level snapshot provided ;y the t/rnover Bg/res. 8pe0iB0ally, #e

need to dire0tly eamine the >inds of mat0hes that o00/r in the resta/rant la;or

mar>et and sear0h strategies that employers /se to generate them. 4irst, the

resta/rant ind/stry in RTP tends to hire yo/nger #or>ers #ith a lo#er level of formal

ed/0ation. 8pe0iB0ally, )1. per0ent of #or>ers in RTP are /nder age !) or have

less than a high s0hool ed/0ation, 0ompared to K.1 per0ent in 8an 4ran0is0o.

Conversely, )".- per0ent of #or>ers in 8an 4ran0is0o have some 0ollege or a

;a0helor7s degree or higher, 0ompared to !1.+ per0ent in RTP.- While these

di9eren0es 0o/ld ree0t di9eren0es in la;or s/pply availa;le in these t#o settings,

they are greater than the overall di9eren0es in ed/0ational attainment a0ross the

entire la;or mar>et.

Figure *# Minimum E%perience Reuired .or Servers in the R& and San FranciscoFull Service Restaurant Industry#

- /arterly Wor>for0e 6ndi0ators, !"(!.

(1


21/35

( to ! yearsJ !(

! to yearsJ )

to - monthsJ K

- months to ( yearJ (+

Less than monthsJ )

No eperien0e ne0essaryJ )-

R&

( to ! yearsJ !

! to yearsJ K

to - monthsJ !

- months to ( yearJ (+

Less than monthsJ (+

No eperien0e ne0essaryJ K

SF

8o/r0eE 5riginal Resta/rant $mployer 8/rvey %N("!*, 0ond/0ted 4all !"().

6n addition to hiring an older and more ed/0ated #or>for0e, 8an 4ran0is0o

employers generally engage in more 0aref/l sear0hes, #hi0h lead to overall ;etter

mat0hes. 4irst, employers in 8an 4ran0is0o report higher eperien0e re/irements

for ne# hires a0ross the o00/pational spe0tr/m. As seen in 4ig/re , only K per0ent

of s/rvey respondents in 8an 4ran0is0o reported that ne# servers 0o/ld ;e hired

#itho/t any previo/s eperien0e in the resta/rant ind/stry, 0ompared to )- per0ent

in RTP. Also, a larger proportion of the 8an 4ran0is0o employers reported eperien0e

re/irements of over one year= per0ent in 8an 4ran0is0o, 0ompared to !

per0ent in RTP. The lo#er ;ar for entry into employment is also 0onBrmed in

employer intervie#s. 4or eample, one RTP manager eplained #hat he loo>s for in

a ne# front2of2ho/se #or>er as follo#sE

Gasi0ally, #e re/ire that a serverX 0an #or> a fo/r shift minim/m per #ee> and goan entire shift, an entire eight ho/r shift #itho/t smo>ing a 0igarette and #itho/tXany fa0ial pier0ings or anything. Geyond that, /st 0ome in #ith a smile on yo/r fa0e.=neighborhood bistro manager in Raleigh.

8/rvey and intervie# data indi0ate that employers in RTP pla0e less val/e on

ind/stry2spe0iB0 eperien0e. Iet even in Brms that do prefer eperien0ed #or>ers,

managers and o#ners did not arti0/late ho# eperien0e matters or #hi0h spe0iB0

s>ills or demonstrated ind/stry2spe0iB0 >no#ledge they re/ire. As one manager

des0ri;esE

!"


22/35

We loo> for at least one yearYs eperien0e, ;/t the ;iggest thing #e loo> for is #eloo> for the person. We donYt loo> for the s>ill. 6 0o/ld tea0h any;ody ho# toX #aitta;les andX po/r drin>s. 6 0an tea0h any;ody ho# to 0oo> stea>s. What 6 0anYt tea0his ho# to ;e a good person.=upscale bar and grille manager in Raleigh.

$mployers in 8an 4ran0is0o dis0/ssed the minim/m level of eperien0e needed to#or> in front2of2ho/se positions in a distin0tly di9erent tone. Rather than vie#ing

servers as essentially inter0hangea;le la;orers #ho 0an ;e trained /i0>ly and

easily if they possess a modi0/m of personal hygiene and a friendly personality,

employers in 8an 4ran0is0o ehi;ited a 0lear des0ription of #hat a ?professional

server@ #as and the epli0it and impli0it s>ills re/ired. 5ne employer des0ri;ed her

front2of2ho/se sta9 as follo#sE

We have a lot of people #ho have made it a 0areer and they7re investing in the

>no#ledge of the prod/0t and learning their trade or already >no# their trade;e0a/se they7ve done it for years.22mid-scale restaurant manager in San Francisco.

Another 8an 4ran0is0o o#ner des0ri;ed the level and nat/re of eperien0e needed

to Bll a server position in his neigh;orhood ;istro.

Realisti0ally, to #or> here, 6 #o/ld say a server needsX Bve years of eperien0e,;e0a/se there7s a #ine >no#ledge level that 6 epe0t that yo/ really /st 0o/ldn7t getany other #ayZ.6f yo/ have ten years of eperien0e at Apple;ee7s, that doesn7t doanything for me.=neighborhood bistro owner.

The fa0t that this employer is see>ing a 0andidate not #ith /st time on the

o; at any resta/rant, ;/t rather a similar >ind of f/ll servi0e resta/rant is a point

that #as e0hoed ;y many employers. Th/s employers 0are not only a;o/t ho#

m/0h time a #or>er has spent on the o;, ;/t #here that o; too> pla0e, and ho#

m/0h time #as spent there. As one manager p/t it, ?6 loo> also at loyalty. Ho# long

#ere they at a 0ertain pla0eO 8o if they #or>ed at a good resta/rant, and they #ere

there three years, they m/st ;e doing something right.@ &any employers also

stressed the importan0e of #or>ing in resta/rants in 8an 4ran0is0o or other 0ities

#ith a #ell2>no#n resta/rant 0/lt/re %e.g. Ne# Ior>*. Ultimately these responses

indi0ate that employers are loo>ing 0aref/lly do#n ea0h 0andidates7 res/me and

approa0hing the hiring pro0ess #ith a set of epe0tations a;o/t the nat/re of #or>,

the s>ills %e.g. ho# to manage a 0/stomer7s dining eperien0e rather than ta>e

orders*, and ind/stry2spe0iB0 >no#ledge needed to perform at a high level.

Compared to employers in RTP, these 8an 4ran0is0o employers tend to vie# their

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employees=front2of2ho/se more so than ;a0>2of2ho/se=as proessionalsrather

than ;asi0 la;or inp/ts.

This rise of professional norms=or the ehi;ited epe0tations of employers

for 0ertain #or>er traits that are typi0ally asso0iated #ith highly trained

professionals=0an also ;e seen in the /nepe0ted Bnding on employer2provided

training. 5ne of the >ey impli0ations from the #or> of la;or mar>et theorists #ho

arg/e that employer pra0ti0es are ei;le, is that high2road employers #ill spend

more reso/r0es on training. Their lo#2road 0o/nterparts epe0t their lo#2#age

#or>ers to /it and their lo#2#age #or>ers seem easily repla0ea;le. This ma>es

sense in ind/stries li>e man/fa0t/ring #here this insight #as Brst o;served

%Appel;a/m, !"""*. Ho#ever, this resear0h Bnds that in fa0t the opposite is tr/e.

8an 4ran0is0o employers reported spending less time o9ering formal training

periods for ;oth front2of2ho/se and ;a0>2of2ho/se sta9. 6nstead, they see> o/t and

epe0t to Bnd #or>ers #ho already possess a high level of s>ills in the ind/stry.

5ne 8an 4ran0is0o employer remar>edE ?6 have to invest too m/0h. To ;ring

yo/ even from an eperien0ed #aiter into ;eing one of o/r #aiters 0osts me too

m/0h money to #or> #ith people that aren7t going to ;e aro/nd for a #hile.@ This

response not only indi0ates an employment s0reening pro0ess that see>s #or>ers

#ho #ant to #or> f/ll2time and do not have 0ompeting demands on their time %e.g.

s0hool enrollment*, ;/t also a high degree of Brm2spe0iB0 >no#ledge that m/st ;e

gained only ;y on2the2o; training.

6n 0ontrast, more employers in RTP dis0/ssed a re0r/itment and training

model that #ere more li>ely to involve formal s0reening me0hanisms for a high

vol/me of appli0ations and a longer, more formal training period for ne# hires

%parti0/larly for front2of2ho/se #or>ers*. These training strategies are maintained to

deal #ith the high level of la;or t/rnover and the relian0e on relatively less s>illed

#or>ers. 4or eample, the manager of a large sports ;ar and grill in RTP eplained

the re0r/itment and training pro0ess as follo#s.

We have a front of ho/se sta9 of + to K" at any one timeX Io/ >no#, a lot ofre0r/iting #e do online thro/gh CraigYs List. WeYre doing a ]ip Re0r/iter. ThereYs some#e;sites that #e go thro/gh o/r oM0e, they send o/t all that st/9. We do all of o/rappli0ations online. When people 0ome in, #e donYt physi0ally hand them a pie0e ofpaper. We hand them a 0ard. 6t tells them #hat #e;site to go on. They go ahead andta>e an assessment. The assessment is s0ored, and then #e get all those almostinstantly. This #e;2;ased system p/lls all the information /p on a &anpo#er Plan, it

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tells /s #hat theyYve applied for, #here theyYve #or>ed. Fives /s a res/me, and thenit gives /s a s0ore on the assessment. =neighborhood amily dining manager.

5n0e an employee is hired, they enter into a formal training period that is

standardi:ed for ea0h o00/pation.

Training is a h/ge investment for /s and it is 0onstant. We7re going to have a training0lass here, in a min/te. 8in0e it happens every T/esday from three thirty to fo/rthirty. Training days depend on the position. Gartending training is (" days andservers re/ire K. 6n the >it0hen it7s pro;a;ly a;o/t (" days. $very day they #ritenote 0ards on all their re0ipes. G/t they7ll ta>e a Bnal. When they ta>e their Bnal,their test in the >it0hen, they have to >no# every ingredient, every o/n0e, and everyitem, for the entire station. That7s #hy #e re/ire them to #rite note 0ards.=neighborhood amily dining manager.

6n RTP, even at higher end resta/rants, employers have ;/ilt a h/man reso/r0e

system that a00epts a high rate of t/rnover. As one employer eplainsE

Well, #e try to stay ahead of the game so that #e7re al#ays hiring, #e7re al#aysintervie#ing, ;/t hopef/lly it7s not desperation hires. Hopef/lly22 and #e try to22 so#e have ;et#een ! to )" servers at any point. And #e try to have a mi of needsli>e people #ho need f/lltime, #ho 0an #or> l/n0hes and ;r/n0hes and all of that, toservers #ho really #ant very part time so that yo/ 0an >ind of over sta9 on ;/syshifts and then there7s al#ays someone that #ants to go home. There7s al#ays ast/dent that #o/ld li>e a 8at/rday night o9.=causal fne dining manager in Raleigh.

Rather than engaging in formal training programs d/ring #or> ho/rs, the

overall higher level of epe0tation on the part of 8an 4ran0is0o employers that their

#or>ers have ?professional norms@ translates into e9orts to s/pport 0ontin/o/s s>ill

/pgrading and /asi2professional development a0tivities that are integrated into the

o;s themselves. 4or eample, one employer des0ri;ed that in addition to limited

initial training on their internal systems for servers, the resta/rant has designed a

system to s/pport ongoing >no#ledge development.

8ometimes #eYll assign di9erent topi0s li>e r/m to one person and then they 0ome;a0> and theyYre responsi;le for training everyone else, doing >ind of an in servi0e

/st to >eep it interesting, >eep them motivated to learn. 6f theyYre having to presentit to someone else, theyYre going to #ant to >no# the prod/0t. 6tYs sort of a teamapproa0h, yo/ #o/ld /se the #hole team to train the rest of the team. Net #ee>

some;ody gets vod>a, net #ee> some;ody gets some small #inery /p in Napa. And#e donYt /st do prod/0ts, sometimes #eYll do a 0ertain vegeta;le, they have to Bndo/t the history of it.=casual fne dining restaurant manager.

Another 8an 4ran0is0o employer eplained that the opport/nity to learn on the o;

a0t/ally ;e0omes a re0r/iting and retention tool for his sta9.

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The attra0tion of #or>ing here is that they get to taste a lot of #ines. 6t7s a ;ig #inelist. They 0an >ind of e their #ine m/s0les a little ;it and ;e li>e >ind of li>e mini2sommeliers on the oor. They donYt hand over all the #ine sales de0isions to me orsomeone else. They handle it themselvesZ.We7ve had no t/rnover for t#o years.=neighborhood bistro owner.

5verall, 0ompared to respondents in RTP, 8an 4ran0is0o employers #ere less

li>ely to report lengthy formal training periods for either front2of2ho/se or ;a0>2of2

ho/se #or>ers. 6nstead, there is an overall higher level of s>ill epe0tation and=as

is the 0ase for many professions=#or>ers are epe0ted to a0/ire and ehi;it

ind/stry spe0iB0 >no#ledge on their o#n. While it is diM0/lt to as0ri;e the

divergen0e in employer norms to higher la;or standards alone, eM0ien0y #age

theory s/ggests that as la;or 0osts in0rease employers have a greater in0entive to

etra0t more prod/0tivity from ea0h #or>er. 6nstead of manifesting itself in #or>

intensiB0ation or greater s0r/tiny on the part of managers, 8an 4ran0is0o employers

seem to ;e see>ing o/t ;etter trained, more eperien0ed #or>ers and epe0ting

more from them.

/#* Labor Standards and the Restructuring o. 9or): Limitations and

Innovations

The previo/s se0tions of this paper do0/mented the di9eren0es ;et#een the

employment pra0ti0es in the RTP region and 8an 4ran0is0o regarding the overall#age distri;/tion, #or>for0e 0hara0teristi0s, and professional norms and

epe0tations, and tied those Bndings to the distin0t instit/tional environments. 6t is

also important to /nderstand ;oth the potential limitations of la;or mandates in

addressing ongoing ine/ality in the ind/stry and ho# some employers have

adapted ;y f/ndamentally altering the 0ompensation model.

An important 0aveat to the 0laim that higher la;or standards have

engendered greater professional norms in the ind/stry is that these norms and

epe0tations are more prevalent for front2of2ho/se #or>ers than ;a0>2of2ho/se#or>ers. $mployers in 8an 4ran0is0o in0reasingly treat servers as ?professionals@

and rely on res/mes and demonstra;le >no#ledge and previo/s lo0al eperien0e

#hen hiring. Iet employers in ;oth the RTP region and 8an 4ran0is0o still vie#

;a0>2of2ho/se #or>ers %line 0oo>s, prep 0oo>s, dish#ashers* in a less formal, more

ra0iali:ed frame. 4or eample, the manager of a 0orporate 0hain resta/rant in

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Chapel Hill=#ho also previo/sly managed several independent resta/rants in the

region=des0ri;ed the large Latino #or>for0e in >it0hens as follo#s.

The Latino #or>for0e, these g/ys >no# ho# to #or>. TheyYve ;een typi0ally 0oo>ingin their o#n >it0hens for large etended families. This is ho# they typi0ally gre# /p.8o itYs not li>e me 0oo>ing for a family of fo/r at my ho/se, or a family of Bve, or even

doing a Than>sgiving dinner for may;e nine people. TheyYre 0oo>ing three meals aday or #hatever it is, for their etended family or for many people in the ho/sehold. 6thin> that7s #here a lot of those s>ills 0ome into it /st ;ased on ho# they gre# /p.Compared to those #or>ers #ith formal 0/linary ed/0ation, 6Yve pro;a;ly >i0>ed morepeople o/t of my >it0hen #ho had a formal ed/0ation, ;e0a/se they thin> they >no#everything no#. 6tYs one of those things #here if some;ody ta/ght yo/ ho# to 0oo>eggs right, if some;ody ta/ght yo/ ho# to do 0ertain things right then thatYs#onderf/l, ;/t 0an yo/ a0t/ally get in that >it0hen and perform and do m/lti tas>s.=moderately priced chain restaurant manager.

The stated preferen0e for Latino #or>ers as prep 0oo>s and line 0oo>s

/ndermines the /tility of formal 0redentialing programs and 0odiBed s>ills that 0an

;e mar>eted a0ross Brms. The 0onne0tion ;et#een ethni0 ;a0>gro/nd and

per0eived #or> ethi0 0an lead to an ass/mption that Latino #or>ers are monolithi0

and inter0hangea;le. This /ltimately limits the opport/nities for individ/al #or>ers

to move /p the pay s0ale. 4/rthermore, a large proportion of hiring is done thro/gh

highly lo0ali:ed so0ial net#or>s that are dependent on the employers7 o#n

>no#ledge of other Brms in the lo0al ind/stry. As one D/rham resta/rant o#ner=

#ho previo/sly 0oo>ed in a #ell2>no#n area resta/rant=eplainedE

$very;ody that #e started #ith, o/r >ey players in the >it0hen 0ame from people that#e >ne# from a #ell2>no#n D/rham resta/rantX that #ere leaving at the same time#e didZWhen #e needed etra help in the >it0hen #e hired o/r line 0oo>7s #ifeZo/rfood r/nner is another 0oo>7s 0o/sinYs girlfriendZ.TheyYre mostly Hispani0, ne##or>ers #o/ld 0ome in and sayE this is #here 6Yve 0oo>ed. Io/ >no# so and so. ThatYs#hy 6Ym here ;e0a/se she sent me here to tal> to yo/.7=Neighborhood ast casualrestaurant manager in urham.

6n 8an 4ran0is0o, employers also o9ered a vie# of ;a0>2of2ho/se #or>ers that

emphasi:ed ethni0 stereotypes rather than formal s>ills or 0redentials.

Io/ >no#, a line 0oo> position, 6 hate to say it, most of them are my people, most ofthem are &ei0an. ZAnd yo/ >no#, yo/ try to stay a#ay from anyone #ho #ent toserio/s 0oo>ing s0hool, #ent to a 0/linary a0ademy, or has an AA in 0/linary >it0hens>illsZ &ei0ansX are /st a ;etter /ality 0oo>, they really are. 6 hate to say it. Theymight not have22 they might not >no# #hat so/s2vide isZ;/t if yo/ tea0h them on0eho# to ;raise something, ho# to do it 0orre0tly, theyYll do it ;etter than the g/y #ho#ent to s0hool. 6tYs /st innate.=Neighborhood ethnic restaurant manager.

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The e/ation of ethni0 stat/s #ith #or> ethi0 or ?innate@ a;ility may, on the one

hand, lo#er ;arriers to entry for ne# #or>ers to enter a ;a0>2of2ho/se o00/pation.

5n the other hand ho#ever, the #ay employers frame s>ill thro/gh an ethni0 lens

reinfor0es the ;arrier ;et#een front2of2ho/se and ;a0>2of2ho/se #or>ers. This

;arrier is important, not only ;e0a/se it limits a00ess to ;etter paid server positions,

;/t also ;e0a/se, as la;or standards rise, this #age di9erential gro#s. There is a

lang/age ;arrier that may limit the a;ility for some #or>ers to ma>e the transition

to the front2of2ho/se positions, ;/t employer vie#s also reinfor0e the ;arrier. As

several 8an 4ran0is0o respondents eplainedE

That #hole s/pport sta9, porters, dish#ashers, all that, it7s all Latin. 67ve never seen a#hite g/y #al> in here for that o;, ever, in any resta/rant 67ve ;een in ten, in eleven,t#elve years.2 Neighborhood fne dining owner.

We have a lot of $nglish2as2a2se0ond2lang/age sta9 mem;ers, and they7re /st notproB0ient eno/gh to #or> on the oor=Neighborhood casual restaurant manager.

6 don7t thin> there7s a desire to move into ^ 6 don7t thin> o/r fol>s have a desire tomove into that position serverX. 6 thin> it7s more of a, this may ;e isolated to /s, ;/t 6feel li>e those fol>s are typi0ally more introverted and #o/ld rather ;e the #or>for0e;ehind the s0enes.=!onvention center restaurant manager

The ;arriers ;et#een ;a0>2of2ho/se and front2of2ho/se o00/pations is an

o;servation that nearly all respondents in 8an 4ran0is0o ;ro/ght /p in response to

dire0t /estions a;o/t ho# they rea0ted to rising minim/m #age and other la;or

standards. 6n parti0/lar, employers 0laim that higher la;or standards ea0er;ates

the diM0/lty they have in Bnding and retaining high /ality line 0oo>s and prep

#or>ers. 6n their vie#, sin0e the mandates re/ire them to give raises a0ross the

;oard, in0l/ding tipped #or>ers #hose total ho/rly in0ome already e0eeds the ne#

mandate, they have less Bnan0ial ei;ility to o9er higher #ages to non2tipped

#or>ers. As one manager des0ri;esE

4rom the ;a0> of the ho/se and parti0/larly 0oo>ing the line, some;ody that needssome, not /ite 0hef 0ali;er ;/t some;ody #hoYs /st on prod/0tion p/tting st/9 o/t,thatYs s/per hard to Bnd and mandates is a ;ig reason for that ;e0a/se their pays0ale hasnYt risen in the same, 0anYt rise in the same #ay that others have and it p/tsthat strain on >eeping them. 8o yo/Yre really loo>ing for people that are 0apa;le ;/tnot /ite as polishedZ And those fol>s are in short s/pply and thereYs a lot of0ompetitive people loo>ing for them. 6f yo/ 0an 0oo> the line #ell for /nder ( ;/0>san ho/r then thereYs a lot of people that #ant yo/. Neighborhood casual restaurantmanager.

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While this rea0tion #as 0ommon among 8an 4ran0is0o employers, it is not

0lear that #itho/t the mandate, they #o/ld have paid their ;a0>2of2ho/se #or>ers

more, or if the %mar>et2;ased* 0ompetition for /ality line 0oo>s #o/ld res/lt in

rising #ages sin0e s>ills are vie#ed in very informal #ay. Despite the press/re that

mandates p/t on employers, many still Bnd a #ay to adapt ;y see>ing prod/0tivity

improvements, 0ross training of front2of2ho/se sta9, and raising pri0es.

There are a variety of #ays that employers reported see>ing higher

prod/0tivity from sta9 in0l/ding as>ing servers to do more ?side #or>@ s/0h as

0leaning, preparing for servi0e for the net shift, resto0>ing s/pplies and similar

non2dire0t to 0/stomer intera0tions. 8ome employers dis0/ssed 0reating a tip2pool

system that en0o/rages all servers to provide servi0e to all ta;les, rather than /st

their o#n. 5ne employer in Raleigh des0ri;ed ho# the di9erential ;ase2pay rate

translates into greater #or> e9ort on the part of front2of2ho/se sta9.

6 thin> that #hen yo/Yre getting ten dollars and ho/r vers/s for alot more from a server. Io/ >no#, 6Yve had the ing yo/ to 0lean something. 8ome;ody thatYs ne# toresta/rants is li>e, Y6Ym only getting !.( an ho/r, 6 sho/ldn7t have to do thatYZ6 >no#ho# m/0h yo/ ma>e. No;ody gets o/t of here #ith!" dollars an ho/r tonight, so yo/ 0an7t say that to meZ6f they #ere paid e this. Ta>e it o/t of high margin items.="anager at chain themed restaurant.

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While the response a;ove indi0ates the level of ei;ility some resta/rants

have in adapting to a higher minim/m #age thro/gh 0lever pri0e in0reases, in the

0ase of 8an 4ran0is0o and other highly 0ompetitive mar>ets, raising men/ pri0es

has its limits. 6nstead, some employers have responded to mandates ;y addings/r0harges to ;ills. The pra0ti0e in 8an 4ran0is0o of adding s/r0harges=typi0ally

ranging from ! to ) per0ent=;egan after the !""- 8an 4ran0is0o Healthy 4amilies

la# too> e9e0t and #as des0ri;ed ;y some respondents as a #ay of protesting the

City7s mandate. Ho#ever, the pra0ti0e /i0>ly spread thro/gho/t the ind/stry.

Gased on o/r employer s/rvey " per0ent %!Q)- valid responses* of f/ll2servi0e

resta/rants reported adding a s/r0harge, and K! per0ent of these respondents

%(1Q!* indi0ated that adding a s/r0harge did not 0hange the typi0al amo/nt that

0/stomers tipped. This indi0ates a #illingness of 0/stomers=at least in 8an4ran0is0o=to pay more #hen they >no# the added 0ost is going to #or>ers.

5/r employer s/rvey also gives des0riptive eviden0e a;o/t ho# employers

have responded to all of 0olle0tive la;or mandates ena0ted sin0e !""). 8an

4ran0is0o f/ll2servi0e resta/rants that #ere open ;efore !"") #ere as>ed to ran>

vario/s ad/stment me0hanisms in order from most important to least important for

their eperien0e. Ta;le ;elo# lists the mean ran> s0ore of ea0h ad/stment

me0hanism o9ered.

able *# Ran)ed Employer Adustment Mechanism to Increased LaborStandards in San Francisco#A+@4SME> ME!HA>ISM MEA>

RA>C>

Raise pri0es (.+K !+Red/0e eisting #or>ing ho/rs !.+) !+

6n0rease #or>er prod/0tivity .1- !-

Alter men/ items to red/0e food 0osts .1- !-

Red/0e ho/rs of operation ."K !-

Change the proportion of #or>ers from front2of2ho/se to;a0>2of2ho/se

. !-

Red/0e other non2la;or 0osts %/tilities, mar>eting, et0.* .) !-

None of the a;ove +." !-

8o/r0eE 5riginal Resta/rant $mployer 8/rvey %N("!*, 0ond/0ted 4all !"().

The des0riptive data in Ta;le =#hile limited in s0ope=/nders0ores the

dire0t response from employer intervie#s and from the eviden0e on the #idespread

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prevalen0e of s/r0harges %a form of pri0e in0rease* in that pri0e in0reases are the

most 0ommon form of ad/stment. The se0ond most important fa0tor, ?red/0e

eisting #or>ing ho/rs@ sho/ld ;e interpreted as more stri0t management of #hen

#or>ers 0lo0> in and o/t, rather than a tr/e red/0tion in la;or demand. As many

managers eplained, they have ;e0ome more vigilant in ma>ing front2of2ho/se

#or>ers 0lo0> o/t or go home early #hen ;/siness is slo#, rather than an a0ross the

;oard red/0tion in the length of all #or>ers7 shifts. The net t#o options sele0ted

indi0ate the ei;ility of employers in adapting to in0reased la;or 0osts. While this

/antitative eviden0e is ta>en from a relatively small sample and sho/ld ;e

interpreted #ith 0a/tion, they nonetheless provide 0ontet for the intervie#s.

The last and potentially most interesting #ay in #hi0h employers in the f/ll

servi0e resta/rant ind/stry are responding to higher la;or standards is thro/gh a

radi0al restr/0t/ring of the 0ompensation pra0ti0es thro/gho/t the resta/rant.

8pe0iB0ally, some employers are eliminating tipping and applying an a0ross the

;oard servi0e 0harge %e.g. (K or !" per0ent* in order to redistri;/te in0ome ;et#een

front2of2ho/se and ;a0>2of2ho/se positions. The elimination of tips is a relatively

rare ;/siness model in the U.8. resta/rant se0tor ;/t there have ;een a n/m;er of

re0ent, high2proBle eamples that have a00elerated the pa0e of 0hange. 4or

eample, the nationally re0ogni:ed resta/rante/r Danny &eyer, #ho o#ns several

/ps0ale resta/rants in Ne# Ior> City %e.g. Framer0y Tavern, Union 8/are CafS*,

anno/n0ed that all of his Ne# Ior> ;ased resta/rants #o/ld go ?hospitality

in0l/ded@ #ithin a year. He spe0iB0ally 0ited the need to re;alan0e the pay s0ale

for >it0hen sta9 after the re0ent in0rease in minim/m #age for resta/rant #or>ers

in Ne# Ior>.+ The pra0ti0e of in0l/ding servi0e either in the men/ pri0es themselves

or thro/gh a s/r0harge, #hile rare in the U.8., is the ind/stry standard in many other

0o/ntries in0l/ding 4ran0e. 8ome intervie# respondents in 8an 4ran0is0o gave

/nprompted s/pport for this 0ompensation model. The manager for m/ltiple Bne

dining resta/rants eplainedE

6f 6 opened a ne# resta/rant tomorro# Z 6 #o/ld ("" p/t every;ody on salary. 6#o/ld 0harge a at per0entage s/r0harge, and 6 #o/ld, 6Yd p/t every;ody on salaryZ.dire0t to 0/stomer employees pro;a;ly start at ely 0ap o/t at no#, yo/Yre eligi;le for raises

+ Fordimer, 3e9 ?No Tipping, the Danny &eyer Way@ New #ork $imes%Novem;er (Kth, !"(*p.DK.

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ann/ally ;ased on performan0e, and then t#o ;on/s str/0t/res a year%--fne diningmanager.

While the a;ility to raise pri0es or add signiB0ant s/r0harges in order to eliminate

tipping may ;e limited to higher pri0ed resta/rants, or very proBta;le

esta;lishments, it is 0lear that rising la;or standards in 0ities li>e 8an 4ran0is0o andNe# Ior> are a00elerating this trend. 5ne ;arrier to a more #idespread adoption of

this approa0h is the #ay payroll taes are assessed. 6f a servi0e 0harge is 0olle0ted

;y the employer=rather than the employee in the 0ase of tips=and paid to #or>ers

in salary or higher ho/rly #ages, then the employer m/st pay additional payroll

taes into the /nemployment system. T#o additional intervie# s/;e0ts 0ited this

added 0ost as a minor ;arrier to moving to a tip2less model. What is interesting

a;o/t this re0ent restr/0t/ring of 0ompensation pra0ti0es is not that it #ill ;e

immediately adopted thro/gho/t the ind/stry, ;/t that it ill/strates that alternative;/siness models are possi;le, in0l/ding ones that fo0/s on evening the playing Beld

;et#een front2of2ho/se and ;a0>2of2ho/se #or>ers.

D# !onclusion

The f/ll servi0e resta/rant se0tor added K((,+"" o;s nationally ;et#een 3/ne

!""1=the oM0ial end of the Freat Re0ession=and 50to;er !"(. This gro#tho/tpa0ed overall private se0tor o; gro#th %(K.( vers/s ((.)*, and this trend is

epe0ted to 0ontin/e as o;s in food servi0e o00/pations are proe0ted to gro#

faster than the overall la;or mar>et thro/gh !"". Th/s the resta/rant se0tor is in

many #ays a /sef/l har;inger for the predominant la;or mar>et 0onditions that

poli0y ma>ers 0an epe0t in the emerging servi0e e0onomy in the !(st0ent/ry=

namely the proliferation of lo#2#age o;s in pla0e2;o/nd servi0e ind/stries. 8in0e

the Freat Re0ession, the most important poli0y response to this pro;lem has ;een

e9orts to raise the minim/m #age and other la;or standards at the state and lo0allevel. Therefore, /nderstanding ho# la;or standards not only impa0t the pa0e of

o; 0reation, ;/t also more general aspe0ts of the employment relationship is

0riti0al. This resear0h attempted to shed light on this /estion thro/gh an etreme

0ase 0omparison of t#o la;or mar>ets #hi0h have star>ly di9erent la;or standards

and th/s instit/tional environments. Rather than o9ering deBnitive 0a/sal eviden0e

"


32/35

on their disemployment e9e0ts or stri0t ;o/nds on a parti0/lar point estimate, the

resear0h o9ers a primarily /alitative narrative eplanation of howlo0al la;or

mandates in/en0e employer ;ehavior, realign in0entives, and restr/0t/re o; roles

and epe0tations. As s/0h this paper ma>es t#o >ey 0ontri;/tions, the Brst

theoreti0al and the net empiri0al.

4irst, the Bndings of this paper=;orne o/t of original s/rvey data and

employer intervie#s=are ;roadly 0onsistent #ith a monopsonisti0 vie# of ho# lo0al

la;or mar>ets operate. 8pe0iB0ally, #e fo/nd that the la;or standards in 8an

4ran0is0o #ere asso0iated #ith greater #age 0ompression #ithin o00/pations.

&ore, #or>ers #ere paid at the higher #age oor and employers had less ?#iggle@

room to o9er slightly higher #ages to attra0t #or>ers and red/0e t/rnover.

Conversely the resta/rant ind/stry in the RTP region o9ered a #ider ranges of

#ages=as some employers 0hose to p/rs/e a lo#2road strategy #hile others

o9ered #ages a;ove the mandated minim/m. This Bnding also held #ithin the Brm

as intra Brm #age di9erentiation #as also greater in the RTP region. Ho#ever, the

tenden0y for some employers to di9erentiate themselves to attra0t and retain

#or>ers #as also evident in 8an 4ran0is0o, altho/gh it #as p/rs/ed in non2#age

aspe0ts of the employment relationship. Th/s mandates 0an ;e interpreted as ;oth

ta>ing a#ay the lo#2road and p/shing the high2road higher. This Bnding #o/ld not

ma>e sense /nder the neo0lassi0al theoreti0al vie#point #here Brms are simply

pri0e ta>ers on the #age for /ndi9erentiated la;or inp/ts.

8e0ond, the empiri0al analysis s/ggests that higher la;or standards have

reshaped the employment relationship ;y a* ind/0ing employers to 0ond/0t more

0aref/l sear0hes and ;* ma>ing it more #orth#hile for #or>ers to stay longer in the

positions the end /p Bnding. This is ;orne o/t ;y the lo#er t/rnover Bg/res=

espe0ially for o;s held less than one /arter=and ;y s/rvey data sho#ing re/ired

eperien0e levels for >ey o00/pations. Geyond these Bg/res, the intervie#s

ill/strate that employers in 8an 4ran0is0o tend to /se lang/age that des0ri;es their

front of ho/se #or>ers as professionals, th/s reinfor0ing norms of #or>er s>ills and

epe0tations that are not seen in to the same degree in the RTP region. The greater

atta0hment ;et#een #or>ers and Brms in the resta/rant ind/stry /nder an

instit/tional environment #ith higher la;or standards 0an ;egin to prod/0e some of

the positive eternalities of _high2road@ la;or pra0ti0es des0ri;ed in other ind/stries.

8pe0iB0ally, #or>ers may ;e0ome more prod/0tive=mastering Brm2spe0iB0 s>ills

(


33/35

and having more eperien0e=#hi0h may in0rease sales for o#ners and /ltimately

0reate ;etter dining eperien0es for 0/stomers thro/gh ;etter servi0e. While the

eviden0ed prod/0ed in this t#o20ase 0omparison is potentially limited and 0o/ld

;eneBt from loo>ing at employment pra0ti0es in other lo0ales, it at least s/ggests

that resta/rant o;s are not in and of themselves a Bed 0ategory and that >ey

aspe0ts of the employment relationship and /ltimately the str/0t/re of #or> #ithin

Brms is mallea;le.

Lastly, it is important to re0ogni:e that there are limitations in ho# m/0h

lo0al la;or standards 0an impa0t o; /ality #ithin the resta/rant ind/stry and more

resear0h is needed to f/lly assess the impa0t on overall #age ine/ality and

opport/nity str/0t/res more ;roadly. As indi0ated ;y the Bndings here, there

remain deep divisions #ithin resta/rants ;et#een o00/pations %front of ho/se

vers/s ;a0> of ho/se* and along ra0ial and ethni0 lines. $mployers in 8an 4ran0is0o

/niformly deno/n0ed the #ay minim/m #age in0reases ea0er;ated etant #age

gaps ;et#een servers and >it0hen sta9. While some employers have responded ;y

adding servi0e 0harges or, in a more radi0al response, eliminating tipping, it is too

soon to tell ho# #idespread these eamples of restr/0t/ring #ill ;e.

%4airris* %Arindrait D/;e, Naid/, Rei0h, !""+* %Rei0h, Hall, 3a0o;s, !""*

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United, R. 5. C. %!"((*. Gehind the it0hen DoorE A &/lti28ite 8t/dy of the Resta/rant6nd/stry. Ne# Ior>E Resta/rant 5pport/nities Centers United.

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