A Lesson Learned about Trying to Pass on the Cost of a Living Wage to Customers

Dale Buss

Restaurants Unlimited CEO Jim Eschweiler has learned something about the viability of a “living wage” for his employees, and about the generosity of his customers: Each has limits.

In the process, Eschweiler has created a cautionary tale for other CEOs who are feeling pressured to jump on the bandwagon to pay their entry-level employees at the level that political discourse has dictated they should. It may work out—or it may not.

Eischweiler has discontinued a 1-percent “living wage” surcharge that his company had added to checks at restaurants in Portland, Oregon. Seattle-based Restaurants Unlimited – which has a total of 45 casual-dining restaurants in 10 states under such names as Henry’s Tavern, Kincaid’s, Palomino and Stanford’s—had added the 1-percent surcharge with the notation “LWageSC” on checks, according to Nation’s Restaurant News.

In politically progressive Portland, one might assume such an appeal would work out. Labor and other leftist interests have been pushing fast-food operators, mass-merchant discounters, janitorial services and many other types of companies to raise minimum wages to a “living” level where an hourly worker could support a family.

“CEOs must balance the utility of pay hikes in attracting and retaining employees against the upward pressure higher pay puts on prices—at a time when consumers are more price-conscious than ever.”

Several cities and states have begun raising minimum wages, and a number of major employers, ranging from Walmart to McDonalds to Starbucks to Ikea to Gap—have been boosting their pay lately, prompted by tightening labor markets and lured by the benefits of augmenting employee wellbeing.

But Restaurants Unlimited patrons apparently balked at being asked explicitly to foot the bill so that the company could pay its workers more.

“We truly appreciate all the feedback from our loyal guests regarding the one percent living wage surcharge policy,” Eschweiler said in a statement to The Oregonian. “After further consideration we have decided to discontinue this policy.”

Given the slump being experienced by much of the restaurant industry these days, and the continued financial pressures on many of its patrons, it doesn’t take much to chill eatery CEOs’ impulses toward boosting pay. But labor-market pressures might prompt more restaurant chiefs to take chances like Eischweiler did anyway.

In any event, a general lesson for all CEOs from Eischweiler’s stumble is that they must balance the utility of pay hikes in attracting and retaining employees against the upward pressure higher pay puts on prices—at a time when consumers are more price-conscious than ever.