Busboys On The Street

Everybody’s a critic but some critics – particularly those with real-world experience – shouldn’t be ignored. My last pair of columns discussing the uninsured and San Francisco Supervisor Tom Ammiano’s proposal to get city employers to cover their employees health care costs caused a moderate amount of fuss. One San Francisco restaurateur told me in a series of emails that the new law would put essentially him out of business. I think he’s actually wrong, but he does point out why, politically, pay-or-play is so tough, and also why it’s bad public policy. So let’s talk about the Incanto problem, and then we’ll hint at some solutions.

What’s the Incanto problem? Incanto is a fine restaurant in San Francisco’s Noe valley neighborhood. By San Francisco standards it’s not particularly expensive, but it’s not cheap eats. Furthermore, restaurants like this are one of the main reasons why San Francisco is such a great place to live, and we don’t all sell up and move to (insert name of podunk town here) instead. Incanto’s owner Mark Pastore took issue with my remark that pay-or-play wouldn’t be that disastrous because many of the businesses that would be forced to pay for their employees health insurance couldn’t move, and would stick their prices up instead. Here’s Mark’s experience:

There are limits (in economics the concept is known as price elasticity) to increasing revenues by raising prices. In my own restaurant, which is considered one of the better restaurants in the Bay Area, our prices increased slightly in 2005 (3-4%), however our total revenues declined slightly versus the prior year.

In other words the consumer wouldn’t deal with the price increase, costs went up and profits went down. Now the marginal dollar that was no longer being spent at Incanto got spent somewhere, presumably not on dining out, or, if so, at a cheaper restaurant. Now, that may not matter to economists or health care consultants too much, it matters like heck to Mark and his fellow owners. So even though I can cite evidence that these forced wage increases on a city or national level don’t impact unemployment overall, they may cause an adjustment in employment. This will necessarily be exacerbated in the San Francisco proposal where employers with fewer than 20 employees won’t have to pay into the insurance fund, and therefore will have a big cost advantage over those that do. So you can expect an enormous amount of opposition to this from people directly affected, who will make their feelings very well known, whereas it’s hard to identify businesses that will gain (even if some do).

The ordinance may avoid his Gavness’ veto — don’t forget that Newsom ran a group of restaurants but is also responsible for the city budget — much of which goes on the spending on the uninsured at SF General hospital. If it does, you can expect that lots of restaurants that were 40 tables and 25 employees suddenly lose 20% of both. Lots of other small businesses will get smaller and split into two, delivering a mini-boom for creative lawyers and accountants.

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