Chipotle's decision to raise minimum wage to $15 may push other restaurants to follow suit

The Biden administration was prevented from inserting a $15 per-hour federal minimum wage in its $1.9 trillion coronavirus relief package in February due to a ruling by the Senate parliamentarian. It was the closest the federal government has come to raising the minimum wage to a level that activists have been fighting for over the past decade.

However, an unusual set of circumstances have aligned that could push the private sector into creating a de facto $15 minimum wage without any government mandate.

The restaurant business was shaken on Monday when Chipotle announced it was raising its current average wage of $13 an hour by another two dollars, bringing it to around $15. The change should be in full effect by June.

The Newport Beach, California-based company currently has 2,800 restaurants in the U.S. and Canada and employs nearly 100,000 people. The chain is looking to expand by another 200 restaurants this year.

Chipotle made the move to get a competitive advantage over its fast-food rivals at a time when there is a labor shortage in the restaurant business. Many people in the industry lost their jobs due to the pandemic, and a lot of them aren't returning due to low wages, childcare conflicts, closed schools, and an increase in unemployment benefits.

The restaurant chain believes that it can pay for the increase in labor costs by raising the prices of its food by a modest 3%.

Chipotle hopes that a pay raise along with new programs that put employees on track to become store managers within four years, earning an attractive $100,000 a year salary, will lure the best employees away from other chains.

"Wage inflation is real and employee availability is very tough and Chipotle is trying to stay ahead of the curve and maintain its human capital advantage by moving average wages to $15/hour by June," explained Jefferies restaurant analyst Andy Barish in a research note to clients.

"This raises bigger questions as demand is surging and some people have left the industry and/or are on the 'sidelines,' given the current Federal unemployment supplements that run until September," Barish added.

Chipotle's move to stay ahead of the curve could prompt other businesses to raise their minimum wage to the $15 an hour range just to stay competitive.

A similar change is happening in the world of big-box retailers. Target and Amazon both upped their minimum wage to $15 an hour, pressuring Walmart to do so for about a third of its employees.

Chipotle's decision shows how giving workers a raise can create a win-win situation for both owners and employees. Chipotle will now get to hire the cream of the crop when it comes to restaurant workers, and by implementing new programs that put workers on a management track, will also benefit from lower turnover.

It's also a great business move because there are a lot of consumers who want to spend their money at businesses that take good care of their employees. The wage increase gives consumers another reason — besides the awesome guac —for people to choose Chipotle over other fast-casual Mexican restaurants.