Chris J. Kennedy, an economist and professor in the Department of Environmental Science and Policy at George Mason University, is an owner of Reliable Tavern in Park View.
On Tuesday, voters will decide on Initiative 77, which would eliminate the “tip credit” that allows employers of tipped employees — chiefly the restaurant industry — to count those tips toward their obligation to pay the minimum wage to all workers.
Those in favor of passing Initiative 77, led by the national advocacy group Restaurant Opportunities Centers United, claim a reliance on tips leads to wage theft and is a primary component of sexual harassment in the restaurant industry. They promise that passing Initiative 77 will solve these problems and raise take-home pay for tipped workers. Opponents of Initiative 77, including a broad coalition of owners and workers, have warned of mass layoffs and restaurant closures as labor costs skyrocket.
Neither outcome is likely, but the evidence and an understanding of how restaurants operate suggest that Initiative 77 will disproportionately hurt the most vulnerable tipped employees, including busers, food runners and entry-level wait staff, and do little to address wage theft or harassment.
Under the current system, if tipped workers fail to earn an average weekly wage equal to the prevailing minimum wage of $12.50 per hour, employers must make up the difference. Weekly averaging is a key feature. While a slow Tuesday shift may pay only $9 per hour, the same employee on a Saturday might earn $40 per hour. Restaurants make staffing decisions on a shift-by-shift basis, and this system allows high-sales shifts to subsidize low-sales shifts across the week, giving businesses an incentive to stay open on slow nights, keep more staff working and offer all tipped employees a mix of slow and busy shifts.
Most studies of minimum-wage changes have not looked at the impact on different subsets of workers. Few studies have analyzed outcomes following a minimum-wage increase as compared to a valid counterfactual. For instance, in a city experiencing economic growth, a minimum-wage increase might slow the job-growth rate without leading to a net loss of jobs; a simple before-and-after comparison would mask the true impact. Research on large increases in labor costs is limited, whereas Initiative 77 would represent a nearly 400 percent increase in base wage for tipped employees when fully implemented.
A recent study of Seattle’s minimum-wage increase tackled these problems with a unique data set, finding that, despite a slight overall increase in hourly wages, “low-skilled” restaurant workers (defined as earning less than $19 per hour) experienced a 6 percent to 7 percent drop in hours and lower monthly pay. The study did not explore mechanisms, but this pattern probably is the result of businesses changing the way they operate: ending service during low-revenue shifts, thinning out staff and moving to counter service.
This pattern suggests that Initiative 77, if passed, may benefit some high-skilled workers, such as bartenders. However, under new guidance from the Labor Department on tip pooling, eliminating the tip credit would allow employers to share tips with back-of-house staff, an option some may pursue to offset rising labor costs. Tip pooling has been criticized for making it harder to combat wage theft. In other words, Initiative 77 might actually worsen the wage-theft problem.
Finally, the Restaurant Opportunities Centers United says that tipping is a primary cause of pervasive sexual harassment in the restaurant industry, claiming female employees are “forced to essentially sell themselves to earn tips.” However, a majority of female respondents to its survey said depending on tips had not led them to accept inappropriate behavior from guests and that harassment is often perpetrated by management or co-workers. While harassment is a major problem, a more effective way to address the specific issue of customer harassment is to empower employees. At Reliable Tavern, our staff is given unilateral discretion to ban abusive customers, and our managers and owners do not second-guess their decisions. This is an approach every establishment can take to reduce the incidence of customer harassment and attract and keep a great staff.
Reliable Tavern’s business model — bartenders only — means we should be able to navigate either outcome without too much disruption, at least in the first few years. Unfortunately, other local establishments (including some of my favorites) will likely have to make significant changes to how they operate if this initiative passes.
While mass closures and layoffs are unlikely, passage of Initiative 77 won’t accomplish what its proponents promise, and it would likely hurt the low-wage workers it is intended to help. None of the solutions proposed by Restaurant Opportunities Centers United — reducing nonlabor costs, adding service charges, raising prices — would change this dynamic, and abandoning the tip-credit system probably would mean fewer jobs, fewer hours of service and fewer shifts.