Michael Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations and individuals.
D.C. Mayor Muriel E. Bowser (D) proposed raising the minimum wage for tipped employees by 171 percent. That sounds extreme — because it is.
Bowser’s announcement came less than a month after her State of the District speech calling for a 30 percent increase in the regular minimum wage, to $15 from $11.50. Servers in the District also would be subject to a new wage requirement, but the minimum wage for tipped employees would increase to $7.50 from $2.77. D.C. law permits employers to pay a lower base wage and count tip income toward the minimum-wage requirement.
In reality, those take-home wages for tipped employees are many times larger than the required hourly minimum. In testimony before the D.C. Council, restaurateurs in the District reported that their employees earned anywhere from $20 to $35 an hour when tips were included. (If a server sells $100 in food, he typically gets an 18 percent to 20 percent tip; the restaurant may make 5 percent profit on a $100 meal.)
Nearly 28,000 people are employed at full-service restaurants in the District — more than 5 percent of the D.C. private-sector workforce. A walk along 14th Street NW any night of the week will tell you that the District is undergoing a restaurant boom.
Bowser’s proposal to dramatically increase the tipped minimum wage isn’t just unnecessary; it also threatens this vibrant foodie culture. It’s easy to forget during a bustling Friday night, but the average profit margin at a full-service restaurant is in the low single digits. Labor costs make up about one-third of restaurant expenses. Nearly tripling the hourly wage for tipped employees would force dramatic changes in service, food prices and employment levels.
Need proof? Look no further than New York, which Bowser’s spokesman cited as the model for her proposal. The mayor may want to look a little closer at how that model is working out for Empire State restaurants. Restaurants have cut shifts, laid off employees or closed altogether because of a tipped wage set at the same level proposed for the District.
Betty’s Diner in Buffalo, Longway’s Diner in Watertown and Peppermill Restaurant in Rochester all reduced their hours to cut down on unsustainable labor costs associated with the new tipped wage. McGirk’s Irish Pub in Binghamton and P.J. Clarke’s in New York City eliminated some positions to try to compensate for these costs. Piggy Pat’s BBQ in New Hartford laid off six employees, eliminated employee health-care insurance, cut hours of operation, reduced menu options, doubled up duties and sent people home early because of the new tipped wage.
These anecdotes are backed up by hard evidence. A study published in 2014 in the Southern Economic Journal analyzing two decades of government data found that a higher tipped minimum wage reduced employment in full-service restaurants — for tipped employees in particular. That doesn’t necessarily mean that restaurants closed; instead, they may have scheduled fewer employees per shift or opted for table-side ordering systems that reduce the need for servers.
In a new twist, some restaurants in high-cost markets have experimented with a no-tipping approach as a means to fund higher pay requirements for their staff. Predictably, waiters who find themselves earning far less per hour when tips are eliminated aren’t happy: Some San Francisco-area restaurants have seen 60 to 70 percent of their staff leave after implementing a tip-free approach. In a recent Washington City Paper article, a server predicted a “mass exodus of skilled waitstaff” if D.C. restaurants did the same.
Rather than listening to activist groups, Bowser should take a tip from employees, employers and, as the D.C. restaurant boom shows, customers themselves: Leave the tipped wage alone.