This week, Maryland Delegates heard the first public testimony on a proposal that would raise the state’s minimum wage from $15 to $25 an hour by 2030, fully eliminate the tip credit, and increase the minimum wage every year after based on inflation. EPI’s research director Rebekah Paxton told the House Government, Labor, and Elections committee that in places that have tried similar policies, data shows harmful impacts on restaurants, workers’ livelihoods, and consumer prices.
The proposal represents a near-600% increase in Maryland’s base wage for tipped restaurant workers over just a few years. Such a drastic increase would be the highest statewide minimum wage in the country, and fails to learn the lessons from places like California and D.C.
Here’s what EPI had to say about the negative consequences that have played out for other states that tried similar mandates:
Economists have studied the impacts of wage hikes for decades, and the evidence is clear:
- The vast majority (80%) of economic studies confirm minimum wage hikes cause job losses.
- Other research shows wage hikes force employers to make other cuts to make the numbers work, including limiting overtime and shift pick up opportunities, cutting benefits, and reducing scheduled hours for existing employees.
- Take California’s recent $20 wage law for fast food workers: After it went into effect in April 2024, the state lost nearly 20,000 fast food jobs. For workers who remained employed, Census Bureau data shows they lost 7 weeks of work annually on average.
- Economists have found wage hikes significantly worsen inflation. In fact, studies find every $1 wage hike contributes to up to 5.5% price increases, and even higher increases in rent and childcare. In California, fast food prices rose over 14% in just a year under the $20 wage law.
The second provision to eliminate Maryland’s tip credit would be a final blow for many local restaurants.
- Operators are often forced to downsize staff hours or positions as a direct result of steep tipped wage hikes, which negatively impacts workers’ earnings. A UC-Irvine study found every $1 wage hike results in a 6% drop in tipped restaurant employment.
- As restaurants are forced to downsize and raise prices, customer foot traffic falls as a result of lower capacity and higher costs.
- Workers’ tips suffer too: A Cornell researcher also found that as the tipped wage rises, the percentage left as a tip on customer checks falls.
- In fact, states that have fully-eliminated tip credits like California and Washington have the lowest average state tipping percentages in the country.
Washington, D.C. tried eliminating its tip credit, which the City Council voted to undo after local restaurants and workers testified that it was harming the District dining scene:
- D.C. lost more than 5% of its restaurant and bar industry employment.
- Tipped servers and bartenders who remained employed saw lower tips and lower overall earnings. The median DC tipped employee saw earnings decline by 5% after the law went into place, and the loss was nearly double for the lowest-earning 25% of workers.
- Overall, DC restaurant and bar workers lost nearly $12 million in earnings under the city’s tip credit elimination law.
Read more from EPI’s testimony here.