Cuomo’s about to crush New York restaurants
Author: Michael Saltsman
Publication Date: April 2018
Newspaper: New York Post
Topics: Minimum Wage
It’s déjà vu all over again.
Less than four years after Gov. Andrew Cuomo convened a wage board to study tipped-employee pay, the Labor Department will hold a series of hearings to decide whether New York should follow seven other states and eliminate the tipping system entirely. The first hearing, on Friday at SUNY-Farmingdale, will pit service-industry staff who value their tip income against labor advocates who prefer all servers earn the same flat wage.
If New Yorkers want a preview of what’s to come should unions get their way, look to San Francisco.
As one of the first cities in the country to create its own minimum-wage requirement, San Francisco has lived up to its reputation for progressive values and high costs — which usually go hand in hand. The city is uniquely expensive for full-service restaurants; consistent with California law, it doesn’t treat servers’ tips as wage income. That means a waiter who earns hundreds of dollars each night in tip income alone must still be paid nearly $15 an hour on top of it.
As the minimum wage has risen ever-higher in recent years, this has forced a series of unpleasant consequences for San Francisco servers and restaurateurs. The San Francisco Chronicle reported in 2016 on the steep increase in restaurant prices across the city, and identified labor costs as “the biggest factor.”
For those eateries whose clientele couldn’t afford the cost bump, a worse fate was in store: According to a 2017 Harvard Business School study, each $1 increase in the tipped base wage increased the rate of restaurant closure for a median-rated restaurant by 14 percent.
That meant three-star restaurants with affordable prices were hardest hit. New York should expect the same: According to my organization’s forthcoming survey of 200 full-service restaurants in New York, nearly half of restaurants with a price of $15 or less per person are “very likely” to close should the governor pursue a San Francisco-style system for the state. (By contrast, about a third of more-expensive restaurants said they’re very likely to close.)
Cuomo can’t assume these restaurants are crying wolf. After New York raised its tipped minimum wage by 50 percent at the end of 2015, over 270 restaurants closed statewide. (Neighboring Pennsylvania and New Jersey both gained restaurants over the same time period.) Labor Department data show that vibrant restaurant growth in New York City, which had been averaging roughly 6 percent annually, dropped to 1 percent.
Another increase of as much as 50 percent wouldn’t just force restaurants to shut down — it could spur those that remain to embrace payment alternatives opposed by servers. This includes the no-tipping model (“gratuity included”), where menu prices are significantly higher, but customers aren’t expected to tip. (One in seven surveyed restaurants in New York are very likely to take this approach.)
This would generate money to help restaurateurs pay the cost of the new mandate, but that’s money that tipped employees would have once enjoyed as income. Not surprisingly, servers in New York City — who earn $25 an hour on average, according to the New York City Hospitality Alliance — aren’t keen to give up their tips for a lower base wage.
New York restaurateur Danny Meyer, who helped popularize the gratuity-included system, learned a hard lesson in servers’ preferences when he lost up to 40 percent of his staff after ditching tipping.
This is what advocates for Cuomo’s proposal have in mind. The Restaurant Opportunities Center, a controversial NY labor advocacy group, which spent over $80,000 last year to lobby the governor and Legislature on this issue, has said openly that “this system of tipping needs to go.” That might make its donors at the Ford Foundation happy, but it won’t be viewed kindly by servers — 97 percent of whom prefer the status quo, according to industry survey data from UpServe.
Unless Cuomo wants New York City to go the way of San Francisco — where dining out becomes a privilege for the well-heeled, and high costs crush the mom-and-pop eateries — he’ll send this half-cooked proposal back to the kitchen.