Michael Saltsman: Tipped jobs would suffer from hike in minimum wage
Author: Michael Saltsman
Publication Date: June 2017
Newspaper: Columbus Dispatch
Topics: Tipped Wage
Leaving a tip for your server at the end of a meal out is a custom as American as apple pie. A poorly understood provision in companion bills being supported by Ohio Reps. Marcia Fudge, Joyce Beatty, Marcy Kaptur and Tim Ryan, along with Sen. Sherrod Brown, puts this tradition, and the highly paid tipped jobs it supports, at risk.
The bill, Raise the Wage Act of 2017, would increase the federal minimum wage by 107 percent to $15 an hour. The $15 minimum wage was an idea popularized by Vermont Sen. Bernie Sanders in his 2016 presidential campaign. Sanders’ bill and the companion bill in the House (S1242 and HR15) would apply this $15 requirement uniformly without making geographic distinctions — the wage floor would be identical in Boston and Baton Rouge, Minneapolis and Missoula.
Even wealthier cities in the Bay Area have struggled to adapt to a wage floor this high, with dozens of businesses closing as a result. (Specific stories can be found at FacesOf15.com.) Yet the increase to $15 pales in comparison to the more than 600 percent increase that the legislation requires for employees who receive tips. (In Ohio, the base wage would increase by 267 percent.)
Federal law requires that tipped employees must earn the same minimum wage as all other employees when their base wage and tip income are combined. In practice, this isn’t a problem: Census Bureau data reported by employees show that tipped employees report earning over $13 an hour on average, with top earners averaging $24 an hour or more. (In the rare instances where employees fail to earn at least the required minimum, employers are required by law to make up the difference.)
It’s a status quo that works for employers, employees, and customers: Restaurateurs can keep menu prices reasonable, and employees can earn many multiples of the minimum wage based on the service they provide. It’s also the law in most of the country: Just seven states decline to treat tips as income in their labor law — breaking with the Internal Revenue Service, not to mention their own state tax agencies.
New York provides a recent example of the catastrophic results when this status quo is overturned. A state wage board appointed by the governor increased the base for tipped employees by more than 50 percent in 2015, regardless of whether they were already earning far more than minimum wage with tips included. The state’s restaurants were forced to give their highest-paid employees a raise — and raise prices, cut staff and business hours, or close their doors to adapt to the higher costs.
Longway’s Diner in Watertown, NY, was typical: The roadside establishment, once open 24 hours, was forced to eliminate its night shift and the jobs of the two employees who staffed it. The harm isn’t just anecdotal, though: Census Bureau data show that New York has suffered a decline in the number of food industry businesses in the first three quarters of 2016, an impact even more severe than the Great Recession. (In neighboring Pennsylvania, which adheres to federal law on the minimum wage and tipped wage, the number of industry employers rose over the same time period.)
For those employees who keep their jobs, a dramatic change in the tipped wage may mean a loss in tip income. Some employers in states where the tipped wage has been raised dramatically have experimented with eliminating tipping, opting for higher menu prices and a “gratuity-included” model.
Such policies might be praised on the pages of the country’s elite periodicals, but they pinch the pocketbooks of the employees themselves, who lose out on considerable tip income. One Google survey found that nearly 60 percent of restaurant staff would oppose even a $15 minimum wage if it meant they can no longer receive tips.
National polls show that more than 80 percent of restaurant customers also prefer the tipped status quo, too. Which raises the question of why Reps. Fudge, Beatty, Kaptur, and Ryan, along with Sen. Brown, want to upset the apple cart. Servers interested in keeping their tips, and their jobs, might want to inquire.
Michael Saltsman is managing director at the Employment Policies Institute, which receives support from businesses, foundations and individuals.