On Tipped Wage, Berkeley Should Learn From its Neighbors
Author: Michael Saltsman
Publication Date: July 2013
Newspaper: Contra Costa Times
Topics: Living Wage
Berkeley currently is entertaining a proposal to match its neighbors in San Jose and San Francisco with a $10-or-higher hourly minimum wage. Wisely, Mayor Tom Bates offered the modest caveat that such an increase also should account for the tip income earned by restaurant employees such as waiters and waitresses.
A loose coalition of labor organizers and academics has offered a barrage of misinformation in an attempt to sour city officials on the idea. Before discarding it, however, Berkeley should take a closer look at the evidence from other cities it is trying to emulate.
Federal law sets the minimum wage for all employees at $7.25. However, businesses such as restaurants are allowed to pay a base wage of $2.13 coupled with a guarantee that employees earn at least the federal minimum with tips included. In practice, the guarantee isn’t often necessary: The average wage for a tipped employee is $13 an hour, and top earners bring in $24 or more.
Seven states — including California — do not follow the Labor Department and the IRS in recognizing employees’ tips as income. Instead, tipped employees who earn an hourly wage far above the minimum still are required to be paid the full minimum wage on top of it.
The consequences, in these states and the 24 others that have compromised their tipped wage, have been severe: Research by economists at Miami and Trinity universities found a drop in both hours and employment for tipped employees following increases in the tipped wage.
Another report from consulting firm Deloitte explains that a typical full-service restaurant keeps 3 cents in profit from each sales dollar after expenses are paid. That means a mandated increase in labor costs can’t just be shrugged off. Absent the ability to raise prices, which can risk reducing sales, restaurants instead are forced to provide customers with the same service at a lower cost (read: fewer employees).
One former restaurateur described to me the unintended consequences of San Francisco’s costly labor environment. Busboy positions, which used to be a gateway to higher-paid tipped jobs, are being phased out in favor of servers busing their own tables.
Meanwhile, unemployment for the young adults who used to fill these entry-level positions sits at an astounding 30.5 percent in the Bay Area. Pastry chefs, butchers, and other skilled staff are being outsourced to less-costly surrounding areas; other nontipped employees see their earnings suffer as restaurants are forced to give raises to their best-paid tipped staff at the expense of others.
Food trucks with no wait staff have flourished in the city. Other companies, such as San Francisco-based Momentum Machines, have developed the means of automating routine tasks, such as making hamburgers. And casual dining chains, such as California-based Chevys Fresh Mex, have implemented technology that allows customers to order and pay at the table, with minimal service required.
To avoid the worst of these consequences, here’s a simple solution for Berkeley: If city officials are set on raising the minimum wage to $10 an hour, give full-service restaurants a choice: Either pay the new wage, or guarantee your tipped employees $14 an hour in total compensation — including tips — in exchange for paying a base wage of $8 an hour.
It still will be expensive to run a restaurant in the Bay Area, but at least this compromise should satisfy labor groups while preserving employers’ ability to offer job opportunities.