Tip for Murphy: Leave NJ’s tipped wage alone
Author: Michael Saltsman & Samantha Summers
Publication Date: November 2018
Newspaper: The Burlington County Times
Topics: Minimum Wage
New Jersey Democrats have rightly proceeded with caution on a $15 minimum wage, citing concerns about negative impacts on young adults and the agricultural industry. But these consequences would pale in comparison to the negative impact on restaurants should the state Legislature embrace Assemblywoman Shavonda Sumter’s proposal to upend the state’s tipping system.
Sumter’s proposal, which was praised by Gov. Phil Murphy, would raise by more than 600 percent the base wage for employees who receive tips, such as restaurant servers and bartenders. As evidence to support the 35th Legislative District Democrat’s proposal, she cited an analysis from labor-backed researchers at New Jersey Policy Perspective. But the “facts” offered in support of this policy change don’t stand up to the most basic scrutiny.
Start with how the tipped minimum wage works. Tipped employees in New Jersey are subject to the same state minimum wage of $8.60 as all other employees. If their tip income and their base wage don’t reach this figure, employers are required by law to make up the difference. For most tipped employees, this is an infrequent occurrence: Data collected by the New Jersey Restaurant Association shows that tipped employees earn $17 an hour on average, which is broadly consistent with the $16.08 mean wage for tipped servers reported by the U.S. Census Bureau — roughly double the state minimum.
Not surprisingly, tipped servers in New Jersey have a poverty rate that’s nearly two percentage points lower than other non-managerial restaurant workers.
New Jersey law on tip income follows the precedent set by 42 other states, the U.S. Department of Labor and the IRS. In the handful of states that have abandoned this precedent, the consequences have been severe. Consider the Bay Area, which has already embraced the policy change sought by Sumter. Researchers from the Harvard Business School and Mathematica Policy Research found that each dollar increase in San Francisco’s base wage led to a 14 percent increase in closures for median-rated restaurants.
That median rating translates to an average 3.5-star review on Yelp, a rating shared by some of the most popular restaurants near Sumter’s district office in Paterson.
Restaurants that don’t close down are instead forced to adopt business models that require fewer employees. The New York Times profiled restaurants in San Francisco that have adopted a fine-casual model, where staffing levels are lower and customers perform certain tasks themselves (such as fetching their own drink refills). The data supports these anecdotal stories: A forthcoming analysis of two government data sets shows that restaurants in markets that have upended their tipping system have 20 percent fewer tipped servers on staff than in other markets.
Thousands of tipped employees around the country — in states from Maine to Michigan, from New York to Minnesota — have organized to oppose harmful measures to change a payment model that works well for them. In Washington, D.C., a ballot measure that matched Sumter’s proposal was opposed by most of the district’s progressive City Council, its Democratic mayor, and even its attorney general, who is currently suing the Trump administration. These employees and politicians aren’t in the pocket of big business. Rather, they’re standing up against a misguided policy that has been proved to hurt the employees it’s supposed to help.
New Jersey Policy Perspective and others have offered noneconomic reasons for changing the tipping system, claiming that the change keeps “tipped workers (from being) vulnerable to sexual harassment and abuse.” But this claim is based on a single flawed study from the New York-based labor group ROC, and also doesn’t stand up to scrutiny. Credible data from the Equal Employment Opportunity Commission show that a state’s tipping system has nothing to do with the percentage of sexual harassment charges filed from full-service restaurants.
Sumter and Murphy are trying to a fix a system that isn’t broken, to the detriment of the people who benefit from it. They should treat this idea the same way they would treat a lukewarm entree: Send it back.