City Council Chooses Politics Over Tipped Employees
Vote to Eliminate Chicago’s Tip Credit Will Decimate Tips, Restaurant Jobs
Publication Date: October 2023
Arlington, Va. – On Friday, Chicago City Council is expected to vote to eliminate the city’s tip credit, raising the tipped minimum wage by 66 percent. Enacting tip credit elimination represents a stark ignorance for the economists, restaurant operators, and employees who have warned the city about the demonstrated consequences of this misguided policy.
Michael Saltsman, executive director of the Employment Policies Institute, said of the news:
“City lawmakers and even the state restaurant association chose flawed policy at the expense of restaurant workers’ jobs and livelihoods. We already know this has been disastrous across the country, most recently in the District of Columbia, perpetuating a rise in service charges, layoffs, and restaurant closures, while employees see their tips disappear. Activists and lawmakers will celebrate this as a victory, but Chicago’s tipped workers won’t be so fortunate.”
Research regarding the impacts of tip credit elimination include:
- Three quarters of American labor economists agree that reducing the tip credit costs employees their jobs;
- University of California-Irvine economists find every $1 increase in the tipped wage causes 6.1% employment loss and 5.6% earnings loss for tipped employees;
- A Cornell University study finds as tipped minimum wages across the country increase, tipping percentages for employees decrease. Recent data show areas that have eliminated tip credits have some of the lowest tipping percentages in the country;
- A Harvard Business School study finds every $1 increase in the tipped minimum wage increases the likelihood of restaurant shutdown by 14 percent.
The Illinois Restaurant Association’s own survey of city restaurants found this plan will have radical negative impacts on the local industry and its employees: 80% of restaurant operators say they will be forced to raise menu prices and two-thirds say they will be forced to make staffing cuts.
Washington, D.C. has already gone down this road, and is experiencing a chaotic aftermath that is hurting the city’s restaurant scene and employees. As restaurants struggle to adapt, a sharp rise in service charges has left diners frustrated and employees with fewer tips. This is already happening in Chicago as restaurants brace for impending tip credit elimination–a local Reddit thread has documented over 150 locations implementing service charges.