Eliminating Tip Credit Will Cost Michigan Up To 14k Restaurant Jobs

Analysis From Miami and Trinity University Economists Echoes Harvard Study on Restaurant Risk
  • Publication Date: May 2018

  • Topics: Minimum Wage

WASHINGTON D.C. — Today, the Employment Policies Institute (EPI) released a new policy study by Drs. David Macpherson of Trinity University and William Even of Miami University which examines the impact of the proposed elimination of Michigan’s tip credit. Using a variety of empirical models, the economists conclude that Michigan will lose at least 5,200, and as many as 14,000, jobs in the full-service restaurant industry.

Read the full policy brief here.

The economists draw on their own past research on states’ experiences with higher tipped minimum wages to inform their analysis of Michigan’s proposal. The policy brief also debunks a number of false claims about tip credits, such as the claim–refuted by EEOC data–that tip credits are related to sexual harassment.

Michigan voters this fall may consider a ballot proposal that will increase the state’s current minimum wage 30 percent to $12 an hour. The ballot measure would also eliminate Michigan’s tip credit, which would effectively raise the tipped wage 240 percent. Michigan and 42 other states (as well as federal law) currently permit restaurants to take a tip credit, whereby restaurants pay a lower base wage to servers, and servers must earn at least the full minimum wage when tips are included. In rare instances where employees don’t earn the full minimum wage with their tips, employers are legally-obligated to make up the difference. (Census Bureau data show that tipped employee earn over $14 an hour on average with tips included;

In localities where the tip credit has been eliminated, restaurants have experienced a number of severe consequences: A recent Harvard study identified a 14 percent increase in restaurant closures in San Francisco following each $1 increase in the base wage for servers; after New York raised its tipped minimum wage by 50 percent overnight, at the end of 2015, the state saw over 270 restaurants close.

Employment Policies Institute managing director, Michael Saltsman, released the following statement.

“Eliminating the tip credit is a solution in search of a problem. Tipped employees are guaranteed to earn at least minimum wage, and most of them earn far more than that. Voters and policymakers should proceed with caution before promoting a 240 percent hike in restaurant labor costs—which would cost the state’s restaurant industry thousands of job opportunities.”

For more information, visit EPIOnline.org. To schedule an interview, contact Samantha Summers at (202) 463-7650 or [email protected].

The Employment Policies Institute is a nonprofit research organization dedicated to studying public policy issues surrounding employment growth. In particular, EPI focuses on issues that affect entry-level employment. EPI receives support from restaurants, foundations, and individuals.