As St. Paul’s politicians prepare to hobble the city’s labor market with a $15 minimum wage without tip credit, D.C.’s are getting rid of it
Written by John Phelan
in Economics, Minimum wages, Employment
on October 18, 2018
PrintDespite economic theory and empirical evidence being against such a move, Saint Paul’s Mayor, Melvin Carter, seems intent on imposing a $15ph minimum wage on the city’s businesses. Not only that, but there will not be a ‘tip credit’, which would allow employers to pay tipped workers a lower wage and count tips toward the $15.
The experience of Washington D.C. shows just how bad this policy is. As the Wall Street Journal reports,
On Oct. 2 the D.C. City Council voted 8-5 to repeal Initiative 77, a ballot measure imposing a $15 minimum wage for all tipped workers by 2026. The wage hike was billed as a way to give workers financial stability and protect them from sexual harassment by restaurant patrons. But tipped workers realized the policy came with serious unintended consequences.
Before the measure passed in June, many restaurant workers wore buttons asking patrons to “save our tips” and “vote no on 77.” When Washingtonians passed the measure anyway, the workers pushed for repeal. Though restaurants pay a $3.89 hourly wage to tipped workers, “we choose these jobs because we make far more than the standard minimum wage” from tips, bartender Valerie Graham told the City Council.
Labor costs typically account for about 40% of a D.C. restaurant’s overall expenses. The Restaurant Association Metropolitan Washington estimates that raising the minimum wage to $15 for tipped workers would cost $600 million a year. Restaurants operate on a thin profit margin, as workers know.
“Increasing the base wage for tipped workers who already make well above minimum wage threatens those who do not make tips,” such as cooks, dishwashers and table bussers, Rose’s Luxury bartender Chelsea Silber told the City Council. Bartender Faith Alice Sleeper explained that “our support staff will lose their jobs first, many of whom are immigrants.”
Allison Kays, a general manager at Justin’s Cafe, said that as payroll expenses rose by more than $100,000 a year, the restaurant would likely save money by buying from “big box national suppliers” instead of local farms.
This echoes what Saint Paul’s tipped workers have said. As one Minneapolis tipped worker wrote in the Pioneer Press recently,
A tip credit guarantees that all workers will earn the full minimum wage at all times while allowing servers to count a portion of their taxable tipped income toward their hourly wage. This pay structure would protect both the income of tipped workers in full-service restaurants and the small businesses that employ us.
We want this tip credit because however you do the math, when the wage goes to $15 an hour, our reliable tipped jobs and incomes are in jeopardy.
Mayor Carter still has a chance to reverse course. It would be better for the city and its workers if he did this before passing the ordinance rather than afterwards.
John Phelan is an economist at the Center of the American Experiment.