Let Michigan Servers Keep Their Tips

This fall, Michigan voters may consider a ballot proposal to further increase the state’s minimum wage to $12 an hour—a 30 percent increase over the state’s current minimum wage. However, included in this proposal is a far more radical policy change—the elimination of the tip credit, effectively raising the tipped minimum wage by 240 percent.

In a new policy brief from the Employment Policies Institute, economists use a methodology developed by the Congressional Budget Office to estimate that the proposed policy would cost the state approximately 17,000 jobs. What is more harmful is the estimated impact of eliminating the tip credit.

The economists draw on their own past research on tipped wage impacts and show that eliminating the tip credit will cost full-service restaurants as many as 14,000 jobs. Roughly 45 percent of the estimated job loss (approximately 6,000 jobs) would be in the Detroit area.

In New York, where the tipped wage has risen sharply in recent years, the full-service restaurant industry has experienced a dramatic slowdown in employment growth. One city restaurateur explained that he cut roughly 1,500 people from his staff (from 4,000 down to 2,500) not by firing them, but by opting not to replace employees who left. That’s one employer, and in response to an increase that’s a fraction of the size that ROC wants to enact in Michigan.

The proposal’s primary supporter is a controversial New York-based labor group called the Restaurant Opportunities Center, or ROC, which has raised over $1 million for its ballot committee. ROC has put forth a number of rationales for eliminating the tipped wage, none of which pass basic scrutiny, as is demonstrated in this report.

ROC’s ultimate goal in Michigan is ideological, not economic. A ROC employer-member recently admitted that the policy change it has proposed in Michigan (and elsewhere) is the first step in getting to “no tips.” That might be a desired consequence for ROC and its foundation donors, but servers don’t want what ROC is selling. A survey from industry publication Upserve found that 97 percent of tipped workers preferred earning tips and a base wage to a flat hourly wage.

Michigan’s proposed tip credit elimination has the potential to turn from a dangerous ballot measure into a disastrous one.