Two ballot measures this fall seek to eliminate tip credits in Washington, DC and Portland, ME. The measures are part of a larger, nationwide campaign by Big Labor advocates such as the Restaurant Opportunities Center’s (ROC) sister nonprofit One Fair Wage.
While union activists argue eliminating tip credits will raise wages for tipped restaurant employees, doing so means upending the existing tipping system that many employees and customers prefer. A large body of economic research shows eliminating tip credits and spiking tipped minimum wages causes job loss, earnings loss, and may even force restaurants out of business.
A new study by University of California-Irvine economists David Neumark and Maysen Yen builds on these findings and estimates the impacts on tipped restaurant employees.
Analyzing state tipped minimum wage hikes across the country, Neumark and Yen find a $1 increase in the federal-binding minimum wage of $2.13 per hour could cause as large as a 6.1% decrease in full-service restaurant employment. The same $1 increase in the tipped minimum wage would also cause as much as a 5.6% decrease in earnings for full-service restaurant employees. That’s in part because other studies have shown as tipped minimum wages increase, the percentage of their bill customers tip falls, and restaurant employers are forced to make schedule reductions as the minimum wage bill rises beyond their affordability.
While many proponents of measures such as the ballot initiatives in Washington, D.C. and Portland claim the tipped wage hikes will help fight poverty, Neumark and Yen’s findings undermine this argument. The authors find tipped restaurant employees are already significantly less likely to be poor than other non-tipped minimum wage earners (since tips provide a significant source of income well above the current minimum wage). They also study the effectiveness of tip credit elimination as a solution to alleviate poverty, and find it is even less likely to deliver wage benefits to poor workers than a regular minimum wage hike (which Neumark has previously found to be minimally effective).
Read the full study here.
But it’s not just academics who warn against the negative consequences of changing the tip credit system. Restaurant employees themselves are speaking out to save their tips.
Tipped restaurant employees have historically been at the forefront of the fight to save tip credits and tips. Servers and bartenders from the District of Columbia, Maine, and various other states have successfully fought to save their tips from union activists’ schemes.
OurIndustryOurVoice.com documents the first-hand accounts of tipped employees across the country who explain that the current tipping system provides a flexible, lucrative opportunity that would be taken away by anti-tip credit measures.
Valerie Graham, a Washington, D.C. bartender says the tip credit system “has given me the flexibility and the earning potential to support my daughter as a single mom in a very expensive city…I would absolutely without hesitation prefer to work for the lower minimum wage plus tips.”
Valerie Torres, another Washington, D.C. bartender says “I like the tip credit system, it allows the flexibility for us to really make well above minimum wage.”
Joshua Chaisson, a Portland, ME server says “We are a tip-based industry. It allows servers and bartenders to remain the commission-based salespeople that we consider ourselves to be. This is not a broken system that is in need of fixing.”
Hear more stories from tipped restaurant employees at OurIndustryOurVoice.com.