Chicago’s tipped minimum wage has been on the rise for years, leaving declining restaurant employment growth in its aftermath. Yet in the last city council meeting, Chicago aldermen proposed legislation to scrap the Windy City’s tip credit completely.
A similar move is already playing out poorly in the District of Columbia, where diners are confused about how, if at all, to tip their local servers. Across the country, raising tipped minimum wages and eliminating tip credits just hurts tipped employees: job opportunities are slashed, tips and overall earnings decline, and some restaurants are forced to shut down entirely.
Chicago will be no exception if it chooses the path of tip credit elimination. Recent survey results from the Illinois Restaurant Association show local restaurant operators may be forced to take drastic measures to stay afloat in the city:
- 80% of operators will be forced to raise their menu prices;
- 66% will be forced to reduce their staff or consolidate positions; and
- 58% will be forced to cut employee hours.
As jurisdictions across the country, such as D.C. and California, implement service charges to appease customers from rising costs of higher wage bills, the survey reveals Chicago will not be immune – 46% of surveyed restaurateurs indicated they may introduce service charges to customers’ bills instead of tipping, and 42% indicated they may have to implement other types of automatic fees to make ends meet.
This isn’t just a projection – local Reddit users have begun compiling a list of restaurants utilizing service fees as a way to adapt to future wage hikes, currently counting over 150 establishments.
As was the case in the District of Columbia, local restaurant owners are concerned about being able to remain within Chicago city limits: 62% of respondents said they would either be forced to close one or more of their current locations, or open any future locations in surrounding jurisdictions.
The bad news would not just be limited to restaurant operators, but employees too. The survey results show most (76%) Chicago tipped employees average at least $20 per hour in tips, plus earn their base minimum wages. Half of Chicago’s tipped employees are earning at least $30 per hour in just their tips alone.
Research shows this trend would not continue under tip credit elimination. Cornell University research shows as tipped minimum wages rise, tip percentages fall, and analysis by the U.S. Census Bureau finds tipped wage hikes translate to lower earnings for tipped restaurant employees. Recent Toast platform data finds that states that have eliminated their tip credits have the lowest tipping percentages in the country.
Restaurant owners and employees stand to lose at the hands of the latest tip credit elimination proposal – the city’s aldermen should take notice.
Read the full study here.