This week, the Maryland Senate Finance Committee heard public testimony on SB 160, a bill that would eliminate Maryland’s tip credit and raise the base wage for tipped restaurant workers by over 300 percent by 2027. The bill mirrors legislation from last year that died in the committee after restaurant employees voiced their concerns.
This time, Maryland’s restaurant employees turned out again to explain why the current base wage plus tips system works for them, and how the bill would change their livelihoods for the worse.
EPI’s director of research Rebekah Paxton also testified in opposition to the bill, providing some additional economic research context and explaining how the same policy has created a dining disaster in neighboring Washington, D.C.
Read the full testimony below:
Dear members of the Senate Finance Committee, thank you for your time today.
My name is Rebekah Paxton, I’m the research director at the Employment Policies Institute in Arlington, Virginia, which studies the impacts of tip credit elimination at the federal, state, and local levels.
Economic research and the current crisis in Washington, D.C. are clear: tip credit elimination does not help tipped employees. Instead it completely upends their livelihoods.
Decades of research speaks for itself on this issue: The economics of this bill don’t add up.
- Employees lose their jobs: A National Bureau of Economic Research study finds every $1 increase in the tipped wage causes a 6.1% decrease in restaurant employment.
- Tips decrease: A Cornell University study finds as state tipped wages are forced up, tip percentages left by customers fall. States that do not allow tip credits have some of the lowest tipping percentages in the country.
- Remaining employees take home less: A National Bureau of Economic Research study finds every $1 increase in the tipped wage causes a 5.6% total earnings loss for tipped employees.
- Restaurants close: A Harvard Business School study finds every $1 increase in the tipped wage increases the probability of restaurant closures by 14 percent.
We don’t have to speculate on what would happen in Maryland under this legislation. The consequences are already playing out in real time in Washington, D.C. Since a similar policy went into effect less than a year ago, the local restaurant scene is already worse off.
- D.C. restaurants closed at the highest rate in 2023 since the pandemic. Restaurants announcing their closures this year described the city as “no longer sustainable” and “impossible to survive.”
- D.C. restaurant employment is already down 4.4 percent – 1,300 D.C. restaurant employees have lost their jobs.
- Employees are reporting lower tips, and less take home pay. One server, a previous supporter of the policy, quoted in CBS local D.C. said the current situation “isn’t what [D.C.voters] voted for.” Another server quoted in D.C.ist said he takes home roughly half of what he made before this policy went into effect – from $160 a night to maybe $80.
- Diners are opting to stay home because dining out in D.C. is too expensive. One in three D.C. diners are taking their business to neighboring states and cities.
Was this a surprise? Absolutely not.
Individual operators and employees warned lawmakers about the consequences. A survey conducted by my organization of 100 local restaurants before tip credit elimination began in May 2023 told lawmakers large majorities would be forced to raise prices, lay off staff, or reduce employee hours.
That survey also indicated the long term effects of this policy, which are backed up by economic research. This is just the first year – restaurant closures, job cuts, earnings losses are going to continue to get worse every year.
- Restaurants indicating they would be forced to reduce staff went from 63% by July 2023 to 72% by 2027.
- Restaurants indicating they would be forced to implement service charges went from 55% by July 2023 to 70% by 2027.
- Restaurants indicating they would close down and/or relocate outside of D.C. went from 54% by July 2023 to 77% by 2027.
Economists estimate this policy would cost Maryland over 7,000 restaurant jobs and $44 million in lost earnings for employees.
While the idea may sound like it is helping employees, it will only hurt them in the long run. D.C. employees are feeling this firsthand – please save Maryland employees from this same fate.