On July 1, Chicago will begin eliminating its tip credit, raising the minimum wage for tipped restaurant employees from $9.48 to $15.80 per hour (smaller businesses with less than 20 employees are currently subject to a $15 per hour regular minimum wage).
Similar to the aftermath in the District of Columbia, hundreds of restaurants immediately expressed concerns that the wage hikes would negatively impact them and their employees.
Also like the restaurants bracing in D.C., Chicago restaurants are already implementing ways to adapt to the upcoming wage hike to support their employees and keep their doors open. According to the survey, roughly half (46%) indicated they would have to institute automatic service charges. One in five restaurants responded they would institute a no-tipping-required policy to offset menu price hikes and service charge additions to keep price-sensitive customers coming in the door.
This wasn’t just a far-off concern. Just months before the new law takes effect, hundreds of restaurants have been forced to adapt. A Chicago-based Reddit thread has compiled a list of over 150 local restaurants that have added automatic service charges to their menu to adapt to imminent wage hikes.
This is already playing out among Chicago residents, who raised many concerns about what service charges are and whether or not they now replace tips. Some even noted they couldn’t afford a new service charge and tipping on top if they go out to eat:
Economic research finds over time, these consequences play out for tipped employees. As tipped wages are raised, tip percentages left by customers fall. A University of California-Irvine study finds every $1 increase in the tipped minimum wage actually reduces employee earnings by nearly 6%, since it cuts into their lucrative tip income.
Despite the crises playing out in Washington, D.C. and now Chicago, the state of Illinois is considering a similar policy statewide. Local and state lawmakers should pay attention to local tipped employees who say this system hurts their livelihoods.