This week, the Rhode Island House Labor Committee heard public testimony on House Bill 7531, a bill that would eliminate Rhode Island’s tip credit and raise the base wage for tipped restaurant workers by over 300 percent by 2028. State lawmakers killed a similar bill last year after hearing concerns from local restaurateurs.
This year, employees joined fight, claiming the current tipping system isn’t broken, and changing it would negatively impact their ability to pay their living expenses and support their families. These testimonies were bolstered by a new survey published by the Rhode Island Hospitality Association, which found a whopping 91% of Rhode Island servers and bartenders prefer the current tipping system and don’t want to move toward a flat hourly wage.
EPI’s research director Rebekah Paxton testified alongside local operators and employees, saying their fears about lower tips and pay, the rising trend of automatic service fees, and potential for restaurants to close down as a result of this legislation was not unfounded. These crises are playing out because of tip credit elimination across the country — most recently in Washington, D.C. under recently implemented Initiative 82.
Read the full testimony below:
Dear members of the House Labor 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.
You’re going to hear from local employees and operators about how this bill will impact their everyday lives. I’m here to tell you how a similar policy is harming restaurants and employees around the country.
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 Rhode Island under HB 7531. 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.”
- The D.C. restaurant workforce has declined 12% in less than a year under tip credit elimination –3,700 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.
- D.C. restaurants scrambled to adapt to the rapid changes with menu price hikes and introduction of service charges. Currently, over 250 D.C. restaurants are using service charges just to make ends meet. Local Reddit forums are exploding with customers confused and frustrated over whether or not they should now tip as service charges and menu price hikes come into place.
- 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.
Economists from Miami and Trinity Universities estimate this policy would cost Rhode Island over 1,900 restaurant jobs and $10 million in lost earnings for employees.
Please listen to your local employees and restaurant owners who say this policy will hurt, not help.
At the hearing, the Labor Committee voted to hold the bill for further study, instead of advancing the legislation to the full House chamber.