On Tuesday voters in Washington DC voted by a 55 percent to 45 percent margin in favor of Initiative 77, which called for raising the minimum wage for tipped employees to the same level as other employees by 2026. The initiative would raise the hourly tipped minimum wage from $3.33 to $15.00 by 2025. This misguided proposal would reduce both earnings and employment for servers.
Leading the charge for this so-called “One Fair Wage” is the Restaurant Opportunities Center United (ROC), a New York-based worker group whose mission is “to improve wages and working conditions for the 14 million people who work in America's restaurant industry.” It has led similar initiatives across the country in cities from San Francisco to Minneapolis to New York.
Despite ROC’s claims of bringing ‘wage justice,’ the organization has created a solution to a problem that does not exist. Under the Fair Labor Standards Act, the tipped minimum wage may be set at or above $2.13, and employers are required to make up the difference if an employee does not receive enough tips during a shift to match the general minimum wage.
With this safety-net guarantee, tipped workers in DC are already in an enviable position. According to the DC Department of Employment Service’s latest data (2016), bartenders made an average hourly wage of $16.74, and waiters and waitresses were at $14.89, both above the 2016 minimum hourly wage of $11.50. BLS data (2017) show that mean hourly wage for DC servers is $17.48, more than the $15.00 minimum goal.
ROC’s outside push to raise the tipped minimum ignores facts about DC’s restaurant culture that make the situation even less amenable to Initiative 77. Unlike other major cities that are overrun by chain restaurants, the vast majority of DC eateries are independent.
In the long run, ROC sees the service industry as a ripe target for unionization. Because of high turnover rates, unions would be able to rack in a sizeable amount of initiation fees. By advocating for policies such as Initiative 77 that would bring wage uniformity, and consequently a demand for organized labor to negotiate compensation for an entire industry, the organization is laying the groundwork for unionization.
Restaurant owners and employees worked hard to voice their opposition to the policy prior to the vote, but ultimately, they failed. The majority of workers commute from outside the district, including 56 percent of servers, so they were unable to vote on the policy.
Economically, implementation of Initiative 77 would have multiple negative consequences. Numerous studies have shown that raising the tipped wage would lead to fewer hours, higher food costs, and fewer jobs.
William Even of Miami University and David Macpherson of Trinity University determined in a 2011 study that each ten percent increase in the base wage reduces the hours worked by tipped employees by five percent. In a recent supplemental study, they projected that the proposed ending of Michigan’s tip credit would cost the state between 5,200 to 14,000 jobs in the service industry.
A 2016 working paper by the US Census Bureau’s Maggie R. Jones reached similar conclusions, finding mandatory employer pay increases were met by equivalent tip decreases and declines in employment. DC’s eventual $15 minimum would be on the high end of the wage range.
Proponents argued that harassment would be reduced in a tip-less workplace. However, their logic breaks down when looking at the set goals of the proposal. ROC’s Diana Ramirez bragged that Initiative 77 would make “working Friday night is as lucrative as working Tuesday lunch.” This ignorance of supply and demand spells disaster for real-world application, as employees would no longer be incentivized to work during high-stress times. Everyone knows that fewer servers are needed for Tuesday lunch than Friday dinner. Servers might be paid the same, but fewer would be employed.
Existing power structures within the workforce would be reinforced, with employees pressuring each other to take less desirable shifts that no longer have a benefit of greater tips. New and less-forceful workers would likely end up being coerced into working weekend shifts.
Fortunately, the public’s vote on Initiative 77 is not binding. The DC City Council has authority over the change and no obligation to follow the will of the majority. Mayor Muriel Bowser along with a majority of the sitting Council announced their opposition to raising the tipped wage prior to the vote, so they can prevent it from being codified into law.
If the Council were to approve the proposal, it would then be sent to Congress for a 30-day passive review process. This is last resort option, as both chambers would have to vote down the measure, and local DC matters are unlikely to attract the attention of busy legislators.
The City Council will decide whether tipped workers will have to suffer the economic consequences of Initiative 77. Let us hope the Council votes for common sense.
Stephen Vukovits is a contributor to Economics 21. Follow him on Twitter @svukovits.
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