In a perfect example of unintended consequences, restaurant workers are pushing back against a nationwide campaign by labor advocates intended to raise their wages. They worry that the advocates’ push will cost them more in lost tips than they’ll gain in mandated wage increases – and cut their income overall.
These workers have found an ally in New York Governor Andrew Cuomo, who has come up with a sensible compromise that strikes a balance between overdue increases in the minimum wage and protecting workers who rely on tips.
Under federal law the minimum “cash wage” for tipped workers is $2.13 an hour, with tips making up the rest of workers’ pay. If tips don’t bring the worker up to the full federal or state minimum wage (whichever is higher), the employer is required by law to make up the rest. However, advocates’ “One Fair Wage” campaign aims to eliminate the tipped wage at the state level.
Seven states – California, Nevada, Alaska, Oregon, Washington, Montana, and Minnesota – have eliminated the tipped wage, requiring employers to pay the full minimum wage plus tips. This has drawn furious protests from both restaurant workers and owners, who say it means lower pay and lost jobs.
A 2018 survey by restaurant platform Upserve found that workers overwhelmingly – by 97 percent – prefer the tipped system to the full minimum wage. In Maine and Washington, D.C., restaurant workers led efforts to reverse laws passed under pressure from the One Fair Wage campaign.
Enter Governor Cuomo. In December, Cuomo’s Labor Department issued an order eliminating the tipped wage for some service sector occupations such as nail salon workers, hairdressers, and valet parking attendants, while retaining it for the restaurant industry. Cuomo’s rationale was to combat wage theft in those industries with the highest risk, while preserving the tipped wage system for restaurant workers who earn more than they would receiving the full minimum wage.
It’s been a popular move. Data from the Bureau of Labor Statistics show the annual median wage of waiters and waitresses, including tips, to be higher in New York than every state that has eliminated the tipped wage, and the annual median wage of bartenders to be higher in six of the seven states.
As PPI wrote in 2018, studies have shown that raising the tipped wage does not increase wages for restaurant workers because diners often end up tipping less. For instance, Census Bureau economist Maggie Jones found that raising the tipped minimum wage “increase[s] that portion of wages paid by employers, but decrease[s] tip income by a similar percentage.” Concern about declining tips and lower wages is why many restaurant workers have opposed an increase in the tipped minimum wage.
Restaurateurs also favor the tipped wage, as it enables owners to succeed in an industry with notoriously razor thin profit margins of 3 to 5 percent. Many owners cite having to close or cut hours (and thus wages) if faced with higher labor costs from raising or eliminating the tipped wage. When San Francisco increased its minimum wage from $13 an hour to $14 an hour in July 2017, bar owner Miles Palliser was forced to close after 5 years. “I think that the dramatic rise in minimum wage definitely affected us at the Corner Store and probably all three of our places in some fashion,” he told the San Francisco Chronicle at the time.
Governor Cuomo’s compromise is a win-win for both restaurant workers and owners. Other states should follow New York’s example.