Tipped Workers Do Better When They’re Paid the Same as Everyone Else

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The debate over increasing the minimum wage for tipped workers in Washington, D.C., is set to resume next week, as the D.C. City Council returns from its summer recess to decide the future of the voter-approved ballot measure known as Initiative 77.

Initiative 77, which passed with 55 percent of vote in the low-turnout June primary election, would gradually increase the tipped minimum wage over the next eight years until it reaches parity with the city's regular minimum wage of $15 in 2026.

Currently, tipped workers in the District must be paid at least $3.89 an hour. If their earnings fall short of the city's $13.25 minimum wage after counting tips, employers are then required to make up the difference. Gratuities paid by the customer that cover $9.36 difference between the two wages is known as the “tip credit.” Eight states, including California and Washington, have eliminated or begun to phase out the tip credit, bringing the wages of their tipped workers in line with the legal minimum for all other workers.

Advocates for eliminating the tip credit in Washington, D.C., argue that it would add much needed stability for workers who struggle to plan their futures around unpredictable paychecks and wage theft by employers, while addressing racial and gender pay gaps among tipped workers.

The restaurant industry, meanwhile, has framed Initiative 77 as a risk to the District's vibrant culinary sector, voicing concerns about potential layoffs and closures they claim the policy would cause. Plenty of servers and bartenders also campaigned against the measure over worries that higher food prices and a higher minimum wage could discourage tipping among customers.

Those concerns appear unfounded, however, when considering the experiences of other large cities that have raised the tipped minimum wage, according to a new report by the Economic Policy Institute (EPI). The report used American Community Survey data to analyze the effects of eliminating or beginning to phase out the tip credit in San Francisco and the Seattle metropolitan area, finding that the restaurant sector in both area continued to grow while earnings for tipped workers shot up.

Washington state hasn't had a lower wage for tipped worker for many years. In California, a separate tipped wage was never allowed at all. Like the District, San Francisco, and Seattle are both raising their standard minimum wage to and beyond $15 (San Francisco hit $15 in July).

Workers in traditionally tipped occupations earned more without the tip credit, according to the report. Servers and bartenders in Washington, D.C., have a median take-home pay of $14.41—that's about 21 percent less than their counterparts in San Francisco and about 7 percent less than those in the Seattle metropolitan area (including base wages and tips).

As for the sudden wave of layoffs among tipped staff in states that moved to eliminate the tip credit—well, there was none. According to the report, tipped workers in Washington, D.C., made up the same share of the private-sector workforce as tipped workers in San Francisco and were marginally greater than tipped workers in the Seattle metropolitan area.

In fact, one of the few categories where D.C. tipped workers are exceptional is in their likelihood to be in poverty. While tipped work on the whole is more likely to be lower paid than non-tipped work, tipped workers in the District were more than three times as likely as non-tipped workers to be poor. Workers in San Francisco and the Seattle metropolitan area were only rough two times as likely.

But what about the effects on businesses?

The data indicate that eliminating or phasing out the tipped credit does have an effect on restaurant growth and restaurant employment, though it doesn't come close to resembling the Chicken Little warnings of the anti-77 crowd.

From 2013 to 2017, restaurant growth in the Seattle metropolitan area averaged .02 percent less than the District's 4 percent (San Francisco was an outlier here with only .08 percent growth). During that same period, restaurant employment in the Seattle metropolitan area grew by 3.5 percent and in San Francisco by 3.2 percent, while reaching 4 percent in D.C.

Wage growth in restaurants during those four years in San Francisco was double the District's 3 percent. The Seattle metropolitan area also left D.C. behind, posting 5.3 percent average annual growth.

“There's been much faster wager growth [in San Francisco and Seattle] and only modestly faster employment growth,” said the EPI report's author, David Cooper, during a policy briefing hosted by the D.C. Fiscal Policy Institute on Wednesday in Washington, D.C.

Washington, D.C., is unique in the sheer size of the gap between its regular minimum wage and tipped minimum wage.

In an interview with the Prospect,the report’s author didn’t rule out the possibility of some growing pains arriving as a result of the phase out timeline for the tip credit.

“It's fair to say that this is going to be a larger increase than what's been done and studied in a lot of places. But an eight-year span—that's a pretty long length of time for businesses to learn and adjust,” says Cooper. “It's also enough time where if [the phase-out] starts having measurable negative effects on the restaurant industry, the D.C. Council could stop and do an analysis.”

“But I think you have to give it a try, for the sake of tipped workers,” Cooper adds.

One of the chief complaints from tipped workers I spoke to about Initiative 77 was that the District was unique in its concentration of small, independently-owned restaurants that wouldn't be able to survive the new costs.

As it turns out, however, Washington, D.C., not only has a far smaller share of restaurants that can be considered small businesses than the Seattle metropolitan area and San Francisco, it also has smaller share than the national average, according to the report. This was true for both restaurants with fewer than 50 employees and restaurants with fewer than 20 employees.

On Election Day, the strongest support for Initiative 77 came from poorer and predominantly black precincts in Northeast D.C. and across the Anacostia River, while the pockets of opposition were located in the city's whiter and wealthier neighborhoods. The new EPI report provides insight into the racial and class breakdown behind the vote, while adding gender as a factor worth considering.

People of color account for an estimated 70 percent of the tipped workforce in Washington, D.C., earning notably less than tipped white workers, according to Cooper. Black tipped workers in particular earn 23 percent less per hour in wages and tips than tipped white workers.

Meanwhile, female tipped workers in D.C. make 8 percent less per hour in wages and tips and 20 percent less annually than their male counterparts, resulting from working fewer hour per week on average. According to Cooper's work, D.C. has a far larger share of male tipped workers than the national average, where women account for close to 70 percent of the tipped workforce.

At least seven of 13 D.C. City Council members have signed onto a bill that would repeal Initiative 77. Of the seven council members supporting a repeal of the initiative, five represent wards in which their constituents voted to eliminate the tip credit.

The city council will hold a public hearing on the repeal on Monday 17.

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives' age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren't made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.