By Michael Saltsman
A wage board appointed by Gov. Andrew M. Cuomo is under pressure from labor union-backed advocacy groups to raise the base wage for New York’s tipped employees (e.g. the server or bartender at your local restaurant) by as much as 80 percent.
If that sounds radical, it’s because it is – both employees and customers are worried about the consequences.
State law says that tipped employees must earn at least the full minimum in combined wages and tip income. If tips and wages don’t add up to the minimum, the employer must make up the difference. In practice, this system works out well for the employee: In self-reported earnings alone, Census Bureau data show that servers and bartenders average $13 an hour nationwide, with top earners collecting $25 an hour or more.
It’s a compromise that favors restaurants and the people they employ: Servers receive take-home pay far above the minimum wage; restaurants are able to maintain the roughly three cents’ profit they keep from each sales dollar.
Big Labor’s proposal to eliminate the tipped minimum wage would undo this balancing act and wipe out the profitability of many full-service restaurants.
The math isn’t hard to understand: Faced with a dramatic increase in costs, a business can either raise prices or cut costs if it wants to keep its doors open. Restaurants’ price-sensitive customer base can always opt to stay home more often if the cost of a meal out rises too far. This is why businesses are often forced to reduce staffing levels instead.
In Washington, with the highest state minimum wage in the country, Seattle Weekly reported in 2011 that many restaurants had stopped hiring busboys and started keeping fewer servers on the floor per shift. Economists from Miami and Trinity universities studied these trends nationwide and found a direct relationship between a higher tipped minimum wage and cutbacks in restaurant employment.
There’s an old saying that applies here: There’s no such thing as a free lunch. If organized labor has its way with a tipped wage hike, customers will still pay for some of it through higher prices and some employees will pay through reduced opportunities. Labor unions might be able to notch a political victory, but the people they claim to care about will be left paying the bill.
Michael Saltsman is research director at the Employment Policies Institute, which receives support from restaurants, foundations and individuals.