No one is being paid $2.13

Jayaraman’s claims are in keeping with ROC’s habit of misrepresenting and distorting the facts to cast the restaurant industry in the least flattering light possible. Often, these efforts fall flat on their face: Witness their recent accusation that Darden Restaurants—a company whose CEO is African-American—keeps minorities out of their best-paid jobs. But Jayaraman’s recent remarks in this forum merit a longer response, if only to prevent a gross misimpression of the restaurant industry from taking hold among legislators.
 

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The trouble begins with Jayaraman’s characterization of the tip wage rate itself, which she describes as a “penalty.” She wants readers to believe that restaurants are penalizing employees who earn tip income. In reality, they’re just counting a portion of their employees’ tips as income—just like the IRS does.
 
Here’s how the tip credit works: Tipped employees are paid a cash wage of $2.13, and their employers have to guarantee that they make at least $7.25 when tip income is included. If they don’t, the employer has to make up the difference. In other words, tipped employees are making at least the federal minimum—and often much more than that. (Recent Census data show that the average wage for a tipped employee is nearly $11 an hour).
 
The tip credit represents a good compromise for an industry where labor costs consume a third of every sales dollar (and another third go to food costs). The typical table service restaurant keeps just 3 cents in profit for each dollar of food they sell, which doesn’t leave much room for legislation (like the bill Jayaraman promotes) that could more than triple their labor costs. Absent a major price hike that would make their customers think twice before eating out, restaurants are forced to adapt in other ways—ways that negatively impact the very employees that ROC is trying to help.
 
For instance, though Jayaraman cites states like California and Washington as proof that restaurants can succeed even where a tip credit doesn’t exist, the evidence on the ground suggests otherwise. Consider Washington State. There, as Seattle Weekly detailed recently, a minimum wage that rises each year without an offsetting credit for tip income has forced employers to rethink their hiring strategy. A number of restaurants no longer hire bus boys, and fewer servers are assigned to more tables. Customer service declines, and so do the tips.
 
The economic evidence backs up the anecdotes: Economists from Miami and Trinity University found that each 10 percent increase in the base wage for tipped employees has reduced their hours worked by over five percent.
 
Jayaraman chooses not to grapple with the serious empirical work on the difficult realities of higher labor costs. Instead, she refers readers to a polemical report, released by her own organization, called “Tipped Over the Edge.” Full of questionable and unsubstantiated attacks on the restaurant industry, it accuses employers of practicing “discrimination by design” and “profiting from poverty.”
 
Space considerations don’t permit a full response, but consider one data point that’s indicative of the report’s quality. Observing that only one of five restaurants’ head chef is a woman, the report concludes that women are “not able to access the highest-paying positions in the industry.” However, ROC doesn’t bother to tell their readers that well over half of the managers of restaurant servers and food prep staff are women. If “discrimination by design” were a reality, a statistic like this one wouldn’t exist. But ROC is happy to cherry-pick their numbers to make an ideological point.
 
If Jayaraman and ROC are truly interested in improving the lot of restaurant employees, they would do well to remember the old maxim from the late Senator Paul Tsongas: “You cannot be pro-jobs and anti-business at the same time. You cannot love employment and hate employers.”
 
Saltsman is a research fellow at the Employment Policies Institute