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Saint Paul’s workers need a tip credit

Today sees a public hearing on a proposed $15 minimum wage in Saint Paul. Reports suggest that the Minnesota Licensed Beverage Association (MLBA) has enough votes on the City Council to exempt tipped workers from the citywide wage hike.

As the Star Tribune reports,

As in Minneapolis last year, the debate over whether tips should count as wages has dominated the minimum wage discussion in St. Paul. Supporters say that without a “tip credit” that allows employers to pay a lower base wage and factor tips into total wages, restaurants may go out of business. Opponents counter that if tipped workers are excluded from the minimum wage increase, they’ll be stuck with unpredictable incomes that rely on tips — a situation that can lead to sexual harassment and wage theft.

Notice that the argument against the tip credit doesn’t actually contradict the argument for it.

The economics are pretty clear that, if there is going to be this harmful hike in the minimum wage, a tip credit is one way to mitigate that harm. There is also encouraging news that, as Saint Paul’s Councillors begin to recognize the harm that this hike will do to the city’s small businesses, they are trying to water the measure down. Indeed, given current labor market conditions in Minnesota, with rising labor demand relative to supply driving wages up, the latest proposal – to reach $15 by 2026 for small businesses and by 2028 for micro businesses – might actually come in under the market wage rate. In this case the harm from the measure would be rendered largely harmless by its becoming economically irrelevant.

A recent study by economist Noah Williams showed how Minnesota’s minimum wage hikes had negatively impacted employment growth in the state’s restaurants. For the sake of Saint Paul’s restaurateurs and their employees, let us hope that reports about the City Council are right.

John Phelan is an economist at the Center of the American Experiment. 

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