Minnesota’s Economic News — W/E 9/24/21
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Some time ago, I wrote “If you don’t want a job at $9.50 per hour, don’t get one.” Because, while there are strong economic arguments against minimum wage hikes, there are moral arguments against them as well. After all, all minimum wage laws do is make certain voluntary contracts between employer and employee illegal, overriding the wishes of the contracting parties.
This is starkly illustrated by those minimum wage workers who are fighting to get their tips included in their wages. This would allow their employers to pay them below the minimum wage to the value of their tips. It might sound strange. Aren’t these workers lobbying against their own interests? That is what Restaurant Opportunities Centers United argues in opposing such measures, no matter what the workers themselves want.
A recent article by Connor D. Wolf at Inside Sources puts the worker’s side of story.
The Restaurant Workers of America (RWA) was formed as a national workers organization Jan. 10 dedicated to preserving tipped income and flexibility at work. The group was first started by restaurant workers in Maine before branching out to fight in favor of the tipping system nationally.
“A lot of it started with them having their own fight in Maine,” Jennifer Schellenberg, a founding member of RWA, told InsideSources.
Maine became a success for the group early on with the state voting to restore what is known as the tip credit – a crucial policy in the debate. RWA and other advocates were able to bring the tip credit back less than a year after it was banned. The group then looked nationally as the tipping system faced increased opposition elsewhere.
The Fair Labor Standards Act (FLSA) allows employers to use tips as a credit against a worker’s minimum wage obligation. The tip credit essentially permits an employer to pay tipped workers below the minimum wage so long as the gap is bridged with tips.
The Restaurant Opportunities Center (ROC) has been at the forefront of opposing the current tipped system both nationally and during the fight in Maine. The group does stress that it isn’t against the practice of tipping – so long as those workers are being paid the same minimum wage as everyone else.
But those in support of the separate minimum wage for tipped workers have a different take. They argue those policies help encourage employers to allow tipping – which helps their employees too because they usually get more take-home pay after receiving tips.
“We made a very good team and obviously saw a national need for this,” Schellenberg said. “Governors are talking about approaching the $15 minimum wage, and ROC is pushing the anti-tip agenda. That would be awful for our community. So we formed a national organization to support the tip credit.”
Schellenberg, who has worked almost two decades as a bartender and server, notes that in her personal experience it was pretty common for bartenders to make at least $35 an hour. She adds that some of the federal data critics point to for how much servers are paid is misleading because it doesn’t include information specific to tips.
Payscale, which provides information on salaries and benefits, found in a 2015 survey of 15,000 bartenders, waitresses, and waiters that they tend to make well above the minimum wage. San Francisco bartenders had the best median tips at $15.50 an hour. New York bartenders had the worst median tips at $7.10 an hour.
RWA is primarily focused on tips and not other policy areas like the minimum wage. Schellenberg notes that when her own city of Minneapolis, Minnesota, raised their minimum wage to $15 an hour – she only opposed that it didn’t include the tip worker exemption. Joshua Chaisson, another founding member, even called himselfa progressive in an opinion piece for The Washington Examiner.
ROC founder Saru Jayaraman has written and spoken extensively about why the tipping system is bad. She has argued that it allows for two-tier wages where tipped workers are disadvantaged. Schellenberg counters that the argument is ridiculous because employers still have to make up the difference. She believes it’s really about helping unions, without regard for whether workers will be hurt.
“My understanding of how the unions work is if we made tips and were unionized, they wouldn’t be able to take out those tips,” Schellenberg said. “Also, in a broader sense, if we’re doing really well and making good wages, we don’t have as much motivation to join a union. That’s something I typically think when I see her speak.”
Jayaraman also serves as the director of the Food Labor Research Center at the University of California, Berkeley. She has been a staunch advocate for labor unions and even spoken at some of their conferences. The ROC is also highly funded by labor unions.
The RWA has done a lot since going national last month. The founding members have written opinion pieces, launched petitions, and have become involved in local fights to implement or preserve the tipped credit. RWA has also clashed with ROC over a policy known as tip pooling.
The FLSA was later amended in 1974 by lawmakers so that it was clear employees got to keep all tips even when they make above the minimum wage. The reform did include an exemption for workplaces that pooled tips between their tipped and non-tipped workers.
Former President Barack Obama’s administration later changed the standard again by prohibiting the distribution of tips to anyone other than the workers who directly earned them. The administration at the time expressed concern that employers could use the practice to offset minimum wage obligations. The new administration is in the process of restoring it.
The Bureau of Labor Statistic did try to track tipping during an experiment in 1996. It was ultimately a failure because multiple factors make tips very difficult to track – like how tips are often given in cash. The Atlantic reported back in 2015 that 40 percent of tips go unreported.
John Phelan is an economist at Center of the American Experiment.