A Denny’s waitress delivers breakfast to customers in Emeryville, Calif. The tipped minimum wage has been stuck at $2.13 since 1991.
Justin Sullivan/Getty Images
When Woody Harrelson’s character got hired as a bartender on Cheers, he was so excited, he insisted on working for no more than the minimum wage. “I’d work like a slave,” he said, “and, of course, I’d wash your car.”
Most bar and restaurant workers would prefer to bring home a little more cash. They may be in luck.
As part of his plan to raise the minimum wage, President Obama has called for substantially increasing the base wage paid to tipped workers for the first time in decades.
“It’s easy to forget the overwhelming majority of tipped employees are low-income workers,” says Amy Traub, senior policy analyst at Demos, a liberal research and advocacy group.
The Democratic bill endorsed by Obama in his State of the Union address last month would raise the overall minimum wage in stages, from the current $7.25 to $10.10 an hour. Tipped workers — a group that includes waiters, bartenders and busboys — would see their base wages rise to $7.07 an hour.
That bill, like all legislation in Congress these days, faces an uncertain future. And its fiercest opposition comes from the National Restaurant Association.
For starters, the NRA argues, most tipped workers make more than the federal minimum of $2.13 an hour. And it’s true: Thirty-one states mandate higher minimum tipped wages than the feds — though those mandates vary widely. In Arkansas, for example, the minimum is $2.63, while in Washington and Oregon it’s more than $9.
Even in states that haven’t raised the tipped minimum, restaurants are required to make up any shortfall between $2.13 and the regular minimum wage that isn’t covered by tips.
“Tipped employees at restaurants are among the highest-paid employees in the establishment, regularly earning $16 to $22 an hour,” says Scott DeFife, executive vice president for policy and government affairs at the NRA. “Nobody is making $2.13 an hour,” he adds.
But labor advocates take issue with the NRA’s numbers. In 2012, the median income for food and beverage serving workers was $8.84 per hour, according to the Bureau of Labor Statistics. The bulk of tipped workers are barely making ends meet, advocates say.
States Where Servers Have The Highest Base Wages
Nevada’s tipped minimum wage is $7.25 for workers who have employer-provided health insurance. It is $8.25 for those without such a benefit.
“Seventy percent are women who work at places like IHOP and Red Lobster,” says Saru Jayaraman, co-director of Restaurant Opportunities Centers United, which is pushing for higher wages. “They use food stamps at double the rate of the rest of the workforce.”
In seven states, mostly in the West, restaurants have to pay their workers the prevailing minimum wage, which is a good deal more than $2.13. Similar requirements are pending in the Pennsylvania and Florida legislatures, while voters will weigh in on the issue through ballot measures in a handful of other states and cities this year.
DeFife warns that increasing the base salary of servers and other tipped workers will lead to less hiring, as well as possible tensions in-house. With waiters making more in base salary on top of tips, the nontipped folks in the kitchen might feel shortchanged.
“We already have a disparity between the front of the house and the back of the house,” DeFife says. “For proper restaurant operations, you want to keep as good a balance as you can. You don’t want to increase the disparity.”
But even if wages do go up, labor proponent Traub argues that employers won’t pass on all the costs to their customers.
“Studies have found that when you pay higher wages, employees are more productive and turnover drops,” she says, “so you have people who are more experienced and can do a better job.”
Of course, the restaurant industry, the leading employer of minimum-wage workers, always warns about the perils of raising their salaries.
But now it’s possible to gauge some of these effects, thanks to the range of base pay in different states with different rules.
The NRA’s own projections show that restaurant sales are expected to grow this year at a rate exceeding the national average in at least some of the states with higher base wages, including California, Oregon and Nevada. And overall restaurant hiring hasn’t been driven down in the Western states that require higher minimum wages (although DeFife says there are complaints from restaurateurs in Oregon and Washington that they’ve had to cut back).
Still, it stands to reason that restaurants will have to pass on some of these higher costs to customers. Opponents of a wage hike argue this will make diners more cautious about eating out.
“The winners are probably going to be the people who get the higher wage, and the losers will be customers who have to pay higher prices and workers who don’t get hired by that industry,” says Michael Strain, a labor economist at the American Enterprise Institute, a conservative think tank.
In San Francisco, servers receive one of the highest minimum wages in the country — $10.55 an hour. That’s a considerable expense for restaurants that also have to cope with sky-high rents, as well as a local universal health care mandate that leads to surcharges generally of 2 percent on most restaurant bills.
“It’s very, very expensive to run any sort of restaurant in San Francisco,” says Patricia Unterman, a longtime restaurateur and food critic in the city. “The cost of doing business here, especially for labor-intensive operations like restaurants, almost doesn’t pencil out.”
But, she notes, amid the city’s thriving, tech-driven economy, people are willing to pay high tabs. San Francisco’s restaurant scene is thriving. And, Unterman says, restaurants skimp where they have to, cutting back on niceties like tablecloths and bread and butter, sometimes only serving water when asked.
Consumers can be sensitive to price changes, but even in places whose residents aren’t as flush as those in San Francisco, a slight rise in their tab isn’t likely to deter diners who value the experience or convenience of eating out. A study by University of California researchers suggests any increase in cost passed on to the diner is likely to be marginal at most.
In general, when people eat out — especially at a place where they’re waited on by servers — they know they’re generally going to pay more for the meal than they would if they had cooked at home.
Even DeFife concedes that an increase in servers’ base pay might not do too much harm, depending on how large it is and how fast it would be implemented.
“We don’t talk about job loss too much in the restaurant industry, per se,” he says. “The restaurant industry continues to grow.”