OAJ Hot Take: The Restaurant Problem
Instead of asking customers and exploited workers to sustain the restaurant industry, policymakers must limit corporate oppression of the local restaurant economy.
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The piece below is part of our blog post series written by the Open-Air Journal team where we explore issues at Heller, current events, or whatever is on our minds.
This past Election Day, Massachusetts voters rejected Question 5, which would have gradually raised the subminimum wage for tipped workers to the standard minimum wage. In Massachusetts, tipped workers earn $6.75 an hour, which is $8.25 less than the state minimum wage of $15. Although federal law requires employers to pay the difference in what is known as tip credit, it is difficult to enforce and up to employees to request. Tipped workers end up relying on customers for the majority of their income, making them vulnerable to economic instability.
In 2022, Washington, D.C. approved I-82 to gradually increase tipped wage to the city-wide minimum wage. In 2023, Chicago voted to do the same. Restaurants have taken to instituting service fees to make up the difference for increased wages. However, this is not the answer. Service fees place the burden on customers to resolve a systemic issue. Instead of asking customers and exploited workers to sustain the restaurant industry, policymakers must limit corporate oppression of the local restaurant economy at the same time as instituting wage reforms.
The subminimum wage for tipped workers has a legacy rooted in slavery. After Emancipation, business owners hired newly freed slaves without pay, forcing them to rely on tips to survive. In 1938, the National Restaurant Association (NRA) succeeded in ratifying subminimum wage for tipped workers as part of the New Deal. Since then, only seven states (Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington) have outlawed the predatory practice and require tipped workers to earn a full minimum wage in addition to tips. To this day, Black and Hispanic women are disproportionately represented in tipped industries and current tipping policies work to keep them in poverty.
Most opponents of One Fair Wage reforms contend that eliminating the subminimum wage will have negative economic impacts. The National Restaurant Association and restaurant owners insist that employment will decrease because businesses will close or employers will lay off workers. On analysis, these impacts are exaggerated. The Center for American Progress finds that both tipped and non-tipped employees experience lower levels of poverty in states that have eliminated subminimum wage.
However, most restaurant owners refuse to entertain wage reforms out of fear of closure. In an industry with notoriously slim profit margins, many restaurants cannot afford to pay higher wages. When I-82 was introduced in Washington D.C., restaurants responded to the mandated tipped wage increase by charging customers service fees up to 20% on top of tips, to offset the cost of increased wages. Unlike tips, service fees are at the discretion of employers and can be distributed however they see fit. Service fees additionally discourage many customers from tipping at all, effectively reducing worker wages.
Interestingly, most restaurants do not aim to exploit their workers. In fact, restaurants themselves are victims of economic pressures from powerful corporations that make business difficult. Under current federal policy, corporate landlords and food purveyors freely set prices, encouraging corporations to extract maximum profits from independent,locally owned restaurants. Such conditions contribute to slim profit margins that make it difficult for restaurant owners to pay fair wages. In Washington, D.C., restaurant rent in some neighborhoods increased by 100% or more between 2009 and 2019. In July, President Biden introduced a proposal to cap corporate rent increases at 5 percent per year. While this proposal is aimed at promoting affordable housing, policymakers should use it as a template that can be applied to commercial landlords as well. A policy reform that limits corporate commercial rent increases would provide small businesses with economic relief and stability, leaving more room to afford fair wages.
Artificial inflation manufactured by corporate food distributors also contributes to higher costs for restaurants. Since the COVID-19 pandemic, an increasing number of corporations have created inflation by artificially keeping prices high. Some corporations have even reportedly conspired to fix prices. This has contributed to high grocery store prices that impact the average consumer and restaurants. Even McDonald’s is feeling the effects of price gouging,recently responding by filing a lawsuit against four meatpacking corporations that allegedly conspired to raise the price of beef. These companies control 55-85 percent of the country’s supply of pork, beef, and poultry which restaurants rely on. For the benefit of independent and locally owned restaurants, the federal government and state attorney generals must do more to enforce antitrust laws which increase competition and prohibit price discrimination and price fixing schemes which drive up food prices.
Tipped subminimum wage is a complex issue tied to customer behavior, restaurant budgets, and corporate greed. Of these three, curbing corporate greed presents the strongest inroad to a broad policy solution, as it makes material changes for workers and local restaurants. If policymakers do not limit corporate power, we risk forcing tipped workers further into poverty and producing neighborhoods filled with chain restaurants, as smaller businesses are pushed out.