Will D.C. End Tipping?

The “Fight for $15” has broken out again in Washington, DC, with the city council considering raising the minimum wage to $15 per hour. The proposal includes a provision to extend that price floor to restaurant and other workers who receive much of their income from tips. Surprisingly—at least for some people—that has generated some push-back from tipped workers.

Over the weekend, the Washington Post ran a persuasive op-ed by local bartender Ryan Aston criticizing the idea. Aston writes in part:

There seems to be this myth going around that most tipped employees in restaurants aren’t earning a livable wage; after 13 years in the industry, this baffles me completely. I earn roughly $45 an hour with tips included; I don’t know a single server or bartender in the District whose wages have to be supplemented because they haven’t earned the minimum.

So what happens [if the provision is adopted]? Restaurant profit margins are already often razor-thin, and to be forced to pay the largest (and already highest-earning) portion of a staff four times more than before creates a real accounting problem. Generally, it means you need to bring in more money in sales and cut costs elsewhere. This translates to jacking up menu prices and laying off staff. Whom would this help?

Next, once menu prices have soared and staff has been cut, tips will dwindle. Remember, your weekly budget doesn’t change just because I got a raise. Within a few years, I’d be surprised if anyone tipped at all, and without tips, the incentive to give good service would be nonexistent. The great American bar culture would die. That would be a real tragedy.

Fight-for-$15 supporters may dismiss Aston’s concerns as hypothetical. But he has support from research by California-Irvine economist Richard McKenzie. In the spring 2016 issue of Regulation, McKenzie reports the results of surveys he conducted of food service worker on the effects such policies would have on tipping. He writes in part:

Tipping abolitionists might be surprised to learn that all servers surveyed chortled at the suggested replacement of their tip incomes with a “living wage” of $15 an hour. Most servers responded with comments of the essence,“How stupid can these people be?”

… To examine this issue, I asked the servers I interviewed if the service they provided affected their tips. All strongly agreed it did. Indeed, servers said that if they raised their service level from a “3” (average service) to a “4” (above-average), their average tip percentage (not total tips) would rise by over 25 percent. If they elevated their service from “4” to “5” (excellent service), their average percentage tip would rise another 25 percent, which means that an increase in service level from average to excellent would raise their average percentage tips by 57 percent. All servers strongly agreed that overall service quality would drop precipitously if their tip income were replaced with a fixed hourly wage, especially for “loud,” “obnoxious,” and “arrogant” customers, as well as customers with unruly and messy children.

He concludes:

Tipping abolitionists may be surprised to find that some of the most ardent opponents of tipping abolition are servers and their customers. One North Carolina server volunteered: “I made $60,000 in tips last year, reported $40,000—and had a before tax income of $80,000! That’s why I quit my teaching job.” And customers will likely suffer impaired service as the tipping incentive disappears.