Several restaurant owners are considering doing away with tips to offset the higher cost of labor, after a number of cities have moved to raise their minimum wage to $15 an hour
The $15 minimum wage is often held up by its advocates as a great way to help the poor and stimulate economic activity. Critics, however, say the so called “living wage” will actually hurt the poor by limiting job opportunities while causing the price of goods to rise. Amanda Cohen, owner of New York-based Dirt Candy, has a solution. End tipping while raising prices at her restaurant.
“I think that restaurants will have to do this,” Cohen told The New York Times. “How else do you compensate for this extra money you’ll have to pay?”
To overcome minimum wage increases, businesses have few options: They can hire less employees or raise prices. This is especially true for restaurants which, for the most part, already operate at a low profit margin. By ending tips, some restaurants are hoping to be able to raise prices without impacting customers too much.
Cohen also sees the plan as a way to close the wage gap seen between servers and kitchen staff. In many cases, tips only go to the servers. For Bob C. Donegan, co-owner of Seattle based Ivar’s seafood restaurants, that is why he is adopting a similar plan.
“We saw there was a fundamental inequity in our restaurants where the people who worked in the kitchen were paid about half as much as the people who worked with customers in front of the house,” Donegan told The New York Times.
Seattle became the first to pass a $15 minimum wage in June of 2014. It was followed by several other cities not long after. The New York increase, however, only applies to fast-food workers. According to a report released earlier in the month by the American Enterprise Institute (AEI), the $15 minimum wage has already caused Seattle restaurants to lose 1,000 jobs.
“The loss of 1,000 restaurant jobs in May following the minimum wage increase in April was the largest one month job decline since a 1,300 drop in January 2009, again during the Great Recession,” AEI Scholar Mark J. Perry noted in the report.
A June report from the investor rating service Moody’s argued the minimum wage doesn’t even have to go up to $15 an hour for negative effects to occur. Ending tips, however, could cause additional problems. Tipping is very much part of the American restaurant culture. Additionally, many servers have been attracted to the industry because of the potential to earn a lot based on tips alone.
Fight for $15 has led much of the effort to raise the minimum wage in the last couple of years. The group has helped organize rallies and has utilized media marketing campaigns in its efforts. The group is funded by the Service Employees International Union (SEIU).
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