- - Monday, March 14, 2016

ANALYSIS/OPINION:

In an allusion to FDR’s New Deal, Hillary Clinton laid out her “New Bargain” for high-paying jobs at a recent speech in Detroit, which included the usual progressive gobbledygook of higher taxes and increased unionization.

One of Mrs. Clinton’s most harmful proposals is to eliminate the reduced minimum wage for employees who regularly get substantial income from tips. She calls the historic arrangement “shameful,” but that term is better used to describe her lack of knowledge of the restaurant industry.

Some background on those jobs: In most states, tipped employees can be paid a base wage less than the minimum wage if their tip income will more than make up the difference. If it doesn’t, the employer is responsible for filling in the pay gap. In practice, tipped employees (mostly restaurant servers) are doing quite well. Personal note: In my first job as an attorney with a Fortune 100 company, it took me two years to reach the same income level I made in my last year of law school as a part-time waiter.

Opponents of the tipped wage often argue that these employees are paid a “subminimum” wage or “stuck” earning a low wage. Census Bureau pay data shows that this simply isn’t true. Total compensation of tipped employees has increased unabated in recent years to the point where the average tipped employee reports earning more than $13 an hour. Anecdotal evidence from employees suggests the number is much higher. A PayScale survey of 15,000 food-service employees found that tipped employees earn more than assistant restaurant managers.

These tips are not some form of gift or gratuity that is ignored by the Internal Revenue Service; in fact, they’re counted as income like any other commission earned on the job. However, a handful of states have ignored the IRS (not to mention their own state revenue agencies) and prohibited employers from treating customers’ tips as income.

Other states have dramatically increased the base wage that employers must pay. According to research from economists at Miami University and Trinity University, the consequence has been fewer tipped restaurant jobs, as employers adapt to higher labor costs by resorting to more self-service.

As an alternative to slashing staff levels, some restaurants have experimented with a tipless model while charging higher prices and guaranteed higher salaries. They have seen their best serving talent flee as a result. San Francisco restaurants Trou Normand and Bar Agricole estimated they lost 70 percent of their wait staff during a tip-free experiment in 2015, despite the higher base wages. To stop the exodus, they brought back tipping after 10 months. Oakland restaurant Bocanova also experimented with dropping tips and saw 60 percent of its wait staff quit over income concerns as a result.

Opponents often make wild claims that being paid partially by tips is somehow demeaning or even associated with slavery. But the employees themselves don’t seem to mind. A nonprofit that my company manages commissioned a Google Consumer Survey poll of roughly 2,500 self-reported restaurant employees who earn tips, and nearly 60 percent rejected the idea of a guaranteed $15 minimum wage if it meant they would no longer receive tips.

Customers do not want change, either. A recent survey of 3,000 U.S. consumers by Horizon Media found that 81 percent prefer the status quo to a tip-free alternative (which comes with dramatically higher prices). Echoing the sentiment of many customers, a frequent restaurant-goer told the Houston Chronicle, “I’ve had really bad servers and I’ve had really good ones, and I think it would be terrible if the ones that work really hard would get the same as the ones that just work to get a paycheck.”

Mrs. Clinton laments that we are “the only industrialized country in the world that requires tipped workers to take their income in tips instead of wages.” That may be true, but we’re also the country with the most vibrant restaurant sector and best service in the world. Have you ever dined out in Europe? The service there is reminiscent of what you get at the DMV.

Employees, customers and employers all prefer the tipping status quo. If Mrs. Clinton wants to look less out of touch with the electorate, she should support it, too.

• Richard Berman is president of Berman and Co., a Washington public affairs firm.


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