American restaurants facing high costs and stingy consumers are launching a tough speech to voters: that raising wages for millions of workers is a bad idea.
At least four states are set to vote on measures to make restaurants pay servers a minimum wage, regardless of how much they make in tips. It is a controversial measure that, According to business owners, it will increase menu prices and kill jobssaid Michelle Korsmoexecutive director of the National Restaurant Associationin an interview at the office of Bloomberg in Chicago.
However, worker groups have some momentum. Chicago approved the measure last year. Ohio, Arizona, Michigan and Massachusetts are now prepared to ask voters for their opinion in November, a strategy that worked in Washington, D.C.. If approved, it will be the first time in more than two decades that an entire American state has repealed the so-called tip credit.
“We have a lot of work ahead of us”said Korsmo last week. “The important thing for us is to come out early and say that this business model for the restaurants that employ it, actually allows them to keep menu prices lower and provide a really well-paying job.”
The battle over who is supposed to pay restaurant workers’ salaries is reaching a crescendo as restaurants face labor costs still high. Restaurants have raised prices to offset inflation, but consumers are cutting back on dining out. Chain stores are among the hardest hit, and the industry argues that ending the tip credit could hurt small businesses and chains like Olive Garden and Applebee’s.
The problem for the restaurant industry is that the issue is complex and doesn’t fit neatly into a snappy campaign slogan.. Under the tip credit, workers earn at least $2.13, which employers have to supplement if bonuses don’t raise the wage to the minimum wage.
Most workers earn more than that, the association says, adding that the average tipped server earns $27 an hour. A higher base wage will force restaurants to raise prices, which would ultimately drive away customers and potentially lead to fewer and smaller tips, Korsmo said.
Wage pressure on restaurants was evident in California, which does not have a tip credit system. In April, the state raised the minimum wage for fast-food workers to $20 an hour, one of the highest in the country. The move was considered a victory for workers, but it has also led to establishments since Chick-fil-A until McDonald’s to increase menu prices now Bloomberg Economics to predict up to 90,000 job losses.
It can be difficult to convince voters. Supporters of the measure say it will lift millions out of poverty, and labor advocate One Fair Wagewhich is driving efforts to repeal subminimum wages in 25 statessays the practice leaves workers at the mercy of customers’ whims.
In a lawsuit against Darden Restaurants Inc.owner of olive Gardendefenders argued that Relying on tips encourages sexual harassment and discrimination. The company, which did not respond to requests for comment, denied the allegations.
“You are vulnerable to fluctuations in weather, customer preferences and customer biases.”said Saru JayaramanPresident of One Fair Wage, who hopes voters will support ballot initiatives. “All of those factors influence how much you earn and whether you have enough to pay the bills and feed your family.”
In D.C.where the practice is being phased out following a ballot initiativesome restaurants have moved from the city to adjacent areassaid Korsmo. Full service restaurants in D.C. eliminated more than 2,800 jobs between May 2023, when the elimination began, and March, according to the company’s analysis. association of data from the Bureau of Labor Statistics.
In Chicagorestaurants are also preparing to raise wages after the city adopted an ordinance in October to phase out the tip credit by July 1, 2028. At the time, the trade group said the move would increase costs for the city’s restaurants by 15%.
Even so, more than 60% of restaurant workers in Chicago They already earn more than the city minimum wage for large employers before tips, according to data compiled by the technology firm Square. Pat Doerrdirector of the Chicago Hotel Business Associationsaid more operators could close on Mondays and Tuesdays, when traffic is already slower.
Restaurants will have to “come out early and explain the issue clearly so that citizens who are going to vote understand why they are voting,” Korsmo said.
