Will raising the base wages for tipped workers really improve things?
A proposed measure in Delaware would increase base wages for tipped workers (servers, bartenders, etc.) to 65% of the current state minimum wage, claiming to provide these workers with a fair pay structure and rate. But would this action actually help Delawareans? A Better Delaware, a new political advocacy organization supporting pro-growth, pro-job policies, wants tax payers to have all the facts.
Do tipped workers and restaurant owners want this?
Measures to increase the base pay of servers are designed to stabilize their earnings. However, in an Upserve survey, 69% of tipped workers said that they would favor keeping their tips over a “substantial increase” in their hourly wage. Anecdotally, other cities who have instituted such measures have experienced mixed reviews from tipped workers – some of whom found they actually made less.
In cities like New York City and Seattle that have enacted higher minimum wages for tippers, restaurant and bar owners (in addition to organizations like the National Restaurant Association) have spoken out again and again about the harm an increased minimum wage can and has had on business. With higher labor costs, some small businesses have struggled to remain profitable, and efforts to pass on the cost to customers have often been met with resistance. Some restaurants who have replaced tipping with a mandatory service charge or who have raised menu prices have found that customers are less likely to return.
What the data tells us
Though small business owners and servers are concerned about changes to the tipping structure, what do we know about the efficacy for improving workers’ financial position? Few precedents currently exist, but Seattle’s foray into raising the minimum wage has not yielded especially positive results. A report from the University of Washington and the bipartisan National Bureau of Economic Research (NBER) revealed a loss of over $100 per month for low-wage workers and 5,000 fewer jobs after the implementation of a $13 minimum wage.
Additionally, NBER found that from 1989-2013, small businesses in states tied to the federal minimum wage experienced lower employment, lower bank credit and higher loan defaults.
According to these studies, this legislation has had negligible impact on tipped workers’ earnings but has hit small business owners particularly hard.
The implications for Delaware
Delaware has 79,417 small businesses that account for 98.3% of all businesses in the state, and employ 180,179 individuals, or almost half of all Delaware employees, according to a 2018 report from the U.S. Small Business Administration. As the lifeblood of the local economy, any disruption has the potential to worsen unemployment in the state, which has already risen above the national rate.
But businesses and tipped employees aren’t likely to be the only ones affected by minimum wage legislation. Taxpayer dollars will pay for increased government wages as well.
Delaware’s recent minimum wage bill, Senate Bill 105, estimates a fiscal burden of $30.9 million just to raise the wages of state employees. The cost balloons each year: in 2020 it is estimated to add another $1.16 million, over $3 million in 2021, and $5.4 million in 2022. The fiscal note on the bill does not include the non-profits and contractors that will be impacted and will also inflate the state budget from a wage increase.
Groups like A Better Delaware are monitoring issues like these and hope that concerned citizens will stay informed and weigh in when and if legislation is introduced. For those who want to learn more about pro-business policies, visit A Better Delaware or contact Executive Director Zoe Callaway.