DC Initiative 77 and the Tip wars

On June 19, 2018 District of Columbia voters had a chance to vote on Initiative 77 to do away with the sub minimum wage and the tip credit for tipped employees like waiters, waitresses, and bartenders. They did so by a 55 percent to 44 percent margin. [D.C. voters approve initiative to raise minimum wage for tipped workers to $15, Washington Post, June 20, 2018]

The minimum wage in Washington, DC is $12.50 an hour in 2018, but as with the Federal minimum wage the District of Columbia has a sub minimum wage for businesses with employees who customarily receive tips. The sub minimum wage in DC is $3.33 an hour. Under rules governing the sub minimum wage those restaurants that pay a sub minimum wage must verify the additional amount from tips are enough to bring an employee up to at least the minimum wage, a practice known as taking the tip credit. If tips are not enough to equal the minimum wage then the employer is expected to keep track of the short fall and make up the difference. Notice that means all tips paid above $3.33 an hour up to $9.17 an hour, or $12.50 minus $3.33, are in lieu of normal wage obligations and become a subsidy to the restaurant.

Initiative 77 eliminates the sub minimum wage gradually by raising the current $3.33 cash wage plus tips to be a $15.00 an hour cash wage by 2025. After 2025 any tips will be the property of servers in addition to their cash wage; the business subsidy will gradually disappear.

The subsidy from the sub minimum wage dates from 1942 and a decision by the U.S. Supreme Court to ratify a private scheme to use tips as wages. The wage data reported by the Bureau of Labor Statistics in its Occupational Employment Survey suggest the restaurant subsidy scheme in the sub minimum wage does not ensure employees are paid the minimum wage. In DC the median wage reported for waiters and waitresses in 2017 was only $11.86, not $12.50, which means something over half of waiters and waitresses earn less than the minimum wage including tips.

California, Oregon and Washington are three states that abandoned the sub minimum wage for tipped employees. California and Oregon have a minimum wage of $10.5 an hour and Washington $11.50 an hour for all industries. The Bureau of Labor Statistics reports all 31 of California metropolitan areas and 5 sub state non-metropolitan regions have a median wage for waiters and waitresses above their minimum wage; and for Oregon’s 8 metropolitan areas and 4 sub state non-metropolitan regions; and for Washington’s 13 metropolitan areas and 4 sub state non-metropolitan regions.

The effect in these three states suggests it pays for the working class waiter and waitress to get rid of the sub minimum wage subsidy for restaurants. If, or when, restaurants confront much higher food prices they have to experiment with a combination of cost cutting and price increases. They might serve smaller portions, or change the menu to save costs while experimenting with higher prices. I’m hard pressed to understand why they expect to avoid doing that when wage costs rise. They have had this favor since 1942 and judging from their publicity campaign against changing it they think it as their inalienable right.

The Washington Post article mentioned above goes on to discuss the grimy politics of DC voter initiatives because apparently the city council and always the U.S. Congress can overrule a voter initiative. To justify throwing out a District wide election opponents of the working class debase democracy by complaining only 18 percent voted in the election as an excuse to ignore voters. They act as though they know the other 82 percent would have defeated the measure, and we all should respect the lethargy of no shows. If it was Trump talking I could understand it, but the DC city Council?

Strike! Strike?