What Cuomo Gets Wrong about the Tipped Wage

Governor Andrew Cuomo is eager to abolish New York’s tipped wage. So eager, in fact, that he’s willing to justify his agenda with false data analysis from the Restaurant Opportunities Center (ROC). A new policy brief from the Employment Policies Institute outlines the problems with eliminating tip wages and explains why the problems manufactured by Cuomo and the ROC are false.

Click here to read the brief from EPI.

Three key takeaways:

First, ROC’s core claim that sexual harassment in tip credit states is “half” of states that don’t permit a tip credit includes: 1) behavior from managers and co-workers whose interactions have nothing to do with tipping or the tip credit, and 2) the reported experiences of non-tipped employees in those states.

Second, ROC collected little-to-no direct survey data from employees in states without a tip credit—only “inferring” their location from an IP address, a highly-criticized research practice.

Third, EEOC data covering a time period similar to ROC’s report shows 1.8 percent of sexual harassment claims in New York came from the restaurant industry, compared to nearly four percent in California–New York’s closest equivalently-sized state without a tip credit;

What’s more, Census Bureau data shows tipped restaurant servers self-report earning nearly $20 per hour on average in New York City, and over $17 an hour on average statewide. And these estimates are likely conservative. The facts are clear: The Governor’s prior tipped wage hikes have harmed full-service restaurants, and the case for future increases is based solely on a flawed study that doesn’t survive basic scrutiny.

The Tipped-Wage Beer in Texas

Something odd is brewing in Texas.

Oasis Texas Brewing Company will release a new pale ale named “$2.13” on January 26th to “bring awareness to the fact that these servers and bartenders in the service industry are making $2.13 an hour,” according to the owners. But don’t misunderstand their intentions: Oasis doesn’t want to raise tipped minimum wages because they understand that small businesses already struggle with a high cost of labor.

Highlighting the tipped wage could mislead Texas beer-drinkers since servers and bartenders don’t make $2.13 an hour—in Texas or any other state with a tipped wage. Federal and state laws require all employees to earn at least the relevant minimum wage in their tips and base pay. For those who do not, employers are legally obligated to make up the difference.

That doesn’t seem to be a problem for tipped employees. In states that follow the federal standard, tipped employees average over $13 an hour with tips included. Many earn much more than than; in Houston, for instance, a server’s average compensation with tips is reportedly near $50,000.

Oasis understands the consequences of mandating higher wages, and stands against it. But the potentially-confusing message behind their “$2.13” ale could mislead their customers. At least Texans get a good beer out of it all.

 

New Year’s Wage Hikes Bring Big Consequences

We’ve chronicled the consequences of a $15 minimum wage our website Faces of $15. Less than two weeks into 2018, the list of tragic stories keeps growing.

With Ontario, Canada’s minimum wage rising to $14 an hour, franchisees of Canadian coffee favorite Tim Horton’s have been forced to reduce health benefits and other employee perks to offset the cost. The outraged response from labor groups–who organized a boycott of Tim Horton’s–has predictably missed the point: If Tim Horton’s can’t offset the cost through higher prices, they’re forced to look elsewhere to trim costs.

Here in the US, rising rage requirements in western states has forced burger concept Red Robin to eliminate bus boys at its 570 locations. (The chain had previously eliminated expediters to save money.) The Red Robin dynamic is the same as Tim Horton’s–and it appears thousands of fewer employees at just one restaurant have jobs because of it.

Multiply this impact across thousands of locations, and you start to understand why the Congressional Budget Office warned that even a $10.10 federal minimum wage would eliminate a half-million jobs

The Unnecessary Fight for $15

The Trump administration’s tax overhaul prompted Wells Fargo and Fifth Third Bancorp to raise their minimum wages to $15 per hour. OceanFirst Financial Corp., a New Jersey bank, and three of the biggest banks in Hawaii—The Bank of Hawaii and the First Hawaiian Bank and Territorial Savings Bank—pledged to raise their minimum wages to $15 per hour too. Both AT&T and Comcast also promised to pay a $1,000 bonus to each of their U.S. employees, and Indiana-based First Farmers Bank and Trust also announced employee bonuses, wage increases, and community investment.

Each of these companies demonstrate how lawmakers can incentivize higher wages instead of universally mandating them. In fact, companies like Walmart, Target, and McDonalds show that voluntarily raising employee wages is routine. And data agree. Economists from Miami and Trinity Universities have documented that most minimum wage employees earn a raise within 1-12 months on the job. And only two percent of the hourly workforce was paid the federal minimum wage by 2006.

But Seattle realized too late that government intervention is unnecessary for companies to pay higher wages. A team of city-funded economists at the University of Washington found that Seattle’s $15 minimum wage mandate had caused employee pay to decrease.

These findings aren’t surprising. When businesses with razor-thin profit margins can’t offset the labor cost increase with higher prices, they resort to offsetting these costs by reducing work hours. When employers have the freedom to manage their businesses, less-skilled workers benefit. For these reasons, most economists oppose mandating higher minimum wages–particularly at the $15 level.

Lawmakers should avoid forcing employers to pay higher wages which inevitably costs employees their jobs. Instead, both business owners and employees benefit when legislators create incentives for employers to raise wages on their own.

 

New Study Shows Consequences of California’s $15 Minimum Wage

For the past two decades, California has pursued minimum wage levels about the federal standard. It will be the first state to reach a $15.00 per hour minimum wage, in 2022.

A new study by Dr. David Macpherson of Trinity University and Dr. William Even of Miami University explores the consequences of California’s wage-raising experiment, and estimates the future impact of California’s current minimum wage law.

Their findings are stark: The economists’ preferred model show that past minimum wage increases in California have caused a measurable decrease in employment among affected employees. Specifically, they find that each 10% increase in the minimum wage has led to a nearly five-percent reduction in employment in industries with a higher percentage of lower-paid employees.

The authors apply these estimates to approximate that California will lose 400,000 jobs as a consequence of higher minimum wages by 2022. Nearly half of the observed job loss occurs in foodservice and retail industries.

The economists’ findings are in line with other recent minimum wage research. A 2015 Federal Reserve Bank of San Francisco review of economic research found minimum wage increases have been more harmful to low wage employment than previously thought. And earlier this year, researchers at Harvard Business School and Mathematica Policy Research looked at San Francisco’s $15 minimum wage and found restaurant closures associated with the increase in labor costs.

EPI chronicles the stories of small businesses in California and across the country who have suffered the consequences of higher minimum wages on its website facesof15.com.

Flagstaff’s Minimum Wage Hike Threatens Elderly and Disabled Residents

Flagstaff, Ariz. will raise its minimum wage to $11.00 on January 1, 2018. That wage is $1.00 higher than Arizona’s $10.00 state minimum wage and $3.75 higher than the federal minimum wage. Hell-bent on higher wages, city council members have turned a blind eye to how this law affects Flagstaff’s disabled and elderly residents.

Two local companies—Abrio Care and Quality Connections—provide essential medical and hygienic care, day programs and employment opportunities for local elderly and disabled Arizonans. The importance of these services should be both obvious and impossible to overstate.

However, Flagstaff’s soaring minimum wage has forced owners Rick Hargrove and Armando Bernasoni into a difficult bind. With already paper-thin profit margins, higher minimum wages make it difficult for these companies to function at all. Hargrove’s company could not survive in Flagstaff and has relocated from Flagstaff to the Phoenix area. Bernasoni is demanding remedial funding from the city council.

“Disabled cleansing” is how Hargrove described these effects from Flagstaff’s new minimum wage to the Arizona Daily Sun. “We are cleansing people with disabilities and indigent seniors out of our community.”

With care providers having no choice but to leave Flagstaff, elderly and disabled citizens will be left without “appropriate and reasonable access to care,” Hargrove said in a phone conversation. Options for care are “evaporating,” he added.

Overwhelming academic research proves that raising minimum wages decreases employment opportunities for less-skilled workers. Flagstaff is no exception. Cashiers and burger flippers lucky enough to keep their jobs will likely appreciate the larger paychecks. Unlucky ones will have to find new employment.

But the Flagstaff city council is exponentially worsening the already-bad consequences of higher minimum wages by driving out crucial care and employment service providers. By raising its minimum wage, Flagstaff has transcended mere bad policy by directly contributing to the inhuman living conditions now endured but its most vulnerable residents.

The Fight For $15 Strikes Out

In the aftermath of the 2016 elections, Bloomberg reported that the SEIU planned a significant 30 percent funding cut. The pricey Fight for $15 campaign–on which the union has spent $90-million+ thus far, with little in the way of direct union benefit to show for it–was expected to be on the chopping block.

A new EPI analysis suggests that this was indeed the case. After a peak of 340 strikes in cities across the nation last year, the movement has failed to keep pace in 2017. The campaign previously held 2 to 3 national strikes per year, sometimes supplemented by smaller regional strikes. In 2017, the organization’s only national branded effort was a co-sponsored strike with “Black Lives Matter” occurring in just 30 cities.

You can find the full list of national and regional “Fight for $15” strikes since 2012 here. The graph below shows a timeline of national strikes since 2013 and the sharp decline earlier this year:

The momentum for the Fight for $15 has been faltering. Policymakers in left-of-center municipalities such as Baltimore, Cleveland, and Montgomery County, MD, have declined to endorse $15, noting its negative impact on small businesses. Real world stories from cities across the country found on our sister site, facesof15.com, show the lost jobs, fewer hours, and reduced earnings due to minimum wage hikes.

Recent minimum wage studies highlight how hikes have hurt employers and employees–destroying the campaign’s credibility in assuring higher wages and better jobs. In San Francisco, a Harvard Business School minimum wage study using Yelp ratings found that middle-tier restaurants in the city were more likely to close due to minimum wage increases. In Seattle, where the minimum wage is gradually increasing to $15 for all employers, a study conducted by the University of Washington found that employee earnings decreased by $125 per month in addition to 3.5 million lost hours per calendar quarter. Just last week, Montgomery County, Maryland released a study which showed the county would lose over 45,000 jobs if the minimum wage were increased, in addition to millions of dollars in lost disposable income.

Summer Rolls In and Minimum Wages Rise

As the mercury rises in thermometers, minimum wage levels are rising, too. On July 1st, 17 states and localities increased their wage floors. (See table below.)

Ten California cities and localities saw wage increases, with the general wage floor rising as high as $15.20 in Emeryville, California. In San Francisco, where recent research has shown the negative impacts of minimum wage hikes, the city still increased the minimum wage to a high of $14. The city of Chicago saw a hike to $11 per hour.

We’ve been documenting the consequences of these wage hikes, including lost jobs, reduced hours, and business closures, at our sister site Facesof15.com.

Some localities are recognizing these consequences and bucking this trend. In Cook County, the minimum wage rose by 21 percent on July 1st, but over 50 villages have opted out of the ordinance. Flagstaff, Arizona saw a reduced hike to $10.50 instead of $12 after concerns were raised about potential job losses. And, in Montgomery County, MD, where the minimum wage rose to $11.50, the county executive vetoed a proposed increase to a $15 minimum wage earlier this year after concerns were raised about harm to the county’s small businesses.

The Fight for 15 Fizzles in Seattle

Last week, Seattle Mayor Ed Murray marked the 3rd anniversary of the city’s minimum wage hike, but a new University of Washington study shows there is little to celebrate for many of Seattle’s employers and employees. The report finds Seattle’s incoming $15 minimum wage has reduced hours, earnings and jobs for entry-level employees:

“Using a variety of methods to analyze employment in all sectors paying below a specified real hourly rate, we conclude that the second wage increase to $13 reduced hours worked in low-wage jobs by around 9 percent, while hourly wages in such jobs increased by around 3 percent. Consequently, total payroll fell for such jobs, implying that the minimum wage ordinance lowered low-wage employees’ earnings by an average of $125 per month in 2016.”

To put this reduction in hours in context, the number of hours worked in Seattle for those in low-wage jobs fell by 3.5 million hours per calendar quarter. Employees in Seattle are losing more than they gain: While they see a bump in hourly pay, that bump isn’t translating into more money in their bank account each pay period because they’re working fewer hours–or no hours at all.

EPI profiled one affected Seattle business in a recent video. The owners were forced to slash staffing levels in response to the city’s new wage mandates.

 

Policymakers should heed the words of David Autor of MIT, one of the country’s leading labor economists, who reviewed the paper before it was published:

“This is a study that has the power to move people’s beliefs. It will have a substantial impact on the debate,” said David Autor of MIT, one of the country’s leading labor economists, who reviewed the paper before it was published. “It suggests we should be proceeding cautiously when we start pushing minimum wages into ranges where they are pretty significant.”

 

 

Compensation Hypocrisy on Capitol Hill: $15 Minimum Wage Supporters Hire Unpaid Interns

Last month, the Congressional Progressive Caucus introduced the Raise the Wage Act of 2017, which would hike the federal minimum wage by 107 percent to $15 an hour. However, a new Employment Policies Institute (EPI) analysis shows that the majority of the bill’s cosponsors have unpaid interns who earn $0 an hour. Specifically, at least 174 of the 184 bill cosponsors – or 95% — hire unpaid interns. (This figure should be considered conservative; members who advertise limited paid stipends were counted as paying their interns, even if they have unpaid interns on staff.)

Of those that do offer a stipend, Senator Bernie Sanders is the only member who pays an hourly wage. However, Senator Sanders’ office only pays interns $12 an hour, short of his $15 demand from the private sector.

Members of Congress might respond that paying their interns would reduce the number of available opportunities. They’re right about that–and the same dynamic applies in the private sector, where a much higher minimum wage has been proven to reduce opportunities for the least-skilled employees.

Methodology notes: All intern data was collected via the official websites of Senators and Representatives or via calls with staff members.  Offices which paid either an hourly wage, a flat stipend, or travel/housing stipends were counted as paying their interns, even if they still offered unpaid internships. In this sense, our conclusions above are conservative. Contacts with each primary sponsor and respective cosponsors were made between June 6th and June 8th 2017. Variation in the final tally could occur as cosponsors may be added after this time period. The tallies are rounded to the nearest whole number.

The full list of sponsors and cosponsors and the compensation details of their internship programs are available here.