Yesterday’s five minute hate was aimed at Boundary Stone, a local D.C. restaurant that had the temerity to sign a petition opposing a bill that would more than triple the minimum wage of tipped employees, from $2.77 to $8.70.* Economic illiterates such as noted "sad lunatic" Mike Elk led the charge against the restaurant, arguing that fairness or something demanded the wage hike. Dozens of outraged tweeters demanded that they would never return to the restaurant because of the plight of the workingman, or some such.
Boundary Stone did a perfectly capable job of defending themselves here and here. As the restaurant notes, it has never had to make up the difference between the tipped wage and the minimum wage for its workers (see the first footnote below for an explanation of what that means, if you don’t know). The system seems to be working!
Radically increasing the cost of labor for restaurants could destroy that system, however. Restaurants operate on extremely thin margins: a 2010 survey of National Restaurant Association members showed that the median full service restaurant with an average per-person check between $15 and $24.99 earns a 3.4 percent profit margin. The most successful restaurants in the upper quartile have a higher, but still very modest, 8.3 percent profit margin.
What this means is that even minor changes to costs have huge consequences—and adding hundreds of dollars a day** in labor costs is by no means a "minor" change for a small, locally owned business scraping by on thin margins. As a result of these per-hour cost increases, basic economics demand one of two things happen: either costs for the customer will have to increase or hours worked per server will have to decrease.
In all likelihood, you’ll see some combination of the two: More expensive food and drinks that will take longer to get to you because the restaurant owner has to cut back on the number of servers and bartenders working at any given time in order to mitigate higher costs. In other words you, the customer, are the big fat loser.***
This degradation of the dining experience is why I modestly propose that we, the customer, respond in kind. After all, it’s only fair, and "fairness" is what everyone cares about, right? Plus, we’re not being expected to provide the bulk of their pay any longer. If servers want to make a higher minimum wage and, therefore, want our dining experience to be of lower quality and at a higher cost, then we should reduce our tips accordingly. Instead of 20 percent, perhaps we should tip 10 percent. Or perhaps we should subtract the amount of the wage hike from our tips: Instead of leaving $8 on a $40 tab, leave $2.07.
I say this as someone who has worked in the restaurant industry,**** despises lousy tippers, and can count on one hand the number of times I’ve tipped less than 20 percent. It brings me no joy to make this suggestion. But if radical labor activists are so eager to announce boycotts of a restaurant that dares to point out that higher labor costs are bad for business, bad for workers, and bad for customers, I see no reason why we, the long-suffering consumer, should be shy about responding in kind.
*As this is often not well understood, allow me to briefly explain how the "tipped wage" works. When you go to a restaurant with a waiter, the reason you tip them is because you, the customer, are paying the vast majority of their salary. The restaurant typically pays them just a fraction of the normal minimum wage. If you take 20 seconds to think about it, this is actually a great deal for waiters. Assume you’re a waiter and a couple comes into your restaurant, eats/drinks for an hour, and racks up a $40 tab. If they tip the customary 20 percent, that’s an $8 payday; even if they tip 15 percent, it’s $6. Consider the fact that waiters work multiple tables at a time and you see how the money starts to add up.
Now, maybe you’re muttering, "Well, if they have crappy tippers or not enough tables the math doesn’t work." But there’s a safety net! If an employee doesn’t earn the actual minimum wage ($8.25 in D.C.) when the tipped wage ($2.77) and tips are added together, the restaurant, by law, is required to make up the difference.
**I have no idea what Boundary Stone’s labor situation is like, but looking at the numbers in that NRA survey and doing some rough calculations of (that is to say, "guessing at") the number of waiters and bartenders on hand at any given time throughout the day, I’d estimate that the proposed increase to the tipped wage would add at least $400 a day in salary costs on your average Saturday. That may not sound like a lot, but keep in mind the aforementioned thin margins.
*** Well, you the customer and the waiters who see their hours cut as a result of this wage hike.
****Though, admittedly, not as a waiter. #McDonalds4Life