Mayor Betsy Hodges says tip credits are bad for women


Betsy Hodges says women are disproportionately affected by the perils of the tipping structure. AP Photo/David Zalubowski

Everyone in the restaurant industry has three words on their lips: “minimum wage hike.”

For many months, the city of Minneapolis has been working on a plan to raise the minimum wage for all employees, including tipped employees. Advocates and some council members are eyeing a city-wide minimum set at $15 an hour, a level some detractors say is unsustainable.

That includes many restaurant owners, who insist the hike would be catastrophic, and might just force them out of business. 

An off-record source says he ran the numbers for his three small food businesses, hypothetically hiking everyone’s hourly wage up to $15, and the difference in labor costs approached half a million dollars annually. He said this number didn’t account for the inevitable price increases of ingredients and restaurant services he relies on -- as those businesses will be trying to cover their own labor cost increases.

He added that between wages and gratuity, his tipped employees already make between $17 and $20 an hour, and says the city ought to leave them alone. Operators like him are pleading with the city to offer a “tip credit” where tipped employees will earn a lower rate of pay than the across-the-board $15 minimum for other employees.

But Minneapolis Mayor Betsy Hodges, for one, isn’t having it. She says based on her own research, tip credits -- or “tip penalties,” as she calls them -- are bad for workers, and especially bad for women.

In a lengthy statement Hodges released earlier this week, she says the notion that all tipped employees in Minneapolis are working in high-end restaurants and bars and are making far more than $15 an hour is false. She cited a federal Bureau of Labor Statistics study showing that from 2012 to 2015, the average wage for restaurant servers in the Twin Cities metro came to not much more than $10 an hour, including tips. Only 10 percent of restaurant servers in our region averaged $15 or more an hour with tips.

Moreover, Hodges said, women make up two-thirds of tipped workers. Women who are tipped workers are "three times as likely to live in poverty" as others, she said, and "twice as likely to receive food stamps." And, she added, research clearly shows "the more women are forced to rely on tips for income, the more likely they are to be sexually harassed."

Ladies, remember the creepy guy (or guys?) who needed all that extra attention so that he’d feel good about leaving that extra tip? Yeah, studies show that’s a real thing.

Finally, she added that states with one fair wage for all (including Maine, Michigan, and Missouri) are producing faster job growth, higher sales, and higher tips than the 43 states that have had a tip penalty.

The minimum wage hike is expected to pass, and soon. But Hodges says that it should be done in such a way, and in a timely enough fashion, that businesses can thrive while they absorb it... without also taking away workers' livelihoods  

Read Hodges' full statement below.

As we continue to debate raising the minimum wage in Minneapolis, and as the City continues to hold listening sessions on the topic across the city, several of which I have attended, I was lucky to listen to a talk today at the Carlson School at the University of Minnesota by the dynamic Saru Jayaraman of the Restaurant Opportunities Center. Her talk left me more persuaded than ever that if the City Council continues forward with an ordinance to raise the minimum wage in Minneapolis, any new minimum wage must continue to be one fair wage. That is, it must not contain a tip penalty that will leave tipped workers falling behind and subject to sexual harassment, nor must it be an unworkable “compromise” that will expose businesses to new costs and liability, and tipped workers to greater insecurity. Any minimum wage ordinance must also be phased in over a period long enough that our businesses, including restaurants and other sectors that rely on tipped workers, will not be harmed and can continue to thrive while they absorb it.
There is ample evidence that a tip penalty is harmful — and yet, a minimum-wage proposal that includes a tip penalty is making the rounds of the Minneapolis City Council.
A tip penalty, if passed by the City Council, would harm the work we’re doing in Minneapolis to actually close the income gap between low-wage and other workers and grow an economy that includes everyone. Contrary to some popular perceptions, wages for tipped workers in the restaurant sector are in fact low: so low that nationally, 46 percent of tipped workers rely on federal public benefits. Tipped workers are almost twice as likely to live in poverty than other workers.
The stereotype that in Minneapolis, tipped workers all work in high-end bars and fine-dining restaurants and thus make far more than $15 an hour is also false: on the contrary, a federal Bureau of Labor Statistics study that covered the years 2012–15 showed that in our metro area, the average wage for restaurant servers came to not much more than $10 an hour, including tips. Only 10 percent of restaurant servers in our region averaged $15 or more an hour with tips.
It’s already the case that the average hourly wage for servers in our region is only a little more than half the average hourly wage for all workers. If we in Minneapolis roll back the existing one fair wage, that gap will widen, not close. In my view, it is not only economically wrong, it is morally wrong: we should not be deciding which workers and which kinds of work are more worthy of raises than others.
A tip penalty would also especially penalize women, who make up two-thirds of tipped workers: women who are tipped workers are three times as likely to live in poverty as other workers and twice as likely to receive food stamps. Worse, research clearly shows that the more that women are forced to rely on tips for income, the more likely they are to be sexually harassed.
Think about it. I simply cannot countenance a scheme that would actually keep tipped women workers at a lower wage and continue to subject them to sexual harassment. It is unconscionable to me.
Some have floated the idea of a “compromise” tip penalty in Minneapolis that would for the first time create a sub-minimum wage for tipped workers, but require an employer to cover the difference between the sub-minimum wage plus tips and everyone else’s minimum wage if the former is smaller than the latter. This “compromise” would be a logistical nightmare for Minneapolis businesses, as it would add new layers of cost, complexity, and liability to doing business, and would be extremely difficult to comply with. (Indeed, a study by the U.S. Department of Labor of states with a tip penalty found an 84-percent rate of noncompliance with this practice.) Moreover, it would create a perverse incentive for unprincipled businesses to eliminate higher-paid minimum-wage positions and transfer the work to lower-paid, sub-minimum-wage positions, leaving tipped workers even more vulnerable and overworked.
This “compromise” is still a tip penalty.
Even if this “compromise” tip penalty could be shown to work, a tip penalty would still leave behind women who, once again, would not be earning a fair wage for their work, and who would continue to be subject to sexual harassment because they rely on tips just to make ends meet. I find that outcome offensive.
Finally, one of the most important arguments against passing a tip penalty in Minneapolis is that it would do violence to our state’s proud tradition of having one fair wage for all workers, one of only eight states to do so. It would be harmful enough to women and low-income workers in Minneapolis to pass a tip penalty just in our city for the first time. If Republicans in the Legislature were to follow suit by passing a tip penalty statewide on the logic that “progressive Minneapolis did it first,” it would be devastating to tipped workers in other part of Minnesota — most especially women — who earn even less than their counterparts in Minneapolis.
It is critically important to all Minnesotans that we in Minneapolis maintain our state’s proud tradition of one wage. We in Minneapolis owe it to low-wage workers across our state, especially women, not to set this bad precedent. At the federal level, our Senators Al Franken and Amy Klobuchar, and Congressman Keith Ellison, are setting a great example by supporting a bill to raise the national minimum wage, phase out the shockingly low federal sub-minimum wage of $2.13 per hour for tipped workers, and transition gradually to one higher, fair national wage for everyone, in every sector and every state. Amy, Al, and Keith have the right idea.
It is not widely known that tipping as an institution is rooted in the history of slavery. The notion of tipping is not native to America, but was imported from Europe just as slaves were emancipated. At that time, restaurants and railroads insisted that the now-former slaves who were working in those industries were not worthy of earning a wage, and should subsist on the kindness of customers’ tips alone. In Europe where tipping began, it was a sign of gratitude for good service; but from the moment tipping came to America, it has been treated as a substitute for a decent, fair, and equitable wage.
Now, a movement is gaining steam across the country to redeem this history and join states like Minnesota that have refused to legalize paying some low-wage workers less. Just last November, the people of Maine voted to eliminate their tiered wage, and Michigan and Missouri are currently considering doing the same thing. The reasons are both moral and economic: restaurants and tipped workers in the seven states, including Minnesota, that have had one fair wage for many years are producing faster job growth, higher sales, and higher tips than the 43 remaining states that have had a tip penalty. Moreover, in this time of acute labor shortages, restaurants around the country are voluntarily moving to pay one fair wage because they recognize that it slashes employee turnover and increases sales.
If we go forward in Minneapolis with a higher, city-only minimum wage, we owe it to low-income and female workers not only in Minneapolis, but across Minnesota, to enact a wage that is one fair wage with a long enough runway that our workers and businesses can continue to thrive, with no one left behind. As Saru Jayaraman concluded earlier today, “It would be a tragedy if Minnesota regresses while other states are going forward.” I agree.

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