DC Mayor and Council Preempt One Fair Wage for All

July 11, 2016

We in the District of Columbia like to pride ourselves on how progressive our community is. But it’s behind the curve now on an issue that directly affects nearly 29,000 local workers — those whom employers can pay far less than the minimum wage.

The draft Democratic Party platform supports an end to the sub-minimum, i.e., tip credit, wage. That would extend nationwide a policy already in force in seven states. The DC Council instead chose to merely increase the wage to $5.00 by 2020 — even less than the Mayor had proposed.

All our elected officials knowingly preempted our chance as constituents to decide whether all workers our labor laws can cover* should get paid at least $15 an hour — one fair wage, as it’s commonly called.

Let’s just say they know not only which side their bread is buttered on, but who butters it — restaurant owners represented by the local affiliate of the National Restaurant Association and other business owners for whom the Chamber of Commerce purports to speak.

I’ve written about the tip credit wage before, but for those new to the issue, here’s what it is and a summary of what’s wrong with it.

How the Tip Credit Wage Works

Employers in most states and the District may pay workers who regularly receive tips a much lower cash wage than the regular minimum. They must fill in any gap between the tip credit wage, plus tips a worker receives and the regular minimum.

So, for example, owners of sit-down restaurants in the District, along with hotel owners and other businesses like hair and nail salons must now pay their tipped employees $2.77 an hour, no matter what.

If their workers receive at least $8.73 an hour in tips, they’re home free. If not, they must add to paychecks enough to equal $11.50 an hour.

At best then, customers subsidize employers’ labor costs, though most believe they’re just rewarding workers who’ve served them.

Why the Tip Credit Wage Doesn’t Work

A common complaint — amply documented — is that most workers subject to the tip credit wage earn very little. That, in theory, is  a problem with the minimum wage itself. In practice, however, workers may not get as much as they’ve earned — or even know they’ve been shorted. Several reasons for this.

First off, workers may not know how much they’ve received in tips. Consider, for example, a wait server who’s rushing from one table to another. How’s she supposed to keep track of tips, when so many now are added to credit card bills?

Second, employers may legally do several things to deny workers the full amount they receive in tips. They may deduct processing charges for tips added to credit card bills. They may put all tips into a pool and divvy them up among tipped staff, based on some formula they’ve established.

Third, the tip credit system virtually invites abuse. For example, we know of cases where employers have siphoned off tips from the pool to ramp up pay for non-tipped workers. In other cases, employers have required tipped employees to do a lot of work they don’t receive tips for while still basing their whole pay on the sub-minimum.

In still others, employers simply don’t fill in the gap between the sub-minimum wage, plus tips and the regular minimum. More than one in ten workers in tipped occupations reported total hourly wages below the federal minimum, according to White House economists and the U.S. Department of Labor.

The Labor Department has said it knows of at least 1,500 recent cases of wage theft associated with the tip credit wage. But there are surely more.

The provision that requires employers to ensure that tipped workers earn at least the full minimum wage is difficult to enforce, the White House report says. And the Labor Department has nothing like the resources to investigate as broadly as seems warranted.

This seems also the case in the District, where a coalition of local and national organizations recently called for, among other things, “proactive, increased enforcement” of worker protection laws. But the office responsible for enforcing them won’t have enough staff.

As things stand now, both the federal and local wage and hour enforcement agencies depend largely or solely on complaints filed by workers and organizations representing them.

But workers hesitate to complain because managers can readily retaliate — if not by firing them, then by reducing their hours or putting them on shifts that yield paltry tips.

Wage theft isn’t the only thing tip credit workers could, but often don’t complain about. A survey of restaurant workers found very high rates of sexual harassment — and twice as many in tip credit states as others.

More than half felt they had to put up with it because they’d lose tips — and perhaps their jobs — if they didn’t.

In short, what’s to like if you’re not a business owner who profits, legally or otherwise, by paying your workers the tip credit wage?

The owners and associations that represent them say tipped workers should and do like it and that eliminating it would harm not only them, but the local economy.

I’ll take up their arguments in a followup post — in part because we may not have heard the last of them, whatever happens nationally in November.

* Only Congress and federal agencies can set wages for federal employees and workers employed by federal contractors. The draft Democratic Party platform addresses both — the former with a $15 an hour minimum wage and the latter with an executive order “or some other vehicle.”

 

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How Much Would DC Minimum Wage Workers Gain From $15 an Hour?

March 7, 2016

The Economic Policy Institute has answered a question long on my mind: How much are minimum wage increases actually worth when they’re phased in over time? The answer, as one would guess, is not as much as they seem because inflation erodes purchasing power.

EPI does more than confirm the hunch, however. It reports actual dollar values, using three different inflation estimates for minimum wage increases that will be on state ballots in November — and one that might be on the District of Columbia ballot.

Set aside the if and the why. Here’s what we learn about how much minimum wage workers would actually gain if voters had a chance to decide. How that if would pan out seems fairly certain.

As with one of the California proposals, they’d get a relatively big bump the first year — $2.00 more it would seem, if measured from the current rate. Inflation would take a bit of a bite, however, leaving them with somewhere between 23 cents and 47 cents less, depending on which estimate we look at.

Annual increases then get smaller, and inflation chugs on. So by 2020, the apparent $15.00 is worth somewhere between $13.76 and $13.41 in today’s dollars. In other words, what looks like an increase of nearly 43% for the District’s minimum wage workers could actually be about 15% less.

This isn’t to say that the campaign should be fighting for a significantly higher minimum wage. Nor that voters, if they can, should decide that the proposed new minimum wouldn’t make a enough of a difference to risk the job losses, cutbacks in hours, etc. that the Chamber of Commerce and its business association allies warn of.

For one thing, they always sound off when minimum wage increases are in the offing. And the alarms have thus far proved so much hot air — or mostly that.

We can’t altogether discount job losses and the like because, as economist Jared Bernstein has said, “the research doesn’t have a lot to say” about such a large minimum wage increase.

Harry Holzer, another leading labor economist, leans toward caution, but also concludes that the research on past minimum wage increases doesn’t supply grounds for a clear, reliable prediction.

We’re on surer ground when we look at the known knowns. For example, if the District’s minimum wage were $15 today, a full-time, year round worker earning that would have virtually no money left after paying the median rent for a one-bedroom apartment.

If the worker were a single mother with two children, she’d be short about $6,000 a month for basic needs, plus taxes, according to EPI’s family budget calculator. On the other hand, she’s short $800 a month more at the current minimum wage rate.

The minimum wage is one, though hardly the only reason that income inequality in the District is greater than in any state — and almost every large city, as the DC Fiscal Policy Institute recently reported.

Households in the top fifth of the income scale have, on average, 30 times the income of those in the bottom fifth, though they’ve lost a negligible amount since the Great Recession set in. Households in the middle fifths have more in real dollars now.

But those in the bottom fifth have nearly 14% less — a mere $9,300, on average. This is far less than what a full-time, minimum wage worker gets paid, clearly indicating the need for a broader range of remedies than the proposed increase.

For one thing, converting the hourly wage to full-time, year round probably overstates a family’s income because so many retail employers schedule workers only when customer traffic indicates they need them.

Looked at from these several perspectives, the $15 an hour minimum wage seems a modest proposal — a necessary, but not sufficient measure to reduce income inequality by lifting what the bottom fifth has to live on.

DCFPI, which has favored the increase in the past, has some other recommendations, including what I infer are limits on the just-in-time scheduling practices that a bill the DC Council is considering would set.

The District would still need a strong safety net — and not only for residents whose incomes now drag down the average for the bottom fifth. Some low-wage workers might lose their jobs if employers had to pay them $15 an hour — even if they regularly receive tips and can thus legally be paid as little as $2.77 now.

We simply don’t know, but we shouldn’t pretend there’s no risk. Nor should we assume that workers active in the Fight for $15 campaign and its allies do.

As Bernstein argued awhile ago, they may have weighed the potential costs and benefits and decided they’d “be more likely to come out ahead” with the large increase they’re demanding. The District as a whole, including its yawping restaurant owners would too.