Dive Brief:

• Earlier this week, Washington, DC lawmakers voted to block Initiative 77, a measure approved by voters in June that would raise wages for tipped workers. Mayor Muriel Bowser, who has expressed opposition to the measure in the past, can either veto or sign the bill. 
• Vox reports that the law requires businesses in the city to eventually pay a $15 local minimum wage to servers and other tipped employees. Businesses now can pay tipped workers as little as $3.89 an hour, as long as they make enough tips to earn the full minimum wage, which is $13.25 but will rise to $15 by 2020. Under federal law, businesses can pay tipped employees less than the $7.25 minimum wage and the tipped minimum wage is $2.13 an hour.
• The practice of letting employers pay a lower wage to tipped workers is illegal in seven states. Just two other jurisdictions — Maine and Flagstaff, Arizona — have abolished the tipped minimum wage. However, Main reversed the measure last year

Dive Insight:

The final outcome of Initiative 77 could have big implications on the national scene, since DC is the first major market to consider such a measure. The DC restaurant scene, and its more than 2,000 restaurants and higher cost of living, is a unique case study. According to one report, tipped workers in DC, of which there are nearly 29,000, are twice as likely to live in poverty compared to the rest of the city’s workforce. 

The idea of eliminating the subminimum wage is having a moment similar to the minimum wage moment of a few years ago. In 2012, the Fight for $15 movement was born, led by quick-service restaurant employees demanding an increase in the federal minimum wage. The movement has somewhat resonated, with a growing number of cities and major brands committing to higher wages. Seattle and San Francisco recently adopted $15 per hour wages, for example, while McDonald’s promised $1 more for workers three years ago. Though the movement has made some headway, tipped employees haven’t been a big part of the narrative, and subminimum rates remain solidly in place in most markets. 

And, although employers are expected to make up the difference between the subminimum and minimum wages if tips themselves do not, cracks exist and many employees fall through. Restaurants may not properly or consistently track those employee tips, for example, and legal action has accelerated over cheated wages. Moreover, workers’ rights groups are strongly advocating for the abolishment of the two-tiered wage model, claiming tipped workers face unique challenges and higher rates of poverty. 

But there has been pushback from industry groups and restaurant companies, who are worried about the added pressures of higher labor costs and their disproportionate effects on smaller businesses and independents. Labor costs have emerged as a key theme during major companies’ earnings reports as of late, and the narrative isn’t likely to go away anytime soon. 

Despite the pushback, however, research by Cornell University’s School of Hotel Administration finds that minimum wage increases haven’t had much of an effect on the restaurant industry, showing that customers would likely pay a bit more for their meals and tip slightly less. 

Additional research on the implications of eliminating the tipped wage in favor of a blanketed minimum wage is limited and disparate. A study from Restaurant Opportunities Centers United shows that workers and restaurants are doing better in the seven states that have only one minimum wage. However, trade associations dispute these claims. Jot Condie, CEO of the California Restaurant Association, recently wrote that restaurants in his state are scrambling to figure out how to stay in business as the minimum wage continues to rise. The National Restaurant Association said its research has found that tipped workers are among the highest-paid employees in most restaurants, typically earning between $16 and $22 an hour. 

The wage battle has long been decidedly split between labor advocates and trade organizations: one side believes a hike will put more money into workers’ pockets, who will then spend in kind at those restaurants (and halt the growing income gap), while the other side believes restaurants will either go out of business or be forced to cut down on their workforce. It’s clear more research needs to be done to understand the true implications of tipped wage hikes. Depending on the actions of Mayor Bowser, Washington, DC, could very well provide the biggest case study yet. Like the minimum wage fight before this one, once one major market adopts a policy, others are soon to follow.