Minimum Wage Hikes Hurt Restaurant Industry—and Restaurant Workers

by Rachel McPherson
June 20, 2018

Yesterday, D.C. voters passed Initiative 77, which will gradually force employers to pay servers, bartenders, and other tipped workers $15 per hour by 2026. The measure will eliminate the “tipped wage” system that currently allows D.C. employers to make up the difference if tips do not bring a worker’s pay to the current $12.50-per-hour mandate.

But while big changes are coming to Washington, D.C.’s restaurant industry, the effects are as predictable as they are unfortunate.

Supporters of Initiative 77 and other proposals like it ignore how these policies actually harm the people they are intended to help. In the face of higher wages, restaurant owners may give servers, bartenders, and other tipped employees fewer shifts, and job openings will not be as plentiful. Small, independent restaurants may make dramatic staff cuts or close their doors. Businesses will have to increase prices, causing people to dine out less and tip sparingly.

Washington is not the only city considering such a radical shift in its restaurant industry. In New York City, a similar proposal has been debated—and contested—by the very employees the proposal purports to help. As Goldwater Institute Executive Vice President Christina Sandefur wrote in a recent In Defense of Liberty blog post, city restaurant workers fear that they will end up worse off if New York City’s proposal becomes law:

“While minimum wage laws increase the wealth of workers who are able to keep their jobs, they impose costs in the form of lost opportunities—the jobs and the wealth that might have been created in the absence of this mandate. Servers who might have been employable at $8 per hour are deprived of the opportunity to work, and individuals who might have been able to sustain a restaurant by offering those wages are deprived of the opportunity to own a small business.

“That’s precisely why one Harlem server worried that under the New York City proposal, she would ‘earn less money and work more hours’ because her ‘boss will be forced to cut employees.’ And a coalition of female and minority restaurateurs echoed these concerns, warning that costs would be passed on to customers and hardships imposed on employees.”

The well-founded fears of the D.C. and New York restaurant industries are a reality for Arizonans. Arizona enacted Proposition 206, the Fair Wages and Healthy Families Act, last year, and study conducted by the Goldwater Institute found that this mandatory $12-per-hour minimum wage law slows economic growth, increases consumer costs, and curbs job creation.

While it may be well-intentioned, it’s clear that Initiative 77 will end up hurting restaurant workers. The biggest lesson to be learned from the consideration of wage hikes like this is that employees cannot be helped when laws hinder their ability to make a living.

Rachel McPherson is a Ronald Reagan Fellow at the Goldwater Institute.