Stossel: The End of Tipping?

Activists want to increase minimum wage for tipped workers.

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Celebrities, union activists, and politicians demand that the government raise the minimum wage for restaurant workers. They are upset that in 43 states, tipped workers can be paid a lower minimum wage than other workers. The logic behind the lower minimum is that the tips make up the difference.

That's not good enough for people like Buffalo University law professor Nicole Hallett. She tells John Stossel that, "the problem with tips is that they're very inconsistent." She wants to "require restaurant owners to pay the same hourly wage that all other employers have to pay."

But many restaurant workers like the current system. Waitress Alcieli Felipe tells John Stossel, "don't change the rules on tips.... If you raise the minimum wage, it'll be harder for restaurants to keep the same amount of employees." She works at Lido, a restaurant in Harlem, and says, with tips, she makes $25 an hour, "by the end of the year I made around 48 to 50,000 dollars."

Nevertheless, several cities and states have increased the tipped minimum wage. This had unintended consequences. Michael Saltsman, Research Director at Employment Policies Institute tells Stossel, "in the Bay Area you've got a 14 percent increase in restaurant closures for each dollar increase in the minimum wage." The year after New York increased its tipped minimum wage, the city lost 270 restaurants.

Many higher-minimum activists also say that tipping encourages sexual harassment. Sarah Jessica Parker, Reese Witherspoon, Natalie Portman, Jane Fonda, and 12 other actresses wrote a letter to New York Gov. Andrew Cuomo urging him to increase the minimum, claiming, "relying on tips creates a more permissive work environment where customers feel entitled to abuse women in exchange for 'service.'"

But Saltsman says federal data doesn't support that. "Data shows some of the states that have gone down this path that the activists want, changing their tipping system, actually have a higher rate of sexual harassment."

When Stossel pointed that out to Professor Hallett, she replied, "sexual harassment is a very complicated problem, and no single policy is going to eliminate that problem."

Waitress Felipe resents the activists monkeying around with her wages—she doesn't want the law changed, "just keep as it is, we are fine. Who are those people, have they worked in the restaurant industry?"

Many haven't. Many have no idea how popular tips are with restaurant workers. When Maine voters increased the minimum wage, restaurant workers protested and got the politicians to reverse the decision.

Stossel asks, "Why should there be any minimum? Why can't the employer and the employee make whatever deal they want?"

The views expressed in this video are solely those of John Stossel; his independent production company, Stossel Productions; and the people he interviews. The claims and opinions set forth in the video and accompanying text are not necessarily those of Reason.