Minimum Wage Position Paper

A. Is Tipping optimal for Employers and Employees?
C.1 Economic Point of View
There is disagreement among economists, business leaders, and labor activists regarding whether the tipped wage should be higher and whether tipped employees should receive a different wage than non-tipped workers.
Proponents of a different wage for tipped and non-tipped workers point out that the law guarantees tipped employees the same minimum wage that other workers receive. They argue that because restaurants have very small margins, an increase in the minimum wage could lead to higher prices for consumers and fewer jobs available for latent employees. A 2011 study suggested that 2011’s WAGE Act, which would have raised the minimum wage for all tipped employees
in The United States, would have led increased unemployment, as it would have result to a cumulative decrease in 11 million hours worked by tipped employees. Others express fear that eliminating the tip credit aggravates income inequality by benefiting the more well-paid servers at the expense of the non-tipped back-of-the-house staff.
Of the five states where wait staff earn the highest average income per hour (Hawaii, Vermont, Alaska, Washington and District of Columbia), four have a tipped minimum wage below the non-tipped minimum wage. However, we should note, that these figures relate only to tips reported to the government for taxes, and that real tips may be significantly higher. In Washington State, where the minimum wage for wait staff is $9.47, the average wage is $13.25 after gratuity, in Massachusetts, where the tipped minimum wage is $2.63, the average income of tipped waiters and waitresses is $12.88.
However, some managers contend that, while employers are required to ensure that all employees receive the minimum wage after tips, the current system makes it possible for some employers to illegally coerce employees to over-report tips or dock their pay so that their final income is below the minimum wage.
Others argue that because tips often represent 50%-90% of a waiter’s income, workers’ incomes are unfairly vulnerable to fluctuations in customers’ generosity. Also, opponents of the current minimum wage for tipped employees point out that the tipped minimum wage has remained stagnant since 1991 despite increases in the cost of living and in the standard minimum wage over that same
time.

C.2 Human Resources Point of View
That been said from an economic point of view, it is important to account for the fact that gratuity was originally though as a way to compensate a server for an exceptional work, rather than a way to pass the burden of paying employees from employers to customers. When you pay $25 for a plate of food, it is common knowledge that the food itself doesn’t cost the restaurant $25. It probably adds up to some occupancy, equipment, food and beverage, personnel costs and some profit margin the owner makes. So when you pay $25 you are already paying for the service part of the meal. Employers took advantage of the tipping social norm to decrease personnel costs and make some extra cash themselves; and it disappeared the motivational part the gratuity had to this type of employees.
Set for example the Uber case. When you request an Uber and he doesn’t give you a good service you would normally give a poor rate in return; because otherwise how can you expect the next Uber you request will give you a better deal? If you give a bad server a good tip, you are signaling the owner of the restaurant that he is making a good job while that is not the case; you will only give the tip to not be viewed as demonstrating improper etiquette or seen as being rude due to social norms, and never come back to that restaurant again. Shamir (1983) studied the practice of tipping on employee perceptions and attitudes and found strong correlation between tipped job positions and general role conflict and job dissatisfaction; this relationship was not found in non-tipped positions.
It is important to study this notion not only from the customer point of view, but also from the employee’ point of view.
In the USA, tips make over half of restaurant workers’ income (Azar and Yossi, 2008). One might question whether or not tips are actually being distributed fairly to the service employees in the restaurant. Employee motivation and perception of fairness in the restaurant industry is vital to the future success of restaurant organizations because if recognized correctly, managers can avoid the high costs associated with turnover. (Dermody, M. Young, M. and Taylor, S. 2004). Because competition is steady with other industries to attract and retain workers to meet the demand of consumers, restaurant employers stand to gain by achieving a better understanding of worker motivation (Enz, C.A.
2001).
Curtis (2009) investigated employee motivation and organizational commitment by comparing tipped and non- tipped restaurant employees. Results showed strong evidence that service climate was correlated with employee attitudes of job satisfaction, job involvement, and affective organizational commitment. At the individual analysis level, the relationship between service environment and both job involvement and affective organizational commitment was stressed for employees with higher levels of customer service orientation than for those with lower customer service orientation.
This study concluded that a lack of employee motivation may cause organizational problems in turnover, retention, morale, and poor productivity. Certainly, restaurant operations are not unfamiliar with these human resource issues, however, many restaurants choose to accept these issues as part of the business or utilize ineffective, archaic motivational techniques.