By Michael Saltsman
California and its localities were early adopters of the Fight for $15, and employees and employers have paid the price. San Francisco lost over 1,000 restaurant jobs in 2018, the most recent year for which data is available. One chef recently warned the city’s high costs are making it “nonviable” for new restaurant development. In Los Angeles and Orange County, once-robust full-service restaurant growth has slowed to a crawl, according to the Census Bureau.
Some restaurant jobs are being replaced with automated alternatives. Ed Rensi, past CEO of McDonald’s USA, said his former employer’s nationwide embrace of touchscreen ordering kiosks was a direct response to rising labor costs. Numerous quick service and full-service restaurant chains have done the same, providing customers with a “convenience” that used to be part of an employee’s job description.
Henry isn’t the only counterproductive choice for the Governor’s commission. Take Saru Jayaraman, a UC-Berkeley professor and founder of the labor group Restaurant Opportunities Center, or ROC. Jayaraman travels the country to promote California’s unusual payment model for tipped employees (e.g. servers and bartenders), where tips aren’t treated as income earned on the job. California is one of just seven states that doesn’t count tip income towards the minimum wage. According to state labor law, a server who earns $300 in tips on a Friday is no different than a dishwasher who earned none.
She’s met with little success in her travels; in fact, not one state targeted by Ms. Jayaraman and her group ROC has adopted and kept California’s model. Instead, thousands of tipped servers have raised their voices to oppose her, citing evidence that ROC’s preferred payment model will lead to less take-home pay and more restaurant closures. In the Bay Area, for instance, a Harvard study found that each dollar increase in the base wage for tipped employees boosted closures for 3.5-star restaurants by as much as 14 percent. A recent study from Miami and Trinity University economists found that restaurants in high-cost markets like California hire nearly 20 percent fewer tipped employees as a percentage of total staff.
The opposition to Jayaraman’s policies is bipartisan: Democratic legislators in New Jersey, New Mexico, New York, Illinois, Maryland, and Washington, DC, among other locales, all rejected Jayaraman’s approach after servers turned out to oppose a “future of work” where restaurant customers order on an iPad and the opportunity to earn substantial tip income vanishes.
California would be better-served if the Governor’s commission examined legislatively-imposed barriers that keep employees and employers in the state from prospering. But that’s unlikely to happen while Henry and Jayaraman are on the job. Consider the East Bay city of Emeryville, which has the country’s highest minimum wage: Last year, the City Council tried to pause an upcoming minimum wage increase, after a city-sponsored team of academics identified serious harm to small restaurants from past hikes. Instead of acknowledging the data, ROC and the SEIU successfully threatened the council with political consequences should they fail to keep the increase as scheduled.
To prepare for the future of work, Gov. Newsom’s Commission should first take stock of past mistakes–and fix them.
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