Why Initiative 77 Does Not Mean the End of Tipping (June 21, 2018)

Recently voters in Washington D.C. voted for Initiative 77.  The vote was not particularly close: 55% voted for the initiative and 45% voted against it.  The initiative changes minimum wage laws in the District two ways.  First, it increases the minimum wage to $15 per hour by 2020 and then boosts the minimum wage by inflation after that.  Second, the initiative slowly increases the minimum wage for tipped employees so that by 2026 they receive the same minimum wage as any other worker.

The initiative still has to be approved by Congress and could be derailed by Washington’s City Council, but if it passes both hurdles many opponents feel it will dramatically change going out to eat in the nation’s Capital.

Prior to this law all waiters, waitresses, bar tenders and other employees who received tips could receive less than the minimum wage as long as the difference was made up in tips.  The current federal minimum wage that a restaurant, bar or hair salon needs to pay tipped employees is just $2.13 per hour.  The District of Columbia has a slightly different floor, just $3.33 per hour.  Nevertheless, the result is the same.  With the current sub-minimum wage, restaurant owners are not responsible for most of the pay of their front-line staff.  Instead, patrons are primarily responsible for paying these workers.

I have written and spoken about getting rid of tipping in the U.S. for a number of years.  My thoughts have appeared in pieces in the Wall Street Journal, TheConversation and other media outlets.  I have argued that tipping is both unfair to workers and not very effective at motivating staff.

It is unfair because some of the most vulnerable workers have no idea how much they will earn in a day, week or month.  Tips can be high or low for many reasons that are outside the control of the wait-staff.  Poor weather can keep customers away, lowering restaurant workers’ income.  Conventions, city-wide celebrations and large events can dramatically boost restaurant worker’s income.  Additionally, a large part of the dining experience is based on the food, which the wait staff serves but does not cook.

Tipping is not effective at improving service since most people tip using a standard percentage or algorithm such as 15% on the entire bill or 20% on the bill excluding tax and drinks.  Research has shown that within limits good or bad service has little impact on the amount people tip.  If most people simply provide the same amount of money, tips won’t motivate better service.

A more useful system in my mind is adopting the practices used in places like Japan, where workers are paid a good salary, restaurants charge a higher price for food and drink, but the overall bill for diners is roughly the same since no tip is added to the total. no matter how good or bad the service might be.

While I think initiative 77 is a step in the right direction by eliminating the sub-minimum wage, I believe that people in Washington DC will continue to tip for three reasons.

First, Washington DC has a large number of visitors and tourists who don’t know or understand Initiative 77.  People are conditioned by the customs of where they live.  New Yorker’s typically give large tips wherever they are in the world because they are conditioned to leave large tips at home.  I have a friend who is a server in downtown Boston.  He is always concerned when he gets a large table filled with visitors from a country where tipping is not done because often his hard work gets a small or non-existent tip at the end of the meal.  I believe this will have the same impact in Washington.  People who don’t live in the District will continue to tip or not tip as they do back home.

Second, there are many high-end expensive restaurants in DC.  Many wait-staff at these places currently earn well above minimum wage.  When a diplomat or lobbyist finishes an expensive meal they are not going to tell their waiter, “no tip since you are now getting minimum wage.”

Last, the initiative will phase in the higher minimum wage over time.  It will take seven years to reach $15 per hour.  People will not stop tipping overnight on a policy that is being implemented slowly.

No matter what the hype, Initiative 77 does not mean the end of tipping.

Economist Advocating for Using Cash