In Chicago restaurants and hotels, what’s the tipping point?

CHICAGO TRIBUNE |

SEP 27, 2019

From City Hall, running a restaurant may look simple: Make good food, charge reasonable prices, get good Yelp reviews and then rake in the profits. From the office behind the kitchen, though, it doesn’t look so easy — and lawmakers in Chicago and Springfield are only making it tougher.

Anyone doing business in the city has to deal with high sales and property taxes, heavy regulation and even corruption. A 2019 national survey of small business owners gave Illinois an F for licensing obligations and a D for regulations. On top of these headaches, the state has acted to ramp up the minimum wage from $8.25 an hour to $15 an hour in 2025. The Chicago City Council recently passed an ordinance placing needlessly strict requirements on how companies schedule their employees’ hours.

Then there is the latest proposal in the City Council, which would require employers to pay tipped workers the same minimum as other workers. Currently, Chicago’s minimum for tipped employees is $6.40 an hour, compared with the $13 regular minimum in the city. The tipping proposal is part of a broader proposal to raise the city’s minimum wage to $15 by 2021.

The idea behind the two-tiered formula is that tipped employees will earn much if not most of their earning from gratuities, which can be considerable and which serve as an incentive for cheerful, efficient service. Some bartenders and servers make hundreds of dollars a night in tips.

Under this system, Illinois leads the nation in the percentage of customers who tip and ranks near the top in the generosity of tips. If the city were to require the full minimum wage for these employees, employer costs would rise, and customers would most likely reduce their tips, or stop them entirely, particularly if establishments add a mandatory service charge to bills.

Facing much higher payroll expenses, affected restaurants and hotels would face pressure to raise prices and reduce staff, perhaps by automating tasks such as ordering or by cutting back on hotel room service. Servers who prefer the status quo would be deprived of an option they value, as well as some of the money they currently earn. Some servers, of course, would make more money — but most likely, some of those in line to get a boost would lose their jobs.

A robust job market is the best way to foster the economic interests of servers and other workers. It expands opportunities and pushes up wages. In that realm, unfortunately, Illinois is underperforming.

Since the worst days of the Great Recession, the total number of jobs in the United States has risen by 20%. But Illinois has lagged far behind, with just a 6% increase. The populations of both Chicago and Illinois have been steadily declining, partly because job seekers find more abundant opportunities elsewhere.

A higher minimum wage for tipped workers would give some of them a raise and some of them a pay cut. It would make it even harder for the businesses that employ them to bring in enough money to keep their doors open.

Given the prospect of even higher taxes in a city and state with terrible debts and pension obligations, employers already ask whether it makes sense to start a business in the city or state, or to keep an existing one where it is. This change would be one more reason to think the answer is no.