Most of the restaurants that I frequent in the USA are cheap places outside Philadelphia, New York, and New Haven, Connecticut – not exactly the kind of cities renowned for their polite people or friendly service at, say, store counters. But it took a summer in London for me to appreciate just how good the wait-staff service is at restaurants near home. It’s not a far stretch to attribute this to the much stronger culture of tipping in the USA, which means that waiters can realistically expect to substantially increase their incomes by delivering exceptional service.
The government has just announced a new law that would prevent tips from being counted towards the minimum wage in service industries. Now, we here at the ASI aren’t huge fans of minimum wage laws in the first place. But just to clarify, these waiters and waitresses were being paid at least minimum wage – but some of that came from their tips. Effectively, the law now says that the minimum wage for the service industry is minimum wage plus tips. The likely outcomes of such a law are higher prices at restaurants due to more staffing costs and less tipping, since the waiters are already taken care of. Neither of these will be good for the vast majority of consumers.
I will put in one caveat. Perhaps if restaurant owners do not need to use tips to ensure that they meet federally mandated minimum wage, they will be less likely to require that people in the service industry pool their tips and divide them equally. The positive incentives provided by tips are far more effective when the person who earns the tip gets to keep the money. There’s certainly no guarantee that this will be the effect of the law; if it is, however, and people keep tipping despite the increased charges, maybe there’s a silver lining to what is otherwise most definitely a cloud in the way of good service.