Michael Saltsman's op/ed today on Minnesota's tip credit purports to explain the issue from an employer's and a economist's point of view. (Commenters at the Strib have already outed the PR-firm-created Employment Policies Institute with which Saltsman is affiliated.)
He paints a picture of the financial impact of a tip credit on a
hypothetical restaurant with part-time employees [that] averages 300 employee hours per day, 365 days a year. An extra dollar per hour translates into an additional $109,500 a year in labor costs (before you add additional payroll taxes), meaning the restaurant will have to generate an additional $2.2 million in revenue just to break even.
and says " it's hard to figure out where that much extra money — $6,000 a day, to be exact — would come from."
Exactly. Especially if you're looking at the colorful scarf while he pulls the rabbit out of the hat.
His restaurant would require 37.5 tipped employees working eight-hour shifts every day to hit 300 hours. Not exactly your struggling neighborhood bistro.
Second, there's no "additional" labor cost required to break even, because Minnesota is not taking away a tip credit. Menu prices, staffing levels and profits are set by the owner taking into account the local market and a law that's been in place for decades.
So, yes, the hypothetical owners with the hypothetical staff under a hypothetical change in the law will compensate in this way:
Avoid the expense altogether by cutting labor costs in other ways. Restaurants that used to employ servers who took care of three tables each now have a single server waiting on four or five. As a customer, you get your food but with less attention paid when you need something extra.
And hypothetical customers, through their tips, can decide to pay servers directly for better service, just like they do today — while the middleman looks on and pays a little as possible to his employees.