On Monday, Senator Bernie Sanders (I-VT) and Representative Robert Scott (D-VA), introduced a bill to raise the federal minimum wage to $17 an hour over five years and eliminate the tip credit subminimum wage system within seven years.
The measure, Raise the Wage Act of 2023, would be the first increase to the federal minimum wage in 14 years.
The bill drew immediate opposition from the National Restaurant Association, and dueling assessments from economic think tanks.
“Eliminating the tip credit as a compensation model is a non-starter,” the NRA said in a statement emailed to Restaurant Dive.
The Economic Policy Institute, a pro-labor economic think tank, estimated it would raise wages for close to 28 million workers, or nearly one-fifth of the American workforce, by about $3,100 a year. Focusing in on the restaurant industry, the Economic Policy Institute estimated the bill would raise wages for nearly 3.6 million restaurant workers directly, and drive up pay for some 2.3 million more, or what it estimated as 58% of the restaurant workforce.
The Employment Policies Institute, a similarly named think tank founded by longtime anti-labor lobbyist Rick Berman and directed by Berman and Company partner Michael Saltsman, released a report arguing Sanders’ bill would result in the elimination of about 900,000 restaurant industry jobs. The Employment Policies Institute report is based on calculations made with the Congressional Budget Office’s cost elasticity estimates for employment.
However, one study funded by the Employment Policies Institute during the fight over Sanders’ 2021 Raise the Wage Act, was not so confident of the employment impacts of increased wages, noting “predictions for the employment effects of the minimum wage in the restaurant industry are ambiguous,” and “some recent evidence suggests that in labor markets with a high degree of monopsony power, higher minimum wages do not reduce low-skilled employment.”
A recent study from the University of California, Berkeley indicated that increases in the minimum wage are not necessarily correlated with increases in unemployment.
While the act would certainly raise costs for many businesses, the recent history of the labor market indicates that restaurant wages and employment are not necessarily negatively correlated. From January 2021 to May 2023, production and non-supervisory hourly wages in the foodservice and accommodations sector exploded, growing from $13.96 to $17.92, while employment grew from about 9,791,000 to 12,259,000 workers. Job growth has slowed noticeably in recent months, likely a result of interest rate increases and the fact that the industry’s employment is now near pre-COVID highs. Sectoral labor productivity, a measure of the value generated per hour worked, has also increased 12.5% compared to 2019.
The NRA noted this increase in industrywide pay, but emphasized the pressure increased labor costs can put on restaurant.
“This wage growth has come at the same time that wholesale food prices shot up; rent, insurance, credit card fees and debt climbed; and consumers started to second-guess their spending,” the association said. “It’s been a challenge for restaurant operators to balance all these increases with only a 3-5% pre-tax margin.”
The NRA has argued that eliminating the tip credit would drive down pay for tipped servers. This has not been the case in most jurisdictions that have eliminated the tip credit, according to a Center for American Progress analysis of employment data in the states. However, a concerted effort by employers to implement service charges or fees in response to changes in the tipped minimum wage could spur customer backlash.
The preservation of the tip credit has emerged as one of the NRA’s key political priorities, alongside the reduction of credit card swipe fees.
However, much of the debate on federal minimum wage legislation is likely moot. The Democratic Party’s grip on the Senate is weak. It only has 48 seats, plus three independents (Sanders, Angus King (I-ME) and Kyrsten Sinema (I-AZ)) who caucus with the Democrats, against 49 Republican senators, making it unlikely for any major changes to pass save through reconciliation. In 2021, the Senate Parliamentarian said reconciliation procedures could not be used to pass a $15 minimum wage. Following that, several Democratic senators opposed Sanders’ efforts to pass the bill on its own.
The House of Representatives, with its comfortable Republican majority, is likely to prove an even stronger bulwark against efforts to raise the federal minimum wage in this congress.
This federal situation, in which narrow majorities in the Senate make it difficult to pass major legislation, has prevailed since August 2009, when Sen. Ted Kennedy (D, MA) died in office, trimming the Democrats’ majority from 60 to 59 seats.
This long period of federal inaction has prompted labor organizers and advocates to look elsewhere for wage hikes and labor law reform. As a result, the sharpest regulatory battles in recent years have been at the state or city level. For example, California is facing an extended referendum battle over AB 257, which would create a council to regulate wages and conditions at fast food chains. The nation’s largest state is also considering a bill that would deal a significant blow to the franchising business model by establishing joint liability for labor law violations. Simultaneously, California has revived a moribund Industrial Welfare Commission, a state authority tasked with overseeing wages and conditions across a wide variety of industries.
Correction: A previous version of this article incorrectly stated Rick Berman’s relationship with the Employment Policies Institute. Berman has retired.