Defending Dudley

Republican candidate for Oregon governor Chris Dudley is taking some heat for comments he made suggesting that Oregon should add a tip credit to its minimum wage laws. (Tip credits allow businesses to pay less than the standard minimum to tipped employees on the assumption that the difference will be made up in gratuities; all but seven states make some sort of allowance for this.) The proposal is being used to drum up opposition to him from people in the service industry, as in this video:

If you’re a tipped employee already making minimum wage, then of course you’re not going to like this idea. But there are other considerations:

1) At $8.50 per hour, Oregon has one of the highest minimum wages in the country. We also have one of the highest unemployment rates. If you work or are seeking work in the hospitality industry here you’ve probably seen the crowds of people who show up in response to job ads; 700 lining up and even camping overnight at a new Olive Garden in Bend is an extreme example. Lines like that are an indication that the combination of a high minimum wage and no tip allowance is raising the demand for hospitality jobs while reducing their supply.

Many of these people lining up would likely be willing to work for less than the minimum wage rather than be unemployed. As a personal example, when I moved to Portland it took six months for me to find full-time employment behind a bar. I’d have gladly accepted a barback job for less than minimum wage in order to get my foot in the door somewhere, but it would have been illegal to negotiate such a deal.

2) The higher the minimum wage, the harder it is for employers to offer non-wage compensation. One of the biggest complaints from people in the hospitality industry is the difficulty of getting health insurance. Many of them might gladly trade a lower hourly wage for an equivalent contribution toward health insurance. (Actually more than equivalent, since health benefits wouldn’t be taxed. I’d be curious to see numbers relating minimum wage to provision of non-wage benefits, adjusted for other factors.)

As another personal example, the restaurant where I worked in DC paid less than the minimum wage, but employees who worked enough hours were eligible for insurance. That’s not a bargain we could make here.

To be clear, I’m not writing to advocate one way or the other on this issue. I’d just like to see better economic thinking in the discussions about it. Tip credits are portrayed as being bad for workers, but the trade-offs are more complex than that. Oregon’s current law favors employed hospitality workers over those seeking jobs in the industry and wages over non-wage compensation. These might be worthwhile trade-offs, but they are trade-offs, and so far I haven’t seen any acknowledgment of them in the critical responses to Dudley’s comments.

For more background on Oregon’s minimum wage and service industry employment see Patrick Emerson.

Comments

  1. Paul says:

    I just feel bad for the kids in the video. Once they take high school econ they’ll be sad were put in that position.

  2. Michael says:

    Jacob makes great points and I couldn’t agree more. I am in the restaruant business and there is no doubt as a restaurant owner, I could offer more to my staff if Oregon had a tip credit. 100% of my servers work for tips, not for the minimum wage….quite frankly they don’t even pay attention to their paychecks and in many cases don’t even care to pick them up. I have responsibilities and margins to meet, as a result, I have to leverage the kitchen salaries due to the high minimum wage.

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