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.


Privatize the OLCC

Republican candidate for governor Chris Dudley has added Oregon to the list of control states considering privatization of their liquor markets. Elizabeth Hovde explains:

Some people want the state to monopolize the liquor business because they feel safer with it in charge. They believe that with limited access and price controls, the social problems associated with overconsumption are limited as well. But it’s hard to argue that a state monopoly on liquor helps curb alcoholism when distilled spirits are available at more than 200 liquor outlets, and wine and beer are already sold in grocery stores.

Dudley and others pushing privatization in Oregon need to make clear that current safety measures on alcohol sales would not be sacrificed, that the OLCC would keep its public safety functions and that any change in sales would be revenue-neutral to state, city and county budgets. Once that’s handled, the philosophical argument against a liquor monopoly is easy to sell.

Previously covered: OLCC’s “secret happy hour” requirement and anti-consumer special order policies.