The Unfair Wages of Restaurant Politics

With Chicago's new minimum wage law, Mayor Brandon Johnson is not doing what's best for the people, consumers, and restaurants, but what's best for himself

Mayor Johnson serves up the sausage. Credit: City of Chicago Mayor’s Twitter Feed

A lot of you have probably been hearing about Chicago’s tipped sub-minimum wage law fight. Note I’m not calling it what the pols and lobbyists and unions have been calling it, because it is generally not about pursuing “fair” wages but more about optics and a variety of other things we’ll get in to.

It’s not “fair” because, when the full $15.80 measure passes (phased in over 5 years), if you work 40 hours a week every week (which is almost impossible given holidays and closures), that means you will make $32,864 a year before taxes. The average rent in Chicago is approximately $2,100. If you find a place for the average, after taxes, you’re still in a tough spot.  In five years with roaring inflation and rising rents, the purchasing power will be significantly less. It’s more like a survival wage.

But, let’s take a step back and talk about a few details.  There’s a lot of good articles out there if you need full info, but I’d also like to sum up some of the details around this law as succinctly as possible because one of the reasons this thing is going to pass is that people don’t have time for detail, so they just hear the good stuff like “fair” and “fight the power” etc.

1)    The new law proposes that all workers in the future whether you get tips or not will make $15.80 an hour

2)    Today most tipped workers by law in Chicago are only required to be paid $9.48 an hour, while most non-tipped are paid $15.80

3)    However, under current law, if as a tipped worker you do not make $15.80 including tips, federal law requires that employers true the employee up to $15.80. Restaurant owners get a federal credit that incentivizes this. That credit will phase out with the new law.

What this means is at first when the new so called “fair wage” law goes into effect there will be no change in wages for non-tipped workers. They will still make $15.80

The future for tipped workers will range.

For the next four years or so as the increase is phased in, workers who made below $15.80 with tips, i.e. those struggling most will not see an increase in their pay since they will still be trued up to $15.80 by their employers as they always have been. They will see an increase in year five when they reach $15.80 and they get tips on top of that.

What’s ironic is that at high end restaurants with tipping, where servers could earn high five or even six figure salaries before the new proposed law, these servers will now see $1.25 an hour and more for the next five years. In other words, well tipped servers are the only ones who will see an actual bump in pay in the short term.

Wait, Mike are you saying the city is going to pass a law that doesn’t help the people it alleges to protect and aids people who don’t need it?  Yes, sort’ve, but also over time the balance will likely shift.

Wait, why is that?

Well, it’s because the law is more about Chicago financial irresponsibility and budget shortfalls and the power of unions and waging a war on capitalism than it is about actually helping people.

Ultimately Mayor Brandon Johnson is savvy enough to know that Chicago is behind on their bills and obligations (notably this is mostly Richard Daley’s fault with a little help from the pandemic). Johnson also knows, that unlike his own personal water bills, which he could ignore, he does have to pay back the city’s obligations. He also knows he can use the law to achieve that goal.

One reason the proposed new restaurant wage law is being passed is because it will generate money for Chicago and even the federal government.

One of the ways restaurant owners true up their employees making less than $15.80 is that they are granted government funds to do so. With the new law, restaurants will not be eligible for these funds, so money goes back to the government. 

Governments make money off taxes. While many tips are much more traceable in 2023, there is still a lot of cash tipping going on especially on the bar side of restaurants. Cash tips don’t always get reported as legal wages. This is tax money Chicago can’t collect. If you pass a law that potentially depresses or eliminates tipping, more wages will be legally reported and more tax dollars will go to Chicago.

The other reason for this law is that Brandon Johnson is heavily aligned with unions.  I should disclose here that I am a child of the labor movement (I also voted for Mayor Johnson). My dad earned a truly fair wage and I have had a good life because of unions. I support them and owe much to them.

A union exists to negotiate benefits on behalf of its members, and sometimes there is also a collateral benefit for society too. Many of us have a forty-hour work week because of unions, whether you were in one or not. I am rooting for the UAW to achieve their 32-hour work week demand in the current negotiation, because forty hours in many professions is still brutal and doesn’t offer great work life balance.

A union however, if it can achieve benefits for its members should not be doing so at the expense of society, especially if that expense comes at no direct material benefit to their members.

Remember how I said in the short term, those tipped workers at successful restaurants will make more? Well, yes, but they will likely be hurt in the long run too. Restaurant owners who no longer have access to government funds but are still forced to now pay the bulk of their workers over $5 more an hour will find ways to earn more money to pay those increased wages.  In some industries there is already profit upon profit to do so. Restaurants, especially single operator or small restaurant groups in general are not bathing in similar profits.

So now, restaurant owners will raise prices on menus. They may eliminate tipping altogether and charge a service fee which they distribute however they decide to their staff. They may also eliminate staff they can’t afford or find ways to automate (rotary sushi and hot pot, baby) that they ignored before to lower investments in humans. 

Raising prices may depress demand or capacity for some restaurants. Less customers or less sales may equal less tips. Now your pay is going down. This will apply to tipped employees who didn’t meet and those who exceeded the $15.80 threshold.

There is upside, which is that if a restaurant owner is incentivized by this new law to change to a service fee model, they can distribute this money more equally to everyone in the restaurant – they can’t do this with tips. Cooks can make as much as servers.

Cooks and non-customer facing people certainly deserve better wages. But, you could argue that if a cook is good at being customer facing, the natural tendency will also be to hire more double duty people, cooks with empathetic souls who can make the food and run it to the table to reduce your labor costs. This has been done with varying degrees of success in some Chicago restaurants. Few would argue however, that it resulted in superior service. Both roles are important.

BIPOC people who have traditionally been discriminated against consciously and subconsciously have often made less in tips than their white counterparts. These things can now be righted. 

Though, a white out of touch restaurant owner using a service fee will probably just continue the disparity or exacerbate it by following their own personal biases. Tipping at least distributes the bias to multiple different parties some who may or may not be racist. It will be interesting to see how this plays out in the future.

Some Chicago restaurant leaders have moved to the service model already.  They were also the fortunate few with high demand and good revenue and cache that can attract service talent who might be willing to sacrifice a lower wage to be part of something special. 

This new proposed minimum wage law will be attractive to those restaurant owners, because one of the risks of the current model is that a really good server might eventually leave their restaurant because they can earn a lot more in a restaurant that hasn’t eliminated tipping or gone to a distributed service model.

With the new law, as more restaurants are forced to a similar service charge model, then the leaders who shifted early are on are on a more even playing field for retaining their talent. I’m excited as a consumer that good performers at Lula Cafe and Daisies for example will be more likely to stay at those restaurants.

But, my guess is while those restaurants will thrive even more, many average to above average operators will suffer. Consumer experience will suffer, jobs will be lost, and the professionalism of the service industry (something that already took a huge hit when the pandemic showed people you’re better off working where you don’t have to be in person all the time) will drop off.

More brain drain will happen. If you’re making a really good tipped salary now, and your owner says hey we need to move to a service model, so you’re going to make less, what would you do?  If you get better at your job, but because of rising costs, people dine out less or tip less and you make less, wouldn’t you rethink your profession?

Great hospitality is still of very high value. This might sound crazy for a food critic, but gun to my head I think I’d rather have average food with above average hospitality than have above average food with average hospitality. 

I do believe that this law will reduce payment for the very best servers, reduce the professional service workforce, and have a general negative impact on overall hospitality.  In other words, the unions are pushing a law which does very little for their members and takes real money and existing high earning jobs away from many.

The unions, will say, who cares, those people are not in our union, they get what they deserve. They are doing this because they know that if they take away those good jobs or make people who were previously happy now disgruntled, they can get more union membership and strengthen their organizations which have been dwindling over time. They also know that if “real pay” i.e. cash tips and other forms of revenue are no longer hidden then they can ask for more from restaurant owners they’re negotiating with.

I’m ok on the second point. The first point is ridiculous. You do not take away a living wage or more than a living wage from people just so you can fold them into your organization and then try and get back what you took from those people in the first place.  This will likely lead to bitterness and fraction in the new membership when they figured out what happened. It won’t build a stronger union.

This might sound like I’m carrying the waters of restaurant owners. I’m not. I’m looking at data. One thing that hasn’t been talked about much is that the restaurant groups offered Brandon Johnson a guarantee that if he dropped the sub-minimum wage law they would guarantee a true-up for tipped workers of $20.00 an hour, an increase of $4.20 an hour for all tipped workers. They did that, because they knew that most of their tipped workers were already making more than $20 an hour with tips, so they wouldn’t have to pay anything extra out for those people.

Wait, does that mean that Brandon Johnson cost some struggling servers who didn’t meet tipped minimums an extra $4.20 an hour? It does feel like that. Also, it would have been very difficult for him to explain why non-tipped employees would be making $15.80 an hour while their tipped counterparts made $20.

Brandon Johnson understands all this, but he said he’d support the unions and be a progressive fighting for fair wages. He wanted to capitalize on the momentum he had on his initial law. After all this is called a “fair wage” law, so it must be fair, right?

The fight is over for now.  But, if Chicago is serious about regulating fairness, they should also look to create transparency laws that examine all the “employee welfare” and “health fees” and lingering “COVID” surcharges that restaurants are charging.

Some of these are legit, but there is also a mountain of abuse here, where certain unscrupulous owners are charging these fees and then pocketing them for personal profit, and no one is doing anything about it.

Furthermore, if more employers shift from tip-based models to service fees, the service fees are not as regulated, which means that for every Daisies or Lula or Honey Butter Fried Chicken or Paulie Gee’s which truly believes in creating a better world for their whole team, there are owners like the guys at Maple and Ash who could use the funds now instead to pay for private jets and country club dues as they allegedly did with their PPP loans.

I’ve tried to be as plainspoken and succinct about these issues as I can and I know I lost probably 50% of my readers a thousand words ago. The mayor knows political success works by avoiding tedious detail and carefully crafting messaging.

He knows that if he fires Dr. Allison Arwady on Friday and hires the new police chief on Sunday, no one will pay attention to the fact that he just got rid of one of the best public health servants Chicago has ever had just because his teachers’ union didn’t like her.

If Brandon Johnson was a true progressive, he would pursue an actual fair wage law, that bumps annual minimum wages to a real living wage. He would share and absorb the cost of this increase by putting some skin in the game by allocating Chicago government funds to the cause instead of putting the burden entirely on small business and restaurants and consumers as he's doing now.

In this case, the mayor knows that by passing this flawed law instead, he’s expediently getting union votes, the cost is absorbed by consumers and restaurants, and no one will read the fine print. His supporters will only see the word “fair” and assume because of his political effectualness that Brandon Johnson is a man for and by the people.

This legislative move really shows that Brandon Johnson is mostly for his own interests, even if his gain comes on the backs of many of the people, consumers, and restaurant employees he claims to serve.