MBA Careers in the Crossfire: Threats to Jobs from Bid to End Tip Credit

Last Updated on November 19, 2023 by Robert C. Hoopes

Massachusetts Lawmakers Consider Eliminating Tip Credit and Raising Minimum Wage to $20 per Hour

Massachusetts lawmakers are currently discussing proposals to eliminate the state’s tip credit and increase the minimum wage to $20 per hour. While the intention behind this move may be well-meaning, it could have severe economic consequences for the restaurant industry and jeopardize the livelihoods of thousands of employees.

It is important to note that Massachusetts already experienced an increase in the regular and tipped minimum wages each year since 2018, following a “grand bargain” signed by Governor Charlie Baker. However, the restaurant industry, which employs a significant number of minimum wage earners, has struggled to adapt to these changes and has witnessed stagnant employment growth.

Even prior to the pandemic, Massachusetts’ full-service restaurant industry was facing net job losses. The ongoing struggles and restrictive government mandates brought on by the pandemic have only exacerbated the situation, leading to the closure of many restaurants in the state. The rising costs of operating in Massachusetts have made it increasingly difficult for restaurant owners to sustain their businesses.

The inclusion of the tip credit has been an essential tool for restaurant employees to mitigate high labor costs and improve the chances of restaurants remaining operational. Under Massachusetts state law, restaurant employers must ensure that tipped employees earn at least the regular minimum hourly rate when their tips are factored in. In establishments such as full-service restaurants, servers and bartenders typically earn considerably more than the full minimum wage rate through tips.

Eliminating the tip credit would have a detrimental effect on the earning potential of servers in full-service restaurants. States like California, which have already eliminated the tip credit, have the lowest tipping percentages in the nation. If the tip credits are eliminated in Massachusetts, employees could lose an estimated $29 million in earnings statewide.

Restaurants are currently facing the difficult challenge of balancing customer satisfaction with rising labor costs. Without the benefit of tip credits, many establishments may be forced to make tough decisions that could ultimately lead to their closure. Other regions, like Washington, D.C., that have abolished tip credits have witnessed a decline in tips for servers.

It is worth noting that Massachusetts’ neighboring states have maintained the tip credit system. This disparity suggests that tipped employees are not advocating for the elimination of the tip credit. Implementing a $20 minimum wage without a tip credit would not only harm restaurants but also their employees.

Studies have shown that steep minimum wage hikes often result in job losses, and Massachusetts could see approximately 10,000 jobs disappear as a consequence. Furthermore, each $1 increase in the minimum wage for restaurants increases the likelihood of closure by 14%.

The proposals to end the tip credit and raise the minimum wage would have a significant negative impact on jobs and earnings statewide. It is crucial for lawmakers to consider these economic realities and the potential consequences before making any decisions regarding the tip credit and minimum wage.