California Restaurants Are Dying Due to High Labor Costs

(sandiegomagazine.com)

35 points | by jseliger 1835 days ago

15 comments

  • Simulacra 1834 days ago
    Tipping is an anachronism from slavery and should be banned.

    I think tipping is a sham that businesses use to keep labor costs down at the expense of the worker. Banning it is the only way we're going to get rid of it, and force restaurants and other businesses to pay a fair wage.

    As for what that fair wage is, I don't know, because that depends really on the area; i.e. $10/hr is great for Elizabethtown Kentucky but would be poverty for San Diego.

    Tipping is the issue here, not minimum wage, and that's what we should really be targeting.

    • Amezarak 1834 days ago
      As someone who worked in a restaurant for six years, I strongly disagree.

      Working for tips is great. Taking away tips will mean a net reduction in wages. Your "fair wage" will almost always be less than I would have made in tips, even at a cheap buffet-type joint. Whether or not tipping is an 'anachronism from slavery' or not, it doesn't feel that way. It feels like I'm actually getting paid for my work.

      That said, losing restaurants is perfectly fine with me. People are too obsessed with eating out. More people need to prepare their own food more often.

      • Konnstann 1834 days ago
        Something that I've always wondered, did you pay income tax on your tips, or just the base wage? My understanding was that tips were equivalent to "under the counter" pay.

        I dislike tipping because oftentimes the people who are making your food make less money than the person who brings it to me, which seems wrong. People are always crying about how little servers make while neglecting the fact that society has trained people to automatically tip, meaning that you don't even have to do an exceptional job to earn 15%+ on most checks. Nowadays every business has a tipping option at the cash register, AKA my order getting punched into an Ipad somehow qualifies you getting paid more, and then when people say "raise wages and prices" so I can make better decisions and not tip, servers are the first to complain about that as well.

        I apologize if what I said offends any servers, but I've had too many conversations where servers are simultaneously not making enough money but also don't want minimum wage laws applied to their job because then they'd make less money. With $15 minimum wage you'd think that'd be enough for what is usually an entry-level job.

        • Amezarak 1834 days ago
          > Something that I've always wondered, did you pay income tax on your tips, or just the base wage? My understanding was that tips were equivalent to "under the counter" pay.

          In my experience, management instructs servers to dramatically underreport cash tips. Many places instruct them to report an amount that equals the minimum wage - even where the federal minimum applies, if you don't make at least $7.25 with tips, the employer has to make up the difference.

          I believe the reason for this is to reduce the employer FICA contribution. Servers are generally all-too-happy to go along with it since it means paying less income taxes.

          The IRS has been taking some action on this, and larger companies apparently have gotten some kind of deal where servers must report an amount based on sales, or something like that - it's been a while since I looked at the specifics, and it didn't affect me personally, so I didn't look too closely at it. It seemed pretty unfair, but tax evasion is rampant.

          This is one of the factors that make it unlikely business will pay servers what they make now - there's so much tax evasion going on, to net the same amount of money, businesses would have to pay much more money than you would think at first glance.

          > I dislike tipping because oftentimes the people who are making your food make less money than the person who brings it to me, which seems wrong.

          This is a very fair point. It's also another reason why businesses will not be likely to pay servers what they're making now. You can get away with making that much money when the customer is giving it directly to you. There will be a lot more agitation and drama if waitstaff is being paid much more highly than the kitchen staff on their actual paycheck.

          Now, suddenly either labor costs are rising by a factor of 4-5 (ha!), or servers make merely twice as much as minimum wage, or something like it.

          > . People are always crying about how little servers make while neglecting the fact that society has trained people to automatically tip, meaning that you don't even have to do an exceptional job to earn 15%+ on most checks.

          I will be the first to tell you that a very large proportion of servers are incredibly spoiled and entitled and complain about how much money they're making even as they leave at the end of the night having made $40/hour, right in front of the kitchen staff being paid $7.25. I can't explain this phenomenon, other than loudly and publicly complaining about tipping and poormouthing might be believed to increase income as people feel bad.

          My personal belief? Don't tip if you don't feel like it. I sometimes stiff servers now. I never would have done so before I worked as one. It’s rwally not that big a deal. Being stiffed is not that unusual, you’re not going to stand out, and it’s a lot better than religious pamphlets.

      • justin66 1834 days ago
        > Taking away tips will mean a net reduction in wages. Your "fair wage" will almost always be less than I would have made in tips, even at a cheap buffet-type joint.

        What evidence is there that this is true? The truth of it seems to depend entirely on what the hypothetical minimum wage for those workers is set at.

        • nate_meurer 1834 days ago
          Michael Lynn, a professor of food and beverage management at Cornell, looked at this recently [1], and the study's conclusions seem to support @Amezarak's comment. Here's a quote:

          .[...]tipping is a form of price-partitioning that reduces perceptions of expensiveness even when it does not affect the actual total costs of eating out, so replacing tipping with service inclusive pricing may decrease consumers’ perceptions of value."

          Some pretty big names in the business have tried banning tips in the past few years, and it's been largely unsuccessful -- in some cases disastrous -- and the restaurants have almost all had to return to tipping to save their businesses. A few brave souls persist, but it's safe to say the anti-tipping movement in the U.S. has kind of petered out for now [2].

          I suspect that if an entire city were to ban tipping, it would be much more successful since individual restaurants would not be at a comparative disadvantage due to whacky price perception.

          I personally hate trying to figure out tips. I cope by just adding 20% by default in every case, unless the service is truly awful.

          1 - https://static.secure.website/wscfus/5261551/7004898/ijhm-ti...

          2 - https://www.newyorker.com/culture/annals-of-gastronomy/the-l...

        • YUMad 1833 days ago
          The reality of tipping culture is that these workers are vastly overpaid for their skill and effort level.

          That's why they're fine with their salary being less than federal minimum.

      • merpnderp 1834 days ago
        I notice those who feel strongly about tipping break into two camps, one of which is good at their job and makes decent money from tips, and one of which is bad at their job and makes far less money from tips.

        And that second camp is always trying to get the first camp's money.

        • okcando 1834 days ago
          Way to spoil the conversation with a false dichotomy. I'd guess that even if we accept that good servers make good tips and favor tipping and that bad servers make bad tips and don't favor tipping, most people who have an opinion on this issue are neither, because most people aren't servers.

          I'm not a server and I'm not in favor of tipping because of the psychological effect cited, which might as well be a bait and switch. Menu price being the bait and paying 20% over that the switch. Reduced perception of value equivalent to saying the market would adjust when consumers are informed of the true cost of the product.

          But never mind all that, industries must always grow, even if it's wasteful and the community taken as a whole is worse off for it. And evidently because some servers like tips. Aces.

        • tropo 1834 days ago
          If you take "good at their job" to mean "sexually attractive and flirtatious", sure. I'm not pleased that this is nearly a job requirement for waitstaff, but that is what tipping gets us.
          • merpnderp 1832 days ago
            Laughably untrue. You can be ugly as sin as long as you are pleasant to be around and good at your job, you’ll still land the tips.
      • olliej 1834 days ago
        However tipping legally cannot be shared with back of house staff, so your tips are being subsidized by the back of house staff.
      • Mc_Big_G 1834 days ago
        Um, no. Just because YOU made more money working for tips doesn't mean it works that way for the majority. A simple search turns up plenty of evidence to the contrary.
    • grayed-down 1834 days ago
      <quote>Tipping is an anachronism from slavery and should be banned.</quote>

      Oh gawd! Says someone who's likely never worked in nor almost certainly never owned a restaurant.

    • b0bby_tabl3s 1834 days ago
      I disagree. The politics of CA are the issue.

      Also, trying to 'force' a business to do anything this drastic is going to put many OUT OF BUSINESS, then no one working there will make jack s h i t.

      Also, your comment is a plagiarized idea. Word. For. Word. https://www.independent.co.uk/news/when-tipping-is-an-issue-...

      Don't be that dude. Be better.

  • idDriven 1834 days ago
    I recently read this article and was surprised that services like Grubhub and Seamless are not only charging the user a service fee, and using tips to pay less of a guaranteed hourly wage to workers, but also charging a 10% -30% fee to the restaurant owners for result placement. This article compares this to mafia tactics. Also considering most restaurants don't have that high a margin traditionally even 10% is often all of the profits. source: https://newfoodeconomy.org/restaurants-eaters-please-love-go...

    Just blaming a living wage seems like a gross oversimplification. Also landlords and exploding rents were not factored into this article.

  • eesmith 1835 days ago
    How is it that countries with both high restaurant wages and no tipping (eg, $20/hour for McD's in Denmark) still have restaurants?

    Given that, I can't help but think there's something wrong with the analysis. I have no domain expertise to tell what it might be.

    • PhoenixReborn 1835 days ago
      They have socialized health care and better support systems in the form of basic income/welfare. Also, value added taxes exist in many EU nations which fund these programs. The cost of goods is also higher, which generally funds the wages of the employees.

      But in this case, the author is complaining about the tax law associated with tipping and not with the minimum wage hike in itself. Doing away with tipping will be great on a societal level but reforming the tax law will do a lot to keep restaurants from shutting down in the short term.

      • eesmith 1834 days ago
        But aren't there a large set of interdependent factors?

        Like, if everyone knows that the wait staff gets paid $15/hour then wouldn't there be less pressure to tip, say, 20% on meals? If all wait staff received at least $40/hour then I'm sure that most people simply wouldn't tip.

        And how would this change, to include tips as part of wages, help the "near-poverty cooks and dishwashers"? Are the businesses on the knife-edge of solvency that they simply can't afford to pay the back-end staff more? It seems more likely that the savings will go to the restaurant owners?

        You mentioned socialized health care. Doesn't that also affect the labor costs? That is, the US government already pays more per capital on health care than just about every other country - then there are private health care plans on top of that blowing the costs sky-high. By switching to socialized health care, it should lower the overall healthcare costs, so make it cheaper to employ people ... unless of course the restaurants currently don't provide reasonable healthcare coverage to their employees.

    • bko 1834 days ago
      Everything is on the margin. A high cost of labor won't mean that you'll have no McD's. Some locations are very profitable and those will continue to operate. Others are less so, so on the margin many won't make the cut.

      If you look at number of McD's by country, Denmark has 1 location per 64k people while US has 1 per 23k [0]. Also some of that is preference.

      I'm not also not sure where you got the $20/hour wage for Denmark:

      Denmark Minimum Wage: None; instead, negotiated between unions and employer associations; the average minimum wage for all private and public sector collective bargaining agreements was approximately DKK 110 (nominally $16) per hour, exclusive of pension benefits [1]

      [0] https://en.wikipedia.org/wiki/List_of_countries_with_McDonal...

      [1] https://en.wikipedia.org/wiki/List_of_minimum_wages_by_count...

      • eesmith 1834 days ago
        The $20/hr at McD's in Denmark comes from my memory of previous discussion on this topic. For examples, https://www.businessinsider.com/denmark-mcdonalds-pays-20-ho... , "Fast food workers make a minimum of $20 hourly in Denmark, while in the US, their average hourly wage is $8.90, according to the Times report." and from https://www.politifact.com/punditfact/statements/2014/sep/03... :

        > Statistics Denmark is the government agency that tracks labor information. For the category of food service counter attendants, the annual pay in 2012 was over $41,000. That is for all companies, not just McDonald’s. On an hourly basis, that translates to about $20 an hour.

        • jgowdy 1834 days ago
          If you're going to compare wage numbers between nations, why are we comparing gross pay? If you're taxed drastically more, the pay difference isn't very relevant. Obviously you get social benefits, which become much harder to compare. But comparing someone taxed at 39% to someone taxed far far less by comparing gross wages is nonsensical to me. When you look at the tax rate, the difference in pay is far less severe.
          • eesmith 1834 days ago
            My original question is: "How is it that countries with both high restaurant wages and no tipping (eg, $20/hour for McD's in Denmark) still have restaurants?"

            This compares not 'gross pay' but 'gross pay plus tips'. Of course a more complete analysis would also include benefits and payroll taxes.

            Note however that my question does not depend the raw numbers. It holds even with a "less severe" difference.

            It would only be a problem if the tax level in Denmark was high enough that the difference is inverted, which I do not believe to be the case.

  • Mikeb85 1835 days ago
    Restaurateurs need to think harder. All restaurateurs in a single city and state are faced with the same labour laws, minimum wage and all restaurateurs in a single area are faced with the same cost of real estate and living for their employees. It's a fair playing field. If they can't find employees, they need to pay more. And if they pay them more, they raise prices. And consumers will have to pay them if they want to eat out. And they do. It just takes some actual balls to raise prices. When you hear all the complaining, it's always shit restaurateurs that can't compete on quality or service, so they screw over as many people as they can to attempt to compete on price. At the end of the day, it's a competitive industry and people will find a way to make money.
  • zimpenfish 1835 days ago
    > one of his servers made $70,000 four years ago, working 30 hours a week. That is $44.87/hour. Come 2022, that server would be making nearly $50/hour.

    According to http://www.in2013dollars.com/2015-dollars-in-2018?amount=700..., that 2015 $70k ($44.87/h) would become 2018 $74k ($47.54/h). If he's getting $50/h in 2022, wouldn't that be a net drop in his wages anyway?

    Edit: barring a deflationary period, I suppose.

    • foxyv 1833 days ago
      My economics professor called it grandma inflation. Grandma hears that the busboy is making $70000 and freaks not realizing that it's close to $30000 in 1985 dollars. She still thinks that $70000 is a lot of money...
    • pizzazzaro 1834 days ago
      In the San Francisco real estate market? Dont be surprised when some of those workers start going homeless.
  • drugme 1834 days ago
    The title says "because higher wages", which of course touches all kinds of buttons. But if you read a couple of lines down, it's because of the broken taxation system:

    There are many reasons restaurants close. But one reason comes up again and again—California is raising minimum wage without letting restaurant owners count tips as wages, and yet still taxing restaurateurs on those tips. It’s a financial double-whammy they can’t recover from.

    • yongjik 1834 days ago
      If this leads Californian restaurants to declare "We don't take tips because we pay our staff livable wages (and also we pay less tax that way)", then I am one hundred percent behind this particular taxation system.
    • olliej 1834 days ago
      Tips aren’t counted as wages because federal minimum wage is lower for service. Many restaurants are switching to just charging true price and removing tips, which clearly solves this problem.

      At issue is that there are businesses that don’t want to pay market rates for labor but also don’t want to list the actual cost of the meal.

  • navane 1835 days ago
    The server should pay tax on the tip.

    If I understand correctly, tips now go to the server, but the restaurant owes tax on the tip. So the more the server makes in tips, the more the restaurant owes in tax. Therefore the server should deduct the tax from the tip before they take it home, and leave that deduction to the restaurant, who can then give it to the tax authority.

    • kayfox 1834 days ago
      Uh, the server pays income tax and social security withholding on the tip, as long as tips are reported properly.
    • mcv 1834 days ago
      I really hope that's not how it works. It would mean that a restaurant would get punished instead of rewarded for getting a big tip.

      There's basically two options: either the tip belongs to the restaurant and they can use the tip to pay for any taxes over the tip, and possible spread it out among their employees, or the tip goes directly from the customer to the server and the restaurant has nothing to do with it.

  • dmode 1834 days ago
    I don't get it. Why not just stop accepting tips and pay the fair wage ? That's what the rest of the world does
  • jgowdy 1828 days ago
    For rough comparisons in these threads:

    The tax rate for someone making $20 USD per hour in the United States is:

    Gross pay: $41,600 Tax due: $6,157 Net pay: $35,083

    The same wage through Denmark's tax rates:

    Gross pay: $41,600 Tax due: $23,212 Net pay: $18,388

    Now in the United States, add unreported tips to that already colossal difference in net pay. Add reported tips to the gross pay side of the equation.

    That gives the American $20/hr wage earner an additional $16,695 plus tips to attempt to secure health care coverage compared to an equivalently paid Danish citizen.

    Effectively $1,391 a month to pay for health care coverage.

    You're also able to be on your parents health care plan until age 26.

  • aestetix 1835 days ago
    This "solution" will result in tip money being taken from servers who work hard and being given the servers who don't work as hard, which in turn will reduce incentive to work hard across the board, and lead to a worse dining experience for customers.
    • llampx 1834 days ago
      You can still fire the waiters who aren't up to your standards. I believe that the restaurant management culture is responsible for good service. I've had bad service at tipping restaurants and good service at non-tipping restaurants. To me it's not an indicator either way.
    • Mc_Big_G 1834 days ago
      It's the business owner's responsibility to manage their employees. Your work isn't acceptable? Fired or no raise. Your work is exemplary? Promoted or raise. Pretty simple.
  • bookmarkacc 1835 days ago
    I feel like the restaurant where a server makes $44 ans these struggling restaurants are not the same. Feels unfair to make it seem like the greedy server is gouging the poor mom and pop when they already made $44.
  • who-knows95 1834 days ago
    "THE SOLUTION: Let restaurant owners and employees agree on a fair, livable wage. Ensure they make that wage, every single shift. Just count tips as part of that."

    where in logic does counting tips as wage make any sense? pay your workers a living wage, tips are a gift of good service, not a vital part of someones living wage."

    i guess this comes from a UK perspective, but being paid a salary, and then earning tips with good service. made those tips even sweeter.

  • chrisbennet 1834 days ago
    A study of San Fransico restaurant found the opposite.

    https://www.sfchronicle.com/business/article/Bay-Area-minimu...

  • raubtier 1834 days ago
    If it moves, tax it. If it still move, regulate it. If it stop moving, subsidize it. I'll guarantee, you'll soon see taxpayers money going in to the resturant business.
  • CarlSchmitt 1834 days ago
    "California Restaurants Are Dying Due to Restaurant Owner Greed and High California Taxes, Fees, and Regulations"