Social change work is hard and frustrating and wonderful and terrible; it is also, at times, funny, quirky and just plain fascinating. With this blog we hope to capture all that goes into what we do at Capital Good Fund, and we invite you to join the conversation!

Thursday, June 25, 2015

Why Swiss Restaurants Don't Expect You To Tip

Image source: Dave Dugdale
Over the past few months I have lent my voice to a coalition of groups seeking to raise the Rhode Island minimum wage for tipped workers from $2.89 an hour to the minimum wage for all workers ($9 an hour as of January 1, 2015). Yes, you read that right: the minimum wage for a tipped worker in Rhode Island (think waiters and bartenders) is $2.89! The idea, of course, is that workers will make up the rest through tips, but imagine working in an environment where your income is almost entirely dependent on whether or not your clients choose to live you a tip. Even worse, on slow days with few customers--something over which you have no control--you might earn less than $10 for a day's work.

Now I should point out that, in theory, employers are supposed to make up the difference between the tipped minimum wage and the "regular" minimum wage if tips don't cover it. In practice, however, this rarely happens; among other issues, the difference is exceedingly difficult to calculate. Scores of interviews with waiters and other research have revealed that this law is almost always ignored.

I imagine that, like me, you are shocked to hear that waiters and bartenders are guaranteed so little income. My assumption has always been that when I leave I tip, I am helping them earn more than their base salary, and not that the vast majority of their income depends on my tip! Fortunately, our advocacy has born fruit: the Rhode Island House Labor Committee has approved to increase the tipped minimum wage from $2.89 an hour to $3.39 an hour on Jan. 1, 2016, and then again to $3.89 an hour on Jan 1, 2017. Not great, but better than nothing, and it's the first time the tipped wage has been raised in decades.

I was thinking about this recently on my honeymoon in Switzerland (I got married to my lovely wife, Bianca, on May 31st!). At restaurant after restaurant we noticed that not only was there no place on the bill to leave a tip, but that no one else was tipping. Finally, I struck up a conversation with a waiter who was fluent in Spanish and thus with whom I could readily converse. When I asked him why no one tips in Switzerland he looked surprised and said, "Because they pay us well."

Wow, what a concept! Of course, Switzerland is a wealthy country and things are more expensive there. But what's important to remember is that there is no such thing as a waiter who earns $2.89, just like there is no such thing as a $5 t-shirt: the real costs are externalized in America. In the case of waiters in America, the taxpayers subsidize their infinitesimal wages in the form of food stamps, public housing, and other benefits. In the case of t-shirts in America, others pay for the environmental damage of growing non-organic cotton and the social damage of slave-labor and indentured servitude. So all Switzerland has done is force the end user to pay the full cost, rather than allowing individual businesses to profit at the expense of society at large.

America happens to also be wealthy; in fact, it's the wealthiest country in the world. The difference is that the wealth is unevenly distributed. In fact, the US ranks 4th in income inequality (behind Russia, Ukraine, and Lebanon), compared to 19th for Switzerland (not great, but better). It is entirely within the realm of possibility that as a nation we could decide to stop subsidizing big companies and force them to pay for the true cost of doing business. One study found that "Walmart’s low-wage workers cost U.S. taxpayers an estimated $6.2 billion in public assistance including food stamps, Medicaid and subsidized housing." (Forbes)

Restaurant owners are no different than Walmart in their reaction to proposed increases in wages: it will put them out of business! Cost jobs! Kill the economy! Yet by forcing them to pay higher wages we are freeing up hundreds of billions of dollars in public benefits that are no longer needed--funds that can be used to increase the standard of living for all. For the more income and wealth the public has, the more it is able to afford to pay the true cost of products and services. It's just a matter of flipping the paradigm to one that is equitable and, in the long term, makes sense for everyone.

Andy is the Founder & CEO of Capital Good Fund, a social change organization dedicated to ending poverty in America. Capital Good Fund provides financial services— small personal loans as well as Financial & Health Coaching—to low-income families.

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