Pioneer Press: Some tips for Tom Emmer | Business For a Fair Minimum Wage

By C. Ford Runge Pioneer Press, 07/13/2010

Gubernatorial candidate Tom Emmer's most substantive economic proposal to date is a 'tip credit': to reduce the incomes of waiters and waitresses in Minnesota by pushing their wages below the minimum to compensate for tip income. Emmer noted breathlessly last week that at least three waiters at the Eagle Street Grille in St. Paul were being paid $100,000. "Tips for Tom," as he calls it, is presumably justified as a way of lowering wages to increase business profits - an idea going back at least to Herbert Hoover as a solution to recession and depression.

After criticism of his proposal, Emmer attempted to placate workers by volunteering at Ol' Mexico in Roseville to wait tables. However, he maintained his support for a tip credit saying, "If restaurant owners want a 'tip credit' that's great." He then attempted to compensate by suggesting free meals for workers and that their tips be tax free. Like Gov. Pawlenty, Rep. Emmer is not too swift on matters of economic or fiscal policy. Both the aspiring candidate for governor and aspiring presidential candidate are in need of a few tips, but not in cash. Herewith, some tips:

Tip #1: It really isn't very important what the minimum wage is if you don't have a job at all. Minnesota's unemployment rate stands at 7 percent, according to the Bureau of Labor Statistics, compared with 4.7 percent eight years ago when Tim Pawlenty became governor and George Bush was still president.

Tip #2: The median wage paid to waiters and waitresses in Minnesota is $9.36 an hour, including tips, above the federal minimum of $7.25 and even further above the Minnesota minimum of $5.25 for small employers. Many of the businesses paying minimum wages are large corporate chains. If the equilibrium wage is above the minimum, then raising it will only affect employers with many minimum wage employees. Those companies typically have the capacity to pass these costs along to consumers or suppliers. In total, the Bureau of Labor Statistics reports that in 2009, only 4.9 percent of all workers earned the minimum wage or less. If Emmer is really serious about helping workers, maybe he should consult with the 1,000 business owners and executives (including Costco CEO Jim Sinegal) who formed Business for a Fair Minimum Wage. In a recent statement, the group noted: "Higher wages benefit business by increasing consumer purchasing power, reducing costly employee turnover, raising productivity, and improving product quality, customer satisfaction and company reputation."

Tip #3: The average wage paid to Minnesota waitstaff in restaurant businesses - those Emmer argues will be hurt by raising it — is $22,730. Nationally, the 90th percentile of waiters and waitresses earned $30,110 annually according to the Bureau of Labor Statistics. The idea that waitstaff and others receiving tips are an appropriate target in a time of widespread unemployment and economic recession makes no macroeconomic sense. Why punish low-wage waiters and waitresses who are at least earning income (and spending most of it to live)?

Tip #4: Tom, since you are a trial lawyer, before calling out those greedy waitstaff clearing $100,000 in gross wages, do a little evidentiary discovery. Who are the waiters you know who earn $100,000? Are they typical? When a reporter visited the Eagle Street Grille to fill out an application for one of those Cadillac waitstaff jobs, he was told by a server and part owner: "I don't want people thinking we have people making $100,000 a year here, because we don't." He want on: "No way, shape or form did I tell him (Emmer) anyone made $100,000."

Tip #5: Consider a waiter working 40-hour weeks 50 weeks a year (unlikely). He earns $7.50 an hour (more than the federal minimum) and an equal amount in tips, for a total of $15 an hour. This times 40 hours is $600 a week and $30,000 a year, less than a third of $100,000. Suppose, for the sake of argument, that he earns three times his wage in tips each hour, equal to $22.50 plus his base wage of $7.50, or $30 an hour. This doubles his salary, giving him a gross of $60,000. We're still not to $100,000. Suppose the waiter is so smokin' hot that he earns five times his base wage in tips each hour, or $45 (less than most union plumbers). That still puts his annual gross at $90,000.

Tip #6: In the final analysis, what happens to the Minnesota minimum wage or waitpersons' tips has trivial implications for the economy, but not for the waitstaff affected. What Emmer's campaign is about is economic symbols: what BP Chairman Carl-Henric Svanberg referred to (echoing Leona Helmsley) as the "small people." It sounds as if these people are of marginal interest compared to business profits. Emmer said that "Main Street" would understand his argument. Maybe he should read "Babbit."

Tip #7: There is an analogy between waitstaff tips and executive bonuses. Think of these bonuses as tips for "service" to stockholders. If base salaries for waitstaff should be docked for their tips, shouldn't executives be docked for their bonuses? Consider: The top 100 companies' executives in Minnesota in 2009 received an average of a little under a million dollars in compensation, led by United Health's Steve Helmsley at $102 million. James Cracchiolo, CEO of Ameriprise Financial, earned $9.1 of his $10.2 million compensation package in bonuses alone. That's a pretty big tip. If Emmer's rationale were applied to executive bonuses as tips, base executive pay would be reduced to "compensate" for these bonuses. Try smoking that one in corporate boardrooms or big business PAC meetings.

C. Ford Runge is Distinguished McKnight University Professor of Applied Economics and Law at the University of Minnesota. This column represents his own views, not those of the University of Minnesot

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