Pass It Along

I didn’t really intend to do a follow up to the “automated ordering kiosk” stories this quickly, but then I suppose I should remember that I don’t make the news, I just report it. Or at least make nasty, sarcastic remarks about the news, anyway. One of the things I’ve been talking about for a while now is the question of how companies that are suddenly forced to begin paying a higher minimum wage will respond to the situation. With rare exceptions, there are only three ways to deal with an increase in a specific cost (in this case Payroll): lower other costs to compensate, accept a lower profit margin, or raise prices. In theory, if the Federal minimum wage were to be increased to $15 per hour, businesses that employ low-paid workers could attempt to lower other operating costs, raise their prices, or just settle for making less money. Unfortunately, as I’m sure you’ve realized by now, things in business policy and strategy are rarely that straightforward…

Consider, for example, one of the hot spots for this debate: the Restaurant business. Unless you’ve worked in the Food Service industry you may not be aware of it, but in addition to the quick-serve personnel, who almost always start at minimum wage, most of the states allow employers to pay anyone who routinely gets tips at an ever lower rate; often as low as $2.13 an hour. Clearly, getting a salary increase to $15/hour, or even to regular minimum wage, would be a significant improvement for any of these employees. At the same time, the increase in salary costs would hit those companies even harder than usual, since they’d be going from $2.13 to $15 instead of the $7.25 to $15 that everyone else would have to absorb. At that point it seems quite likely that companies in this industry would respond by raising prices – especially considering that they are already doing so…

You can pick up the original story off of the Wall Street Journal site, and the Consumerist site commented on it, too, if you don’t happen to have a WSJ subscription. According to the Journal, restaurants in a number of states are experimenting with a “labor surcharge” added to the bottom of your bill to cover the cost of wage increases. It’s not a new idea, really; as the Consumerist people note, other restaurant chains have tried this before, and the cable television and telephone companies have been using exactly this tactic for years to obscure the amount you are actually paying them each month. Whether or not this will work on a large scale in an industry where people will routinely spend hundreds of dollars on a drink and then balk at leaving anything for their server remains to be seen, of course…

Another interesting question is whether any of these companies will abolish tips altogether, and just attempt to pay their employees a living wage. All of the data we’ve seen over the last few years suggests that forcing people to work for tips does not improve either performance or service, and contributes to several kinds of counterproductive work behaviors. Meanwhile, the handful of companies that have tried eliminating tips have reported better performance, higher morale, and improved customer relations, although some people do have trouble adjusting to not leaving a tip after a lifetime of habit…

I’ve worked on both sides of this issue, as well as seeing it from the consumer side, and I have to admit that while I’ve never had a problem leaving a tip, I’ve seen and felt the corrosive effects of people stiffing tipped employees, either because they are miserable cheapskates, or just sadistic assholes having fun. I’d be perfectly okay paying a bit more for my meals to ensure that nobody ever had to experience any of that crap again. I’m not sure how many customers share my point of view, or how many business owners would be willing to take a chance on this new approach. But unless something derails the $15/Hour movement soon, I suspect we’re all going to find out…