Job loss, restaurant closures are the hallmarks of the end of tipped wages, and it's going to become worse
It was nearly two years ago when Mayor Brandon Johnson announced the passage of the One Fair Wage ordinance. A proposal which gradually eliminates the subminimum wage for tipped workers over a five-year period, now is a good time to take stock of the law’s impact on the restaurant industry as it nears the second of five expected increases to wages.
The creation of a separate, lower minimum wage for tipped workers has long been debated. To some, mainly on the progressive Left, the subminimum wage is viewed by as exploitative, unsafe for employees, and the taproot of employee bargaining power lost to employers. Conversely, opponents of eliminating the subminimum wage argue that such increases force restaurants to raise menu prices, add service charges, or shutter due to higher operating costs.
The invention of the adolescent daydreamers with One Fair Wage, the progressive group which has dedicated considerable time and energy espousing harmful tip credit elimination schemes, the ordinance is an ambitious policy which is purported to have transformative effects for workers at the lower rungs of the labor market.
In Brandon Johnson, the good folks at One Fair Wage had the perfect mayoral candidate to advance the campaign to do away with the subminimum wages. A man who believes the highest form of efficiency for workers is the spontaneous cooperation between labor and the City of Chicago, to Johnson, discarding the dual minimum wage system wage was evolutionary and a strong expression of his tribal kinship with the working class.
In Johnson’s worldview, the adoption a unified minimum wage would bring an essential rebalancing of the power dynamic in the service industry and by turning the scales from customers toward labor, workers’ physical, emotional, and financial security is enhanced. More broadly, to the mayor, the end of subminimum wages means another breakthrough in the struggle to ameliorating what Johnson perceives as entrenched racial and economic inequities which have hindered workers in the service industry.
Upon the passage of the One Fair Wage ordinance, Johnson was barely able to contain his glee. Popping open the bubbly, Johnson ebulliently stated:
“The One Fair Wage ordinance embodies Chicago’s values of uplifting working people and addressing systemic inequities in the restaurant and hospitality industry, which in turn, will create a better economic future for tipped workers and our city. This legislation is the culmination of years of advocacy and outreach by the One Fair Wage coalition, restaurant workers, and advocates, and will help address and support our work around youth unemployment and staffing in the restaurant industry.”
Mayor Johnson should have kept the champagne on ice.
Ahead of the ordinance going into effect, in a stark warning of what was to come, the Bureau of Labor Statistics reported full-service restaurant employment had suffered a loss of 358 jobs in the two months prior to July 1, 2024. A forbidding sign, the job losses — a 0.23 percent decline — arrived after the industry had experienced a four percent increase in jobs for 10 consecutive months prior and a rise in employment across other sectors in Chicago. Though the decline in jobs was tolerable, since then, conditions for the restaurant industry in Chicago have appreciably worsened.
According to the Department of Labor, since the beginning of the first stage of One Fair Wage took effect one year ago, a staggering 5,200 full-service restaurant jobs have been lost, countless restaurants have increased service fees, and 100 restaurants have shuttered.
These job loss numbers in year one of One Fair Wage should be a body blow to City Hall. A crushing blow to labor in the restaurant sector, Johnson does maintain options to halt restaurants from shedding further jobs or closures. Of all the options the mayor holds, none are favorable politically, but for Johnson to best serve labor and restaurant owners, his best and only alternative is to repeal the law.
For guidance over how to respond to the calamitous effect of eliminating subminimum wages, Johnson should take a cue from Washington, D.C., Mayor Muriel Bowser. D.C.’s failed experiment with discarding the subminimum wage — a 2022 law similar to Chicago’s — has crushed restaurants. Since Initiative 82 was approved in 2022, 1,000 jobs were lost and according to a survey commissioned by the Restaurant Association Metropolitan Washington, 44 percent of full-service casual D.C. restaurants face the possibility of closing their doors this year. Bowser now leads a crusade to repeal the original law.
Brandonomics has proved to be a bust
Mayor Johnson promised eliminating the subminimum wage would boost service workers’ earnings and without any changes to gratuities. What Chicago restaurant employees received in return were fewer tips, higher service fees, job loss, and restaurant closures.
Repealing One Fair Wage would save jobs, save restaurants, and bring some sense of security to a restaurant industry which has continued to battle economic headwinds since COVID receded. The consequences of inaction here are not hypothetical: The damage is real and it is occurring now. In just one year, 5,200 jobs were lost and 100 restaurants closed. Should this law continue, the implications for the restaurant industry in the foreseeable are not merely grim but will lead to the hollowing of the entire industry.
Though the One Fair Wage ordinance has inflicted great damage on Chicago’s restaurant industry, it is unlikely the mayor will have a change in heart and pursue its repeal. As Chicago’s restaurants limp into the second year under the weight of the ordinance, the mayor does have some alternatives from which to choose to provide some needed relief to the city's restaurants.
One possibility at the mayor’s disposal is to grant restaurants a tax credit against sales taxes or property taxes for the higher wages. The annual commercial property owners share of Tax Increment Finance (TIF) surplus could also be used to finance the higher wages in the form of TIF property tax credits. From a broader view, if Johnson was serious about boosting wages, he could remove the heavy hand of government which suffocates small businesses. Outside of Detroit, Chicago imposes the highest taxes on commercial property in the nation. While reducing property tax is one option, Johnson could easily lift some of the onerous regulations or reduce some of the cost associated with the raft of licenses, fees, and fines burdening restaurants.
The impact of One Fair Wage on Chicago has been dire. Another example of how Mayor Johnson’s progressive policies have endangered the city’s already-embattled working class, don’t expect the mayor to reverse course and repeal the law. A man who is unwilling to acknowledge his blunders, Johnson is more concerned with appeasing his activist base than serving the interests of the working class.
