Minimum Wage

Will a Hike in the Minimum Wage Lift Up Workers
or Bring Down Restaurants?

By Sarah Henry • Photos by Stacy Ventura

Michael LeBlanc wants to lift up Oakland as much as anyone. LeBlanc is the owner of Picán, an anchor restaurant opened in 2009 that’s helping fuel a dining boom in Uptown. He’s also one of the few African American owner-employers in the recent fine-dining surge in this diverse city. A Montclair resident, he’s not opposed to increasing the minimum wage. In fact he says he’s all for bumping up the hourly pay rate of those who earn the least. He just thinks it should happen regionally and gradually so it doesn’t detrimentally impact the city’s emerging food culture.

“The operative word for me here is sustainable,” says LeBlanc, whose restaurant, with chef Sophina Uong at the helm, has a reputation for serving elevated renditions of Southern specialties: Think biscuits, brisket, and bourbon. “This is a critical time in the city’s transformation, and we want to keep it going.”

LeBlanc sunk most of his savings into Picán, his first restaurant venture. It’s a large, upscale place with a warm interior that can seat up to 180. With up to 52 employees, his annual payroll is around $1.2 million. A decision by voters could add as much as $300K a year to Picán’s payroll. A measure on the November 4 ballot seeks to bump Oakland’s minimum wage from its current $9 an hour to $12.25 in March 2015. That’s a sizeable sum for a business to absorb, and the profit margins in the culinary industry are notoriously slim; around 5–10{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} is considered very healthy. “I took a bet on a big place, I wanted to make an impact in Oakland and be part of the movement to make the city I love better,” says LeBlanc, a former Polaroid executive who co-founded the Oakland Restaurant Association in 2010. “The rising cost of labor is a real concern for long-term viability.”

This edible entrepreneur wants to expand. He’s considering a second restaurant location. He would love nothing more than to stay in Oakland, he says. But if the ballot measure passes, he also says it won’t be a tough decision to open elsewhere —such as in Walnut Creek—where his wage costs would be lower. “It’s not just me—I’ve been at meetings where the owners of mom-and-pop shops with six employees, like bakeries and coffee shops, say they’ll need to shut their doors if this passes,” says LeBlanc. “If we could get all the stakeholders in one place to wrestle with this we might come up with a thoughtful plan we can all get behind. It’s a question of how much and how fast.”

The union-backed ballot looks set to pass. Polls suggest that Oakland voters will likely approve the minimum wage measure, initiated by Lift Up Oakland, a coalition of labor and community groups. The initiative would also include annual cost-of living increases, paid sick days, and protections against wage theft. In a progressive and expensive place like the Bay Area, who wants to come out against low-paid workers earning more? As the wealth gap widens in many Bay Area cities—and cost of living expenses climb too—many working poor simply say it’s close to impossible to survive without a substantial boost in pay. That’s especially true in Oakland, a city experiencing rapid growth, rising rents, and increasing concern in certain circles that working-class residents, many toiling in poorly-paid service jobs in restaurants and retail, are getting squeezed out to make way for people with more money in this tech-fueled finance bubble.

(A competing plan, introduced by Oakland City Council President Pat Kernighan, which would have raised the minimum wage at a slower rate, was voted down by the council in late July. The alternative effort, favored by the business-backed Oakland Metropolitan Chamber of Commerce, would have created a tiered system for categorizing employees. The proposal was an attempt, says Kernighan, to protect Oakland’s new but fragile restaurant sector and small, family-run businesses, many owned by immigrants and/or people of color who are lower income themselves. It recommended phasing in a wage rise starting at $11 an hour in July 2015 and reaching $13 an hour , for most employees, on July 2017.)

Across the country, a grassroots campaign—Fight for 15—which seeks a $15 minimum wage for fast food workers, has gathered steam over the past year. Locally, that dollar figure was initially bandied about in several cities exploring raising the minimum wage, including Oakland, Berkeley, and Richmond. After almost a year of sometimes heated debate, the Berkeley City Council voted in June to raise the minimum wage to $10 an hour in October in an ordinance that would see hourly pay reach $12.53 by October 2016. Also in June, also after much back and forth, Richmond City Council approved a plan that would boost that city’s minimum wage to $13 by 2018. Meanwhile, across the bay in San Francisco, which currently has the highest minimum wage in the country at $10.74 an hour, voters in the upcoming election get to decide whether to give workers a jump to $15 an hour.

Will such hikes lead to worker layoffs and independent restaurant closures as employers struggle to find the money to pay more? Will diners absorb much of the cost increase? Or, as labor academics and workers’ advocates maintain, will the restaurant industry continue to thrive despite the increases?

Disparities in the house

Local independent restaurant owners say they want to pay workers more. They’re less stuck on the dollar amount for their lowest-paid workers than they are concerned about correcting an inherent unfairness tied into the tipping system. Amy Murray, the chef-owner of both Revival Bar + Kitchen and Venus in downtown Berkeley, thinks it’s time for a major overhaul in how restaurant employees are paid.

The current gratuity system favors the front of the house. Those are the servers, bussers, and other staff who directly touch the plate on the way to the table. When tips are factored in, minimum-wage waiters at busy, high-end restaurants can make three times or more than line cooks in half the shift, explains Murray. “The server is sitting in the captain’s seat: They can make $40,000–$50,000 a year,” she says. “It creates a huge rift between the kitchen and the service staff.” LeBlanc reports similar inequalities within the current restaurant culture. He says his front of house employees make between $14 and $29 an hour when tips are factored in. Murray, LeBlanc, and other owners of popular local restaurants say they pay their back of house—dishwashers, prep cooks, and line cooks—above minimum wage ($10–$15), but they can’t match the kind of cash tipped workers take home after a shift.

That’s why Murray is an advocate for what’s known as a tip credit. Labor advocates and workers’ groups oppose a tip credit (they call it a tip penalty), currently in place in 43 states around the country. A tip credit, or “carve out,” allows restaurant owners to count tips towards a server’s minimum hourly base rate. It’s currently illegal in California but some restaurateurs would like to see it enacted here as a cost-control measure. “Our labor costs are already high. When Berkeley was considering moving to $15 an hour, that was like a 24{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} increase in labor costs,” says Murray, who makes a $60,000 salary at each of her restaurants. “We try to keep labor costs under 30{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91}. I’m not some kind of plutocrat who wants to grab everything for myself and suck it out of the poor worker.”

Unlike Murray, few restaurant owners are willing to talk about their take-home pay. But it’s probably safe to say most aren’t earning the kind of salaries that fast food CEOs command: A July study generated news when it revealed that top executives at the biggest quick-service chains, such as McDonald’s, Chipotle, and Wendy’s make more in half a day than their minimum wage employees earn in a year.

Murray, a trailblazer in the revitalization of Berkeley’s downtown Arts District, opened Venus in 2000. The casual, 44-seater with 28 employees has a loyal following. The fancier Revival, opened in 2010, has a staff of 50. It seats 130 and is a popular spot for the theatre set, university employees, and local residents.

Murray’s run the numbers. Margins are tight. When the minimum wage moves to $12.38 she says she’s going to have to look at all the costs, including staff benefits, and figure out where to trim. “Maybe we can’t afford to give staff a free meal,” she speculates. “We’re trying to buy less-expensive product across the board, so there will be a little less excitement on the plate, a little less whipped cream on the sundae. But we’re not going to change our commitment to organic, local, small farms,” she says. “We’ve gotten better about the root-to-shoot philosophy; the cauliflower stems and leaves get pickled or fermented. We use all the bones to make stock, of course, we use greens on carrots to make pesto; and we use peels from stone fruit to make syrups for ice creams. We’re doing all we can to minimize waste, maximize flavor, and control food costs.” It hasn’t helped matters that raw ingredient prices have risen too, thanks to the ongoing drought.

John Paluska, co-owner of Comal, which made a splash in May 2012 when it joined Revival downtown, shares many of Murray’s concerns. Like Murray, he took a gamble opening in an area that had seen better times. Now the Arts District is having a long overdue renaissance and the restaurant and bar culture have been an integral part of that transformation. Like other restaurateurs, he’d like to see more modest minimum wage increases tied to inflation, versus large labor cost hikes. “When we were looking at going from $8 to $15 we were talking about a big leap there, that’s unchartered territory,” says Paluska, who is in the process of opening a second restaurant in Elmwood. “We are looking at all the ways we can manage this increase in labor cost. There’s going to be a disruptive, rocky period as businesses adjust.”

At city council meetings these independent small business owners say they were treated like greedy bosses running global corporate behemoths. Some attendees even muttered about potential boycotts or negative Yelp reviews, says Murray. But they’re not the bad guys, she maintains, they’re just scrambling to find a way to survive too.

Studies show higher wages don’t hurt restaurants

Need they worry about staying afloat? A growing body of research—much of it done locally—suggests that spikes in the minimum wage haven’t lead to the collapse of cuisine culture around the Bay. No series of restaurant closures, no massive price increases on menus, no widespread unemployment among servers or line cooks.

University of California at Berkeley economists are gung ho about raising the minimum wage, from Robert Reich, a supporter of a $15 an hour rate, on down.

And they’re thumbs down on tip credits. “It sounds nice and positive, but it depends who you are,” Sylvia Allegretto, a co-director of the Center on Wage and Employment Dynamics, part of UC Berkeley’s Institute for Research on Labor and Employment (IRLE), has said. “What it means is that an employer can take a certain amount of an employee’s tips and say that’s not really a tip, that’s part of your wage.” It’s a system whereby the gratuity from a diner is subsidizing the employer’s wage responsibility, adds Allegretto, who co-authored the recent report “Twenty-Three Years and Still Waiting for Change.” The federal minimum wage stands at $7.25 an hour but the national wage for tipped workers is a lowly $2.13 an hour—and has been that rate since 1991. Local Congressman George Miller has co-authored a bill that seeks to lift the federal minimum wage from $7.25 to $10.10 an hour. It would also set a wage floor for tipped workers at 70{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} of that rate.

The recent book When Mandates Work, edited by UC Berkeley IRLE economists Michael Reich and Ken Jacobs, along with researcher Miranda Dietz, notes that employment grew 17.7{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} among food-service workers in San Francisco from 2004 to 2011 following a minimum wage increase in 2004 and a paid sick days mandate in 2007. Menu costs went up about 2.8{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} in that period. A similar study in San Jose found no significant adverse impacts either.

“Every time one of these laws was debated some people said the policy would hurt the economy and kill jobs—and every time they were wrong,” says Dietz, a research data analyst at UC’s Center for Labor Research and Education. “The sky-will-fall admonitions never materialized, as the laws did not hurt employment at all.”

Indeed, the restaurant business is blossoming in Oakland, Berkeley, and San Francisco. And while the minimum wage was nudged up from $8 to $9 in Oakland this July, that’s the first increase in pay for workers since January 2008.

In June this year, the latest round of research rolled out of Cal’s IRLE. This study suggests a boost in the minimum wage in Oakland would have a big impact on workers and a minimal one on the restaurant industry. According to the report, restaurant-operating costs would rise 2.8{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} and restaurant prices would increase by 2.5{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91}, meaning a $10 burger would cost just $10.25 after the wage bump. That seems easy enough to digest for diners and owners alike, no?

Also housed under Cal’s IRLE umbrella is the Food Labor Research Center run by Saru Jayaraman. A recent report released by that labor center made news when it revealed that U.S. restaurant workers are twice as likely to use food stamps as the rest of the workforce. Says Jayaraman: “The largest workforce in America can’t put food on the table—except when they go to work.”

The academic slash activist also co-founded the workers’ rights group Restaurant Opportunities Centers United (ROC). The group has a Bay Area chapter based in Oakland that supports the Lift Up campaign. Jayaraman is the author of Behind the Kitchen Door, which documents poor working conditions, racism, and sexism in the restaurant industry.

Seven of the 10 lowest paying jobs in the U.S. are in food service at a time when food culture is booming in many areas. Last year, one-day fast-food workers’ walkouts were sponsored by labor unions in some 100 cities around the country to build support for raising the federal minimum wage to $15 an hour—further evidence of the growing discontent of low-wage workers at chains like Burger King.

Reports of fine-dining waiters earning major coin in tips, at places such as Picán, Revival, and Comal, are exceptions and not the reality for most servers. Workers at chain table-service joints like IHOP, Olive Garden, and Red Lobster, who are typically women of color, Jayaraman adds, simply don’t make those kinds of tips.

Juan Rodriguez (pseudonym by request to protect his job) is the kind of worker Jayaraman is trying to help. He works two minimum wage jobs in Oakland, pulling a 50-hour week as a bar back at an independent restaurant and filling a shift as a server at a family-friendly small chain. A new father, he brings home around $2,000 a month to support a family of three. His rent costs $1,300. There’s simply not enough money to make ends meet. His wife, who took time off with a newborn, is looking for employment. Rodriguez, a native Spanish speaker, has his wife translate for this reporter: “We’re overwhelmed by bills, every month is a struggle. It’s really stressful,” says Rodriguez. “Increasing the minimum wage will help our economy and help us thrive, not just survive. We have no savings. We can’t afford to eat where I work. I’d like to see employers get rid of tipping and just pay workers a living wage.”

A minimum-wage worker in Oakland who earns $9 an hour and works a 40-hour week can bring home $17,280 in annual, pre-tax income. But the so-called living wage in Oakland is about $23,940 a year for a single person working 40 hours a week, according to a calculator developed by poverty researchers at the Massachusetts Institute of Technology. Local ROC coordinator Van Nguyen maintains that it’s a myth that most restaurant servers are coming home with wads of cash in their pockets at the end of a shift. “The median wage for tipped restaurant workers in Alameda County is $9.02, according to Bureau of Labor Statistics,” says Nguyen.

What’s lost in the shuffle over whether, when, and how much to raise the minimum wage? Labor advocates frequently lump independent restaurateurs in the same category as fast food CEOs and their salaries, which make owner-operator restaurant chefs snort. Likewise, restaurant owners in well-to-do places can be myopic about minimum wage workers: Their front of house staff might make the big bucks in tips. But at fast food joints such as Taco Bell, Wendy’s, or McDonald’s, where counter service rules, tipping is actively discouraged. And few Starbucks employees are likely raking it in with the contents from the communal tip jar.

The bottom line courtesy of those number crunchers? “The prevailing view among economists, reinforced by rigorous studies over the last decade, is that a modest increase [in the minimum wage] would boost the wages of workers and have little to no negative effect on employment,” wrote Laura D’Andrea Tyson, a professor at the Haas School of Business at Cal, in a March 2014 piece for the New York Times. Adds the former head of the Council of Economic Advisers and the National Economic Council under President Clinton: “A higher minimum wage would also enhance labor productivity, reduce worker turnover and absenteeism and lower the costs of recruiting and training employees.”

So, why worry? Local restaurateurs remain skeptical of such global data. They simply look at their own set of figures and fret about where the extra money will come from.

 

Alternatives to tipping: On the table soon?

Worker Juan Rodriguez might be on to something. He’s not the only one wondering whether getting rid of tipping altogether might solve this problem. One restaurant owner, recently relocated to Oakland, even tried it. For more than six years, Jay Porter adopted a strictly tip-less policy at his popular sustainable sausage joint in San Diego called The Linkery. He added an automatic 18{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} surcharge to dining-in checks instead. Porter says the move helped level the playing field among staff, created unity, and improved business, service, and the quality of food coming out of the kitchen.

And, here’s the kicker: His kitchen staff and his servers ended up making more money, a fact he documented in a multi-part treatise on his blog (jayporter.com) on the benefits of a tip-free restaurant that garnered national attention last year. Tipping is like high-fructose corn syrup, says Porter: Everyone gets this rush and thinks they’re getting a good deal out of it. But his experiment proved otherwise and research that Porter cites suggests that the practice promotes racial, age, and gender-based discrimination against both employees and customers.

Porter’s convinced that a culture that values civil rights should make tipping not just optional but illegal. He just doesn’t think the burden to adopt such a policy should be forced on small business owners like him. Porter recently opened The Half Orange, a sausage, burger, and beer joint, in Oakland’s Fruitvale district; tipping is not an issue at this casual, counter-service spot. But he and his partner Katie Mayfield plan to open a seafood-oriented restaurant, Salsipuedes, in a North Oakland neighborhood where dining options are slim. That restaurant will be a full-service, sit-down affair.

Porter has time to figure out how he’s going to run things there. This much he knows is true: “The restaurant industry is hyper-competitive and runs on razor-thin margins, and customers choose restaurants largely based on perceived value, not on how much the restaurants pay their staff,” he says. “Individual restaurant owners don’t have a lot of leeway, if they pay their staff a lot more than their competitors then they have to raise prices above their competitors, and they’ll lose customers. That’s why if we want restaurant workers to be paid a fair wage, that has to come as a mandate from the government.”

Here in the East Bay, at least one leading restaurant has implemented its own policy to deal with inequities triggered by tipping. For more than 30 years now Chez Panisse in Berkeley has operated under a service-compris system, which is commonplace in dining meccas throughout Europe. Chez Panisse pays its servers a higher hourly wage, says general manager Jennifer Sherman, who declined to give specifics, explaining that the rate varies depending on a server’s longevity. Wait staff also receive workplace benefits such as paid vacation and paid sick days and 75{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} of their health care premium is covered. The restaurant includes a 17{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} service compris on its check, which is treated as general revenue and goes to pay for these higher wagers and benefits, explains Sherman. Chez Panisse has a staff of around 110.

“It works well for us, but it may not be for everyone,” says the G.M. “It allows us to pay benefits and pay the kitchen an equitable wage—which is why Alice Waters initiated it in the first place—she felt so strongly about addressing the disparity between the front and back of the house, and it eliminates any kind of pecking order among servers in terms of tables.” The downside? Sherman concedes it can be a hard sell attracting new servers who have never worked under such a system and expect to go home with a few hundred dollars in their pockets from tips at the end of a shift. “It’s a cultural shift and it takes some explaining and education.” For 99{94d79dd6af1e87a94e700e4c297236468333f22e27ed5757b44711974a9a4b91} of diners, the system is fine, and some do leave a token gratuity on top of the surcharge.

“I think that for most restaurants this would be hard to do in an existing restaurant,” adds Sherman, who thinks East Bay restaurant workers, typically older and more family-oriented than their city counterparts, might be more receptive to such a shift than their San Francisco brethren. “Most of our diners understand it and feel it. They know we’re trying to do something holistic here with the food and the people who grow it, cook it, and bring it to their table. We hope that people understand what the true cost of food is, from farm to fork. Nobody is getting rich here but we’re trying to ensure that everyone makes a fair wage. That’s very hard to do in the Bay Area.”

Chez Panisse alum Charlie Hallowell tried a surcharge at his recently opened third restaurant, Penrose. But he reverted back to tipping within six weeks of opening. “It was a failure and it was mostly our fault; we weren’t really set up to do it. There was a lot of pushback from both diners and service staff,” says Hallowell. “We’re a new restaurant, we’re trying to work out all the kinks, but I eventually want to go back to that model,” adds Hallowell, a supporter of a $15 minimum wage who favors a surcharge system for the same reason as his former boss. “It’s just crazily unfair not to reward the people in the kitchen who have dedicated themselves to a craft, in some cases for years. I don’t buy into the notion that cooks are expected to earn less because they really like what they do. This kind of inequality undermines workplace cohesiveness and morale. We’re overdue for a redistribution of the riches here.” Hallowell pays his back of house staff between $12 and $16 an hour. Servers make minimum wage but can earn an extra $250–$300 in tips on a busy, eight-hour shift.

When Hallowell reinstates the surcharge system, a goal within the next year or so, he’d like to roll it out across all three of his restaurants. Meanwhile, there’s a lot still cooking in the East Bay on the minimum wage front. Voters will have their say in Oakland come election day. Berkeley intends to pursue a proposal by Mayor Tom Bates to institute a regional minimum wage, with the idea of adopting an across-the-board figure by 2017 in Berkeley, Oakland, Emeryville, Alameda, Albany, and El Cerrito. “It just makes more sense if we’re all on the same page for the same amount,” says Bates. “This way no city would be at an economic disadvantage.”

Other independent restaurant owners are considering surcharges. It remains to be seen whether diners feel the impact on the plate or in the pocketbook, once these higher minimum wage rates take effect. As for introducing a service compris en masse: That’s a massive, systemic shift months if not years in the making, and would require winning over waiters and diners alike.

Or maybe it just takes a few rebellious, disruptive East Bay trailblazing types willing to give it a whirl to kick start a culinary trend designed to restore equality in restaurants. Time will tell. •