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The Tipping Point

When Oakland's new minimum wage kicks in on March 2, many restaurants plan to raise prices — and, in a few cases, eliminate tips altogether.



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Therein lies the question that an increasing number of Oakland restaurateurs are now addressing. Doesn't a cook contribute at least as much, if not more, to a dining establishment's success as someone who waits tables?

And so, apart from raising prices, even restaurants that aren't going to the extreme of Homestead's tipless model are looking for ways to close the pay gap between their front-of-the-house and back-of-the-house employees.

Chop Bar and Lungomare, for example, are playing around with the idea of adding a separate back-of-the-house tip line, which would allow those employees to benefit from tips — a wrinkle that, in theory, gives customers the option to "reward" the kitchen, whether out of a sense of fairness or just because the food is particularly good. Mistry said she'll simply encourage her servers to "tip out" — i.e., give some of their tip money to the kitchen employees — a little bit more than they did in the past, but strictly on a voluntary basis.

It's somewhat surprising, on the other hand, that The Half Orange isn't one of the restaurants ditching tips, given that its owner has written extensively (most notably in an essay on about his experience running a tipless restaurant in San Diego. But Porter said that, over the years, he's come to the conclusion that restaurants that do a lot of bar and takeout business — such as The Half Orange does — aren't well suited for the no-tipping model. Still, his approach to leveling the pay disparity is notable as well: He said he set up his staff in such a way that nearly every employee — even the cooks — has some kind of direct service component to their job. That way, they all get to benefit from tips.

Because of the wide range of responses among restaurants, there likely will be some confusion in Oakland's dining scene next month, and customers will have to read the fine print on every menu to determine how much, if any, tip to leave — and, of course, whether the new price points are ones they're willing to accept.

Prior to the November election, economists with UC Berkeley's Center for Wage and Employment Dynamics (CWED) released an analysis of Oakland's proposed minimum wage increase that was broadly supportive of the measure and downplayed potential negative impacts that such a change might have on local businesses. The report cited, among other evidence, the fact that neither San Francisco nor San Jose experienced spikes in unemployment when those cities implemented minimum wage increases recently. The researchers also predicted that Oakland's initiative would only cause restaurant prices to increase by 2.5 percent, so that, for example, the price of a $10 meal would rise to just $10.25.

It's striking, then, that many Oakland restaurants plan to raise prices on March 2 by much more than 2.5 percent — so striking, in fact, that Sylvia Allegretto, an economist at UC Berkeley and the CWED's co-director, said she suspects that restaurant owners might just be using the minimum wage increase as an excuse to raise prices. Consider that only a portion of a restaurant's staff is subject to the pay increase, and that payroll is only a portion of the restaurant's total expenses, which also include rent, utilities, and the ingredients used to make the food. "How much is the price of a meal dependent on a minimum wage worker that's subject to the increase?" Allegretto asked.

For Allegretto, it's inconceivable that a 36 percent increase in the minimum wage — from $9 to $12.25 — for one group of employees would lead a restaurant to mark up all of its prices by 20 percent. And she said that there are other benefits to the increased minimum wage that restaurant owners are underestimating — the fact, for instance, that worker turnover likely will be lower, allowing restaurants to save time and money on training new employees. What's more, the restaurant's calculations don't consider the fact that all of the workers who will benefit from the minimum wage increase, including their own employees, will have more money to spend — $120 million in increased earnings in Oakland, according to the CWED analysis. It's not difficult to imagine that a chunk of that money will be spent at local restaurants by minimum-wage employees who previously didn't have the means to do so.

Michael Reich, the lead author on the UC Berkeley analysis on Oakland, wrote in an email to me: "As an economist, I don't put much stock in individual anecdotes or statements about planned responses to minimum wage increases. They often are not followed up."

However, Reich acknowledged that his analysis included all kinds of restaurants, including fast-food joints and chains, whose finances might look quite different than those of an independent operator.

Moreover, some Oakland restaurants plan to give pay bumps to all of their employees next month. Porter of The Half Orange, for example, said he will give his kitchen workers significant raises. And Porter noted that his restaurant purchases a lot of its ingredients and supplies from Oakland-based vendors, who might also raise their prices to account for the minimum wage increase.

Of course, these justifications for raising prices immediately might become moot over time if customers decide they aren't willing to pay them. So, in an industry that's notorious for razor-thin profit margins that, even in a best-case scenario, hover around 5 to 10 percent — there's significant risk involved, whatever approach restaurant owners decide to take. As Delany put it, "We have to live by these numbers. If we underestimate the impact, we're out of business."

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