People mostly choose restaurants based on obvious factors, like the quality of the food, the quality of the service and the prices. As restaurant owners, we see this firsthand every day. Atmosphere, location and parking availability may be lesser factors, but the price and the quality of the food and service matter most.
As the Chicago City Council considers eliminating the law allowing tip-based businesses to factor tips into overall wages, let’s keep these things in mind. If Chicago makes the wrong move, restaurants will close, worker earnings will significantly decline and the quality of service will suffer. Restaurant and bar owners, workers, customers and the city will all lose.
Restaurant industry economics are notoriously fragile. While the small percentage of high-end restaurants have higher margins, most restaurants are like ours: small, family-owned operations with single-digit margins. We support families and a few dozen employees: teenagers getting their first job, 20-somethings serving beers and mixing drinks, and plenty of moms and dads who are also supporting loved ones.
Today in Illinois, the median wage of a bartender or server is about $28 per hour with tips. In our restaurants, servers often earn $45 to $50 an hour. Even the lowest earners in the restaurant business get at least the $15 minimum wage because the law requires owners to make up the difference if tips fall short.
Eliminating tipped wages means the guaranteed, hourly wage for restaurant workers will automatically rise from the current $9.48 to $15.80, a difference of $6.32 per hour. Shifting that cost from tippers to owners has a number of negative consequences.
First, restaurants will have to raise prices. Food and labor costs are the two most significant line items for a restaurant, accounting for about two-thirds of overall costs. Add in operating costs for occupancy (rent or mortgage), utilities, repairs, maintenance and administration, among others, and the typical restaurant owner is lucky to come away with 3% to 5% of overall sales in profits. On a million-dollar business, that’s just $30,000 to $50,000 per year.
Basic laws of economics suggest that higher prices will mean fewer customers. Fewer customers means fewer restaurants, fewer restaurant jobs and less economic activity. Even tourism, which is only now approaching pre-pandemic levels, could be affected.
The tipping system also empowers customers. If they like their server and the service is good, they can overtip. If they don’t like the service, they can undertip. Nobody likes feeling powerless, especially when it comes to spending their own hard-earned money.
From the point of view of servers and bartenders, the tipping system rewards the hardest workers. They know exactly how to boost tips. Provide great service, be attentive and anticipate a customer’s needs. Customers like to reward outstanding service. And nothing is more demoralizing to hard workers than colleagues who still make the same wage while doing less work.
In short, the beauty of the tipping system is that the customers have influence, restaurant owners have a little more economic security and the servers make more money.
We can also learn from cities like San Francisco and Seattle, which both eliminated tipped wages and had an immediate drop in total restaurant employees. A Harvard Business School analysis of San Francisco showed that an increase in wages triggered widespread restaurant closings.
One of us even tried it in one of our restaurants just to see if could work. It didn’t. Customers hated it, and employees took home less money.
Restaurant work is fast-paced and can be exhausting. We know how hard our servers and bartenders work. We all believe they should make a living wage.
Make no mistake: As proposed, this ordinance will lead to fewer jobs, lower wages and restaurant closings. Other cities are already suffering the consequences of eliminating tipped wages. We don’t want Chicago to be next.
Our understanding is Mayor Brandon Johnson has the votes to eliminate tipped wages. We strongly encourage him and City Council members to rethink their position.
Mario Ponce is the owner and operator of Bar Takito (West Loop), Takito Kitchen (Wicker Park) and Takito Street (Lincoln Park). T.J. Callahan is the owner and operator of Farm Bar in Lakeview.
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