The wage system in the restaurant industry differs from the rest of the business segments. Black (2021) writes that waiters in cafés and restaurants have a particular type of minimum wage for tipped employees, which is significantly lower than the standard federal minimum wage. As a result, waiters rely on customers’ tips as a major source of income, while other kitchen staff does not have the opportunity to share this money. This system puts pressure on employees to work longer hours and take more shifts. During the onset of the pandemic, as many restaurants were closed, many workers left the industry and did not want to come back if the old system remained in place. As a result, some restaurant owners have started offering additional benefits, raising the minimum wage, or eliminating the tip-dependent system altogether.
The central economic issue in the case of restaurant wages is the price floor. In the case of the restaurant industry, the floor price of labor is much lower than that of other segments. Employees perceive their contribution to the business as less valuable. As a result, the equilibrium between demand for jobs and workers’ willingness to participate creates a labor shortage (Salant et al., 2022). This problem is seen in many restaurants that do not offer benefits or higher wages, while businesses that have changed their approach attract more workers (Black, 2021). Therefore, one may conclude that the floor price has to be raised to bring balance to labor supply and demand.
In my opinion, relying on tips creates uncertainty for workers and lowers their desire to stay in the industry. A decision to eliminate this system and provide more security to workers can resolve the labor crisis and create a better environment in the business segment in the future. Furthermore, I believe that adding a flat service fee can help ensure that kitchen staff is entitled to the same benefits as servers.
References
Black, J. (2021). How to make an unloved job more attractive? Restaurants tinker with wages. The New York Times.
Salant, S., Shobe, W., & Uler, N. (2022). The effects of “nonbinding” price floors. European Economic Review, 104122.