New York City’s hospitality industry is built on a promise: if you work hard, you can make it here. From the dishwasher climbing the ladder to the server earning $40 an hour on a Friday night, our restaurants are engines of opportunity. But that engine is about to be dismantled by a well-intentioned but economically disastrous slogan.
As the City Council and Albany lawmakers consider eliminating the tip credit – often under the banner of “One Fair Wage” – we are told this policy is a moral imperative to end a “subminimum wage.” This framing is brilliant marketing, but dangerous policy. The reality, proven by the collapsing restaurant markets in Chicago and Washington D.C., is that eliminating the tip credit doesn’t raise worker pay. It destroys workers’ jobs.
Let’s start with the most pervasive myth: that tipped workers in New York earn less than the minimum wage. They do not. Under current state law, if a worker’s tips plus the cash wage do not equal the standard minimum wage, the employer must make up the difference. The “subminimum wage” does not exist. The debate is not about ensuring a minimum; it is about forcibly shifting the compensation model from a commission-based system to a flat-wage model that caps worker potential and bankrupts employers.
We do not have to guess what happens next. We just have to look at Chicago.
In the twelve months since Chicago began phasing out its tip credit, the city’s restaurant industry has decoupled from the broader economy. While jobs in other sectors held steady, Chicago’s bar and restaurant employment has plummeted by approximately 8%. That is double the decline seen in the rest of the state. Why? Because the math broke, triggering cost spikes, fewer work shifts, and less hiring.
The story is even grimmer in Washington D.C. There, the “One Fair Wage” experiment caused such severe economic damage – including accelerated closures and a revolt from tipped workers seeing lower take-home pay – that the D.C. City Council voted this past June to pause the scheduled wage increase. They effectively admitted the industry could not absorb the shock.
Proponents argue that if it works in other cities, it can work in New York. This ignores the single most critical variable in our city’s economy: the “Manhattan Premium.”
A restaurant in Chicago pays an average of $28 per square foot in rent. In Manhattan, that average is $71, with prime retail spaces often exceeding $90. Our margins are razor-thin, typically hovering between 3% and 5%. There is no vault of excess profit to raid. If you force a 50% increase in base payroll costs on top of these exorbitant rents, the business model mathematically collapses.
If this legislation passes, New York City diners will face a chaotic future of 20% “service charges,” confused tipping etiquette, and menu price inflation that drives customers to fast-casual chains. We are already seeing this in Chicago, where 31% of restaurants have slapped on mandatory fees to survive, leading to consumer backlash and “tipping fatigue” that actually lowers what servers take home.
Even more tragic is the loss of the entry-level job. The hospitality sector has historically been the first rung on the economic ladder for immigrants, students, and young people. But when the entry-level wage is artificially hiked to a premium rate, businesses stop hiring novices. They hire fewer, more experienced staff, or they replace human labor with QR codes, iPads, and kiosks.
The Manhattan Chamber of Commerce is launching programs to help businesses survive this potential transition, but we shouldn’t have to prepare our members for an extinction event. We want a thriving industry where human service is valued, not replaced by automation.
Eliminating the tip credit is a solution in search of a problem that will create a catastrophe. We urge the City Council to look at the empty storefronts in D.C. and the job losses in Chicago and choose a different path. Let’s enforce the laws we have to protect our workers against wage theft, but let’s not pass a law that steals their jobs.
