http://jaredbernsteinblog.com/wait-now-the-trump-admin-is-coming-for-waitpersons-tips/
Heidi Shierholz is an economist at the Economic Policy Institute, but before that, she was the chief economist at the U.S. Department of Labor during the Obama administration. When I read some of Heidi's jaw-dropping work on this rule change on tips the Trump administration was making, I thought even — especially — in the midst of all this attention to the GOP's lousy tax plan, readers needed to learn about this latest effort to whack the working class. Below is my interview with Heidi.
JB: What is this new rule about tips and why is the Department of Labor proposing it?
HS: The Department of Labor's proposed rule is about employers taking control of workers' tips. It rescinds portions of long-standing Department of Labor regulations that prohibit employers from taking tips. Under the administration's proposed rule, as long as the tipped workers earn the minimum wage, the employer can legally pocket their tips.
JB: They make it sound like the point of this is to share the tips with workers "in the back of the shop," like dishwashers and cooks. But I thought that was pretty common already? Do we really need a new administrative rule for that?
HS: Right now, employers cannot require tipped workers to share their tips with "back of the house" workers like dishwashers and cooks, though voluntary tip-sharing arrangements are common. To sell this proposed rule to the public, the Trump administration is talking about it as if it is about tip-pooling, because employers could give some of the tips they take from tipped workers to back-of-the-house workers. They're basically taking money from one group of low-income workers and trying to hide it by suggesting that some of that money could go to other low-wage workers. But in fact, the administration is giving a windfall to restaurant owners out of the pockets of tipped workers.
JB: You've suggested that employers could and would pocket the waitpersons' tips themselves under this rule. What makes you say that?
HS: Evidence shows that even now, when it is illegal for employers to pocket tips, many still do. Research on workers in three large U.S. cities (Chicago, Los Angeles and New York) found that 12 percent of tipped workers had tips stolen by their employers or supervisors. With that much illegal tip theft taking place, it's clear that when employers can legally pocket the tips, many will. Further, basic economics tells us that back-of-the-house workers are very unlikely to get more pay overall. The fact that workers are in those jobs means employers are alreadypaying them what they need to pay them to get them in the current environment. If employers do share some tips with them, it will likely be offset by a reduction in their base pay. Here's the bottom line on the economics of this rule: (1) tipped workers will lose out, (2) the take-home pay of back-of-the-house workers will be largely unchanged, and (3) employers will be enriched.
JB: Do you have any sense of the amount in play here?
HS: We estimate that under this rule, employers would pocket $5.8 billion in tips earned by tipped workers each year. This is 16 percent of the estimated $36.4 billion in tips earned by tipped workers annually — roughly $1,000 per tipped worker on average each year. I should add that this is a conservative estimate. We were careful not to overstate the amount of workers' tips that will be pocketed by employers.
JB: What does the Department of Labor say about this possibility?
HS: DOL acknowledges that employers could legally pocket tips under their proposed rule, stating that the rule "rescinds those portions of the 2011 regulations that restrict employer use of customer tips [emphasis added] when the employer pays at least the full Federal minimum wage." In a deeply unusual move, DOL did not provide an estimate of the amount of tips that will be transferred from workers to employers (which is one reason we did so). This is unusual because agencies are required by law as a part of the rulemaking process to assess all quantifiable costs and benefits to the fullest extent possible. DOL could have produced an estimate; at EPI, we produced an estimate in less than two weeks using routine procedures and taking a methodological approach that is in exactly the same spirit of estimates the Department of Labor produces all the time [Note: Shierholz was formerly chief economist for the DOL]. Why didn't DOL produce an estimate? To ask the question is to answer it; any good-faith estimate would have shown this rule will result in a substantial shift of tips from workers to employers and the DOL under President Trump — and Labor Secretary Alexander Acosta — is trying to hide that fact.
JB: What happens next? Can people voice their concerns about this rule change?
HS: This is a proposed rule. Anyone can submit a comment about the rule, and the Department of Labor is required to read them before they decide what the final rule will look like. The rule is open for public comment until Feb. 5.
Further, states can move to increase the protections in their state. Our estimate of the amount of tips that would be pocketed by employers as a result of this rule would have been significantly higher if it weren't for the fact that many states have laws on the books that prohibit employers from pocketing workers' tips. Those laws will not be preempted or superseded by the Trump rule, so tipped workers in those states are protected from this rule. Other states can and should follow suit.
JB: You have been tracking these sorts of behind-the-scenes attacks of labor standards. This tip rule is part of a larger pattern, no?
HS: When Trump was running for office, he made big claims about how he was going to fight for workers. But since in office, he has consistently moved against the interest of workers in favor of corporate interests — by rolling back important worker protections, advancing nominees to key posts with records of enabling the exploitation of working people, pushing for the dismantling of Obamacare, fighting for a tax bill that overwhelmingly favors the wealthy, etc. In the case of the tip rule, Trump has delivered a huge gift to the owners of big chain restaurants, for whom getting their hands on workers' tips has been a holy grail for a very long time. In Donald Trump, they finally found a president who will do their bidding.
-- via my feedly newsfeed
NEW YORK – A year ago, I predicted that the most distinctive aspect of 2017 would be uncertainty, fueled by, among other things, Donald Trump's election as president in the United States and the United Kingdom's vote to leave the European Union. The only certainty, it seemed, was uncertainty – and that the future could become a very messy place.
Throughout 2017, Trump proved every bit as bombastic and erratic as expected. Anyone who paid attention only to his incessant tweets might think the US was teetering between a trade war and a nuclear war. Trump would insult Sweden one day, Australia the next, and then the EU – and then support neo-Nazis at home. And the members of his plutocratic cabinet rival one another in terms of conflicts of interest, incompetence, and sheer nastiness.
There have been some worrisome regulatory rollbacks, especially concerning environmental protection, not to mention the many hate-driven acts that Trump's bigotry may have encouraged. But, so far, the combination of America's institutions and the Trump administration's incompetence has meant that there is (fortunately) a yawning gap between the president's ugly campaign rhetoric and what he has actually accomplished.
Most important for the global economy, there has been no trade war. Using the exchange rate between Mexico and the US as a barometer, fears for the future of the North American Free Trade Agreement have largely subsided, even as trade negotiations have stalled. Yet the Trump roller-coaster never ends: 2018 may be the year that the hand grenade Trump has thrown into the global economic order finally explodes.
Some point to the US stock market's record highs as evidence of some Trumpian economic miracle. I take it partly as evidence that the decade-long recovery from the Great Recession is finally taking hold. Every downturn – even the deepest – eventually comes to an end; and Trump was lucky to be in the White House to benefit from the work of his predecessor in setting the scene.
But I also take it as evidence of market participants' short-sightedness, owing to their exuberance at potential tax cuts and the money that might once again flow to Wall Street, if only the world of 2007 could be restored. They ignore what followed in 2008 – the worst downturn in three quarters of a century – and the deficits and growing inequality that previous tax cuts for the super rich have brought.
They give short shrift to the deglobalization risks posed by Trump's protectionism. And they don't see that if Trump's debt-financed tax cuts are enacted, the Fed will raise interest rates, possibly setting off a market correction.
In other words, the market is once again showing its proclivity for short-term thinking and pure greed. None of this bodes well for America's long-term economic performance; and it suggests that while 2018 is likely to be a better year than 2017, there are large risks on the horizon.
It's a similar picture in Europe. The UK's decision to leave the EU didn't have the jolting economic effect that those who opposed it anticipated, largely because of the pound's depreciation. But it has become increasingly clear that Prime Minister Theresa May's government has no clear view about how to manage the UK's withdrawal, or about the country's post-Brexit relationship with the EU.
There are two further potential hazards for Europe. One risk is that heavily indebted countries, such as Italy, will find it difficult to avoid crisis once interest rates return to more normal levels, as they likely will. After all, is it really possible for the eurozone to maintain record-low rates for the foreseeable future, even as US rates increase?
Hungary and Poland represent a more existential threat to Europe. The EU is more than just an economic arrangement of convenience. It represents a union of countries with a commitment to basic democratic values – the very values that the Hungarian and Polish governments now disparage.
The EU is being tested, and there are well-founded fears that it will be found wanting. The effects of these political tests on next year's economic performance may be small, but the long-term risks are clear and daunting.
On the other side of the world, Chinese President Xi Jinping's Belt and Road Initiative is changing Eurasia's economic geography, putting China at the center, and providing an important stimulus for region-wide growth. But China must confront many challenges as it undergoes a complicated transition from export-led growth to growth driven by domestic demand, from a manufacturing economy to a service-based economy, and from a rural to an urban society. The population is aging rapidly. Economic growth has slowed markedly. Inequality is by some accounts almost as severe as in the US. And environmental degradation poses a growing threat to human health and welfare.
China's unprecedented economic success over the past four decades has been partly based on a system whereby broad consultation and consensus-building within the Communist Party and the Chinese state underpinned each set of reforms. Will Xi's concentration of power work well in an economy that has grown in size and complexity? A system of centralized command and control is incompatible with a financial market as large and complex as China's; at the same time, we know where insufficiently regulated financial markets can lead an economy.
But these are all essentially long-term risks. For 2018, the safe bet is that China will manage its way, albeit with slightly slower growth.
In short, as the advanced economies' post-2008 recession fades into the distant past, global prospects for 2018 look a little better than in 2017. The shift from fiscal austerity to a more stimulative stance in both Europe and the US will reduce the need for extreme monetary policies, which almost surely have had distortionary effects not just on financial markets but also on the real economy.
But the concentration of power in China, the eurozone's failure (thus far) to reform its flawed structure, and, most important, Trump's contempt for the international rule of law, his rejection of US global leadership, and the damage he has caused to democracy's standing all pose deeper risks. Indeed, they threaten not just to hurt the global economy, but also to slow what, until recently, had seemed to be an inevitable march toward greater democracy worldwide. We should not let short-run success lull us into complacency.