RFK Compass Investors Interview with Saru Jayaraman

Saru Jayraman has been at the forefront of advocating for tipped workers to be paid what they’re worth instead of subsisting on the meager wages provided by the $2.13 subminimum wage to tipped workers under federal law. Even when you add tips on top, it’s not anywhere near what a worker needs to support him or herself, let alone provide for a family. It’s the main reason why workers are leaving the restaurant industry for good amid the labor market upheaval created by the COVID-19 pandemic.

Jayraman’s career experience has prepared her for precisely this moment. As the President of One Fair Wage and Director of the Food Labor Research Center at University of California, Berkeley, she has spent the last 20 years organizing and advocating for higher wages and better working conditions for restaurant and other service workers. She is now leading the fight to enact change by getting Congress to pass the Raise the Wage Act, which would raise the federal minimum wage and end the subminimum wage for tipped workers.

As Jayraman presses ahead with that effort and prepares to publish her book on the subject, One Fair Wage: Ending Subminimum Pay in America (New Press, 2021) RFK Compass caught up with her to better understand the importance of this moment. Here are some of the reflections she shared, which have been edited for brevity and clarity.

RFK Compass Investors: Why is it so important that we establish a federal minimum livable wage and eliminate the sub-minimum wage?

Saru: Raising the minimum wage and ending all subminimum wages is critical for economic, race and gender equity, but it is also critical for our whole economy and for our democracy. Approximately 32 million Americans currently earn less than $15 an hour. They struggle to feed their families, pay bills, and maintain a place to live. They are in majority women and disproportionately people of color, and a substantial portion have children they are trying to raise and educate with inadequate resources. Raising the minimum wage would not only help them but also low-wage workers who are in the earnings bracket just above them, allowing all of these workers to stop using public assistance and support their local economies through increased consumption. As Newsweek reported, even the CFO of Denny’s has told shareholders that paying $15 an hour to all workers in CA, where there is no subminimum wage for tipped workers, has allowed their company to grow faster in that state than any other, due to increased consumer spending associated with higher wages. Perhaps most importantly, providing all these workers with fairer compensation will allow them to engage more fully in our democratic process by voting, volunteering in their communities and making their voices heard thanks to not having to focus exclusively on their survival.

RFK Compass Investors: How far does a $2.13 hourly wage get a typical restaurant worker today, even when tips are factored in?

Saru: Restaurant workers in the United States earn a median wage of under $10 an hour, including tips. That means employers pay about one-fifth of restaurant workers’ wages ($2.13 an hour) and you, me and everyone else who goes to a restaurant subsidizes the remaining $8. Even when you include the tips, though, this wage is not enough to live on anywhere in the United States. So tipped restaurant workers use food stamps at double the rate of the rest of the U.S. workforce, according to the Economic Policy Institute. That adds up to $9 billion annually in taxpayer-funded public assistance for restaurant workers; employees at the average Olive Garden, for example, use $250,000 annually in public assistance because Olive Garden’s parent company, Darden, pays the lowest-possible subminimum wage for tipped workers in every state (which is $2.13 in about 20 states and $5 or less in nearly 40 states). In this way, the public subsidizes large publicly-traded restaurant chains like Darden in two ways: by paying the majority of their workers’ wages through their tips and by subsidizing their workers’ survival through public assistance programs. I can’t think of any other sector in which the public, rather than the employer, pays for the overwhelming majority of the employer’s labor costs.

RFK Compass Investors: Recently, we’ve seen countless reports about a worker shortage especially during the COVID-19 pandemic. Why are workers leaving the industry? What would make them stay?

Saru: With the COVID-19 shutdown in March 2020, 6 million restaurant workers lost their jobs – approximately one out of every four Americans who lost their jobs due to the pandemic. Two-thirds of restaurant workers reported that they faced great challenges accessing unemployment insurance, in many cases because their wages were too low to qualify for benefits. This was the first moment in which millions started to leave the industry. They realized that if they earned too little to even qualify for government benefits, it was time to leave the industry. Then, when some returned to work in restaurants last summer, the overwhelming majority reported that tips decreased 50-75% since sales were down, and customer hostility and sexual harassment increased dramatically. For them, the math just wasn’t worth it anymore. In May 2021 we surveyed over 2,800 workers nationwide; 54% of those still in the industry said they were leaving, and nearly 80% said the only factor that would make them stay or return to work in restaurants would be a full, livable wage with tips on top. Fortunately, this mass exodus has resulted in thousands of restaurants voluntarily raising wages nationwide; last month, a New York Times piece featured our report showing that over a 2 week period in September, we documented 1,621 restaurants in 41 states that are now paying a median wage of $13.50 plus tips. It’s important to recognize that so many of these same restaurants and the National Restaurant Association claimed just a few months ago that it was impossible for restaurants to pay a full, livable wage with tips on top. Apparently, it was possible all along.

RFK Compass Investors: Let’s discuss the intersectionality of gender, race, and wages. Can you discuss the history of tipped workers in America as well as the workplace harassment that runs rampant in the service sector and how even this has changed since COVID-19?

Saru: Tipping originated in feudal Europe, where aristocrats would provide serfs and vassals with wages and occasionally, on top of that wage, offer a bonus for a job well done. Tipping as a concept came to the U.S. just before Emancipation when the restaurant industry sought the right to hire newly freed slaves for free. This mutated the notion of tipping from being an extra or bonus on top of a wage to becoming the wage itself. With lobbying from the restaurant industry, Congress institutionalized the subminimum wage for tipped workers when President Franklin Roosevelt signed into law the Fair Labor Standards Act of 1938. In this way, the subminimum wage for tipped workers cannot be understood as anything other than a devaluation of Black lives. And given that two-thirds of restaurant workers are women, it is also a devaluation of women’s work. Today, 43 states persist with this legacy of slavery, and a two thirds majority female workforce struggles with the highest rates of poverty and sexual harassment of any workforce. Women often must tolerate inappropriate customer behavior in order to get tips that make up the vast majority of their income.

With the pandemic, that power imbalance between female servers and male customers only worsened. About 40% of food service workers we surveyed reported that there has been a noticeable change in the frequency of unwanted sexualized comments from customers. Workers are leaving the industry in droves because they can no longer tolerate this level of harassment on the subminimum wages they are paid.

RFK Compass Investors: What are some of the legislative hurdles preventing the restaurant industry from paying its service workers more?

Saru: Numerous polls and ballot measures have consistently shown that the overwhelming majority of Americans support raising the U.S. minimum wage. President Biden and Congressional leadership have prioritized the Raise the Wage Act, which would increase the federal minimum wage to $15 and end the subminimum wage for tipped workers. The central challenge to its passage is eight Senate Democrats who have opposed the bill due to lobbying from the National Restaurant Association and the publicly traded companies who lead it, especially Darden, Dine Equity (which runs Applebee’s and IHOP), Denny’s, Outback Steakhouse and many others. Several states are considering raising their own minimum wages and ending the subminimum wage for tipped workers, but the National Restaurant Association and the publicly-traded restaurant companies that lead it have been lobbying hard to stop that legislation as well. We must both pressure these publicly traded companies to end this legacy of slavery and simultaneously pressure elected officials to stop rolling over to the whims of the Restaurant Association and instead listen to the overwhelming majority of people who support raising wages.

RFK Compass Investors: What impact does a subminimum wage in the restaurant sector have on other industries?

Saru: While the restaurant industry created the first, most widely-used subminimum wage for tipped restaurant workers, other sectors have begun to emulate the restaurant industry to help them cut costs. Nail and hair salon workers, car wash workers, airport wheelchair attendants and parking attendants can all receive the subminimum wage. There are also other types of subminimum wages. For example, incarcerated workers receive a subminimum wage for their labor while incarcerated due to the exception to the 13th Amendment that allows for slavery in the case of imprisonment. Similarly, workers with disabilities and youth receive a subminimum wage in many states due to a long-standing devaluation of youth and people with disabilities. And gig workers – a growing segment of the labor force – often receive the equivalent of a subminimum wage because big tech companies are also trying to emulate the restaurant industry’s tipped wages. All of these subminimum wages accomplish the same task: they devalue the worth of human labor, especially women and people of color.

RFK Compass Investors: At RFK Compass Investors, we partner with key players in the industry, such as Adasina Social Capital, to engage directly with the restaurant industry. How can investors who disagree best engage with the industry to convince them otherwise?

Saru: We’d love to see investors pressure publicly-traded restaurant chains to end the subminimum wage for tipped workers. For maximum effectiveness, it is critical that this be done publicly, not in private conversations with the companies that the companies largely dismiss. We’d love to see investors call out these companies in shareholder meetings and investor calls, but also in other public reports, websites, and press events. I believe that we should threaten divestment only when we’ve amassed a large enough amount of funds among a group of shareholders in a single company that joint, simultaneous, very noisy and public divestment would serve as a genuine threat — and an example to other companies of the consequences of not changing their behavior.

“It’s a wage shortage, not a worker shortage.” Read One Fair Wage’s full report.