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OK, $15 an hour minimum wage in Seattle, but plus tips?

Editor’s Note: Making Sen$e continues our look at Seattle’s debate over increasing the minimum wage, speaking with restaurant owners who are caught between their personal support for a living wage and the fear that it would put them out of business. Paul Solman speaks with James Beard Award Winner Tom Douglas, co-owner of 14 restaurants across the Seattle area employing 800 people.

He made headlines last year when he raised the wage for all of his back-of-the-house workers, from dishwashers to chefs. But raising all the staff, including waiters who collect tips, to $15 an hour could put his business — and his employees’ health care — at stake, he says.

Seattle Mayor Ed Murray unveiled his plan for getting Seattle workers to a $15 minimum on Thursday. Small businesses with fewer than 500 employees would have seven years to phase in the higher wage, and for the first five years, other benefits – like health care and tips – could count toward the $15 an hour. Bigger local and national businesses, however, would have only three years to phase in a $15 an hour floor. The City Council now takes up the mayor’s proposal.

“Seattle I think will prove itself when this process is finished in council, to once again be an incubator of democracy,” Murray said Thursday.

Douglas, who appears in our Making Sen$e segment below, calls himself “as true blue you can be” (he supported single-payer health care), but in his extended conversation with Paul Solman, read why he thinks every mayor and city council member should try being a business owner before making policy.

Simone Pathe, Making Sen$e Editor

When I talked to restaurant owner John Platt, he was quite movingly torn about raising the minimum wage. He really is a very liberal guy in favor of almost anything on that side of the political aisle, and yet he was worried about what it would do to his business. You could see him living out that ambivalence.

I certainly don’t have ambivalence about it. I’m on the side of the aisle of people being able to take care of their lives and their families, so I’m really concerned that health care’s going to be one of the chess pieces in this little game that we’re playing.

Not enough people have health care in this country, and so I would hate to see health care become one of the costs of paying the higher minimum wage because I think that that’s what it’s going to come down to for some business folks in order to make their numbers work.

Of your own volition, you gave a raise to the back of the house, correct?

Yes, I’ve been a cook all my life, so I have a certain affinity for the fact that the front of the house tends to make a lot more money than the back of the house. My wife and I decided to try and kick start our kitchens to a $15 minimum wage for cooks. I’ve probably had to go through and raise every menu price now by 50 cents because it took away my profit. I just underestimated what it was going to cost.

A little natural experiment, as they say in economics. What happened when you raised prices? Could you discern any difference in terms of people coming here to eat at your restaurant?

Nothing much happened.

So if there was no reaction to raising prices 50 cents a course, that’s either an argument for an increased wage not mattering – or for doing it slowly because of course, this would be a more dramatic rise in prices.

You can’t really say that there’s no reaction. It’s too soon to tell. I think that if the trend were to continue, I definitely think something’s going to happen.

I don’t have the numbers right off the top of my head, but what would it mean to you if you came into my restaurant for dinner and it was about $5.50 per person more based on the new wage structure? You sit down with a table of four, and it’s $21 or $22 more, and then you’ve got about 10 percent sales tax on top of that. So for a family of four, your dinner’s going to cost you about 25 bucks more tonight.

I can afford that. I’m so thankful. But can everyone? I don’t think so. And maybe that’s just the way it has to be. Maybe there are too many restaurants. Maybe some of mine need to close. So be it. I’ll live with the market place.

Let the people decide. I don’t have the margin to just absorb the difference in pay, so at the end of the day it’s going to be us as the citizens of Seattle that are going to make that choice.

But what’s shocking and what’s going to be interesting about this to America is that the cost of wages in Seattle is already much higher than it is in most of the country. I raised my dishwashers from $10 to $12. Well, most of America doesn’t pay dishwashers $10.

But of course that’s part of the reason it’s happening here.

Waiters here make $9.50 an hour already. A waiter in New York City makes $2.15.

You’ve got 14 restaurants now, right? So how much does one of your waiters make, on average?

On average, a waiter, busser, bar tender and host all make about the same. It’s somewhere around $10. But a waiter makes their $10 and then they make their tips, which is often $30 or $40 an hour throughout the evening. Plus health care, plus vacation time, plus eight days paid time off for sick leave a year, plus we have dental – you know, it’s not a bad deal.

And I am so proud that our industry is fostering people that can have a home and afford to have children. Who doesn’t want that? We all want that.

Well, that’s a lot of money.

Remember, a waiter tips out. They tip out the bar tender, they tip out the bus person. They tip out the host. So they have their own expenses, in a way, so that would take away from that total amount. But I would say a full-time waiter in a high-priced house could easily make $75-80 grand a year, yes.

Is your main objection to this proposal that it doesn’t give credit for the tips?

If what they really want is $15 an hour – by God, our waiters make $15 an hour and then some. And I love our waiters. I’m not putting them down for one second, but it’s not as simple as $15 or forget it.

So what would you do? What would be your counter proposal?

I guess at this point we would take into consideration total compensation. I’m all for this living wage, so my gut says, let’s do it over three or four years, so it’s not a shock to the system.

I read that you didn’t want the government telling you to raise people’s wages – you would rather do it yourself.

I thought that was the way it should work. It turns out that I was wrong on that. Once I raised the cooks to $15 or that area, then I had to raise my sous chefs and my chefs to keep the compensation fair. And then I had taken my dishwashers from $10 to $12 and my prep cooks from $12 to $13. And so I raised the whole back of the house in a way that the $1.2 million I budgeted for went to $1.7 like that. Things got tight, and it was like: Oh my God – what have I done?

So I’ve had to scale that back a bit. I didn’t take money away from the people I’d already given it to, but I took it away from the starting wage. So now you’ve got to earn your $15 after you get started.

I was naïve to think that I could just go it alone and stay competitively balanced. So if that does happen, it should happen across the board, which I guess is a government mandate.

How does it make you feel that it will require law and order to get everybody to do something that’s in the common interest?

Well, I think that’s partly how things work. This is a life issue that I don’t think is as simple as throwing around $15 now or nothing. We need to work together as a team, as a country, to raise wages.

What’s your best guess as to the percentage of business you would lose, having to pay $15 now?

I would hate to assume that we would lose. But when I went through and did my numbers of raising the front of the house and the back of the house that’s not at $15 already to $15, it was going to be a number between $5.1 and $5.5 million a year.

And that’s most of your profit margin.

Well, that’s most of our profit margin, but that’s assuming that I don’t raise prices. So, essentially, that’s the number that I have to pass through to our customers. And then our customers get the vote.

So, again, I go back to the total compensation piece. I would never fight against people making a living wage. All we’re saying is that you have to look at the fact that the IRS calls tips wages.

Matter of fact, they’ll put me in jail if I don’t make my waiters declare their tips to the government. I have a choice – it’s me or the waiters. I mean, that’s literal. The state of Washington calls tips wages. And yet the “15 Now” group doesn’t want to consider that. And so I don’t think we’re all that far apart, except in that area.

Having been in business for 25 years, I would say that every mayor and city council person in this country should by law have to run a business before they get up on the council because it is nonsense the way they throw stuff around willy-nilly.

I’m as true blue as you can be, and we’re on the left coast, but I still say that many of them have no clue how business is run and that they can’t just throw out initiatives. It makes me nuts.