D.C. hospitality industry still struggling after two years of I-82

Nearly two years since D.C. voters passed Initiative 82 , the city's hospitality industry still struggles with the growing pains of raising the tipped minimum wage for workers.

Why it matters: Campaigns to end the tipped minimum wage are expanding nationally, and all eyes are on the nation's capital — one of the first major cities that's eliminating it.

The big picture: The tipped minimum wage is a common practice in the U.S. that allows hospitality businesses to pay tipped employees a lower salary, assuming gratuities will make them whole (and many argue, surpass the minimum wage). But that's changing.

• Eight states and three major cities, including D.C. and Chicago , have voted to eliminate the tipped minimum wage.
• One Fair Wage (OFW), the Massachusetts-based organization that led the charge in D.C. and nationally, has legislation on the ballot in their home state and Illinois . They're looking toward campaigns in Maryland and Ohio next year.

Between the lines: As we're seeing in D.C., the subminimum wage is a thorny issue.

• Opponents argue that it's discriminatory, and a way for businesses to underpay or steal wages. They also argue that higher wages don't disincentivize tipping, advocating for "tips on top."
• Advocates say eliminating it results in lesser tips and lower earnings for workers — plus higher costs for diners, and more service fees , as businesses struggle with their bottom line.

By the numbers: I-82 went into effect in May 2023, and has incrementally increased the tipped minimum wage for workers from $5.35 to $10 an hour.

• The next jump will be to $12 in July, and by 2027, tipped workers will be paid the citywide minimum wage (currently $17.50).

Driving the news: Since I-82 was implemented, full-service restaurants in D.C. have lost 1,800 jobs, according to a report from the National Restaurant Association (NRA) based on findings from the Bureau of Labor Statistics. BLS shows a near 6% employment decline between May 2023 and August 2024.

• In the 12 months prior to I-82's implementation, D.C.'s full-service restaurants added 3,900 jobs (a 15% increase), according to the NRA report.

Meanwhile, BLS shows 2% employment growth in the "limited-service" restaurant segment (around 300 jobs), which includes fast-casual restaurants.

Reality check: The Bureau of Labor Statistics overviews employment rates based on industry models, employer and household surveys, and other sources. The findings don't pinpoint reasons for job loss or gain, which can be caused by a myriad of factors, from a downward economy to restaurants staffing up after the pandemic.

• Both the NRA and the Restaurant Association of Metropolitan Washington (RAMW) opposed I-82 and similar efforts to eliminate the tipped minimum wage.

The other side: One Fair Wage president Saru Jayaraman tells Axios it's still a wait-and-see game in D.C.

• "We can't say anything causal because we're only two years into a five-year phase-out. But what we can say is we're not seeing any real horrific damage or changes — these are natural fluctuations, which happened even before I-82."
• "The one constant is a national decline in tipping," says Jayaraman. "There's tip fatigue, which is all the more reason wages have to go up for our workers."

Zoom in: Whether it's labor costs or other factors, local restauranteurs continue to say they're struggling . RAMW surveyed over 200 member restaurants from February to March this year, nearly all of which are independent and located in the District. They found:

• 64% rank the economic conditions in D.C. for restaurants as poor. More than two-thirds expect them to stay the same or worsen in the coming year.
• Most say they're paying more for payroll (87%), ingredients (70%), and rent (53%) than the year before.

Plus: 76% say they're "extremely concerned" about rising payrolls and eliminating the tip credit.

• More than two-thirds reported that they've reduced hours, laid off staff, or stopped hiring in the last year.
• A similar number say they've incorporated technology, like QR codes and tablets, to lower costs.

What they're saying: "The rhetoric about 'Just raise your prices,' or 'If you can't adjust, you shouldn't be in business' — that's all bulls--t. I'm talking to real owners, new and legacy, and everyone is having a challenging time adjusting to this," Shawn Townsend, RAMW president and CEO, tells Axios.

Yes, but: Townsend says there's no going back on I-82.

• "I want to be clear that the association supports a fair and decent wage," says Townsend, adding that their focus is on "measures that can help offset the increase in labor costs in other ways."

What we're watching: D.C. Councilmember Charles Allen, who helped pass a huge restaurant relief bill this spring, tells Axios he's eager to reintroduce legislation next year prohibiting the charging of "swipe fees" on the sales tax portion of a credit or debit card transaction.

• The fees, typically between 2-4% per bill, add up and are a financial burden on businesses, and sometimes diners when charges are passed along — and states around the country are fighting them .