Last week, President Trump’s Department of Labor (DOL) hid an internal analysis that showed that its so-called tip-pooling rule would allow employers to pocket billions in workers’ tips. They claimed that they were “unable to quantify” the rule’s effects. But we now know that they did, in fact, conduct an analysis—they just didn’t want the American public to see the result, so they buried it.
I discussed what happened and what this policy is all about with Heidi Shierholz, senior economist at the Economic Policy Institute and former chief economist at the Department of Labor under President Obama.
Rebecca Vallas: Heidi, what is this policy that the Trump administration is advancing and what are they hiding?
Heidi Shierholz: In December, the Trump administration released a proposed rule to try to make it legal for employers to take workers’ tips. There were regulations on the books from 2011—it was a long-standing practice at DOL that tips cannot be taken by employers. But the Trump administration is trying to rescind those regulations, and it’s really bad for workers.
But now the Department of Labor is bending over backwards to try to make it seem like it’s not terrible for workers. For instance, they talk about how theoretically employers who take tips could share some of those tips with the back of the house workers or other untipped workers. But there is nothing in this rule that says they are required to do so. So, what’s going to happen is employers will end up just pocketing a lot of those tips themselves.
The controversy that broke is that the DOL claimed that they could not do a quantitative analysis of how much in wages and tips would be transferred from workers to employers as a result of this rule. But what was revealed today is that that was all untrue. They actually did the analysis, and it showed billions of dollars being transferred from workers to employers. They actually took it to the Secretary of Labor who said something to the effect of, “Okay, we can’t publish something that shows this because this will make us look terrible. Take this back to the drawing board and see if you can bring me back smaller numbers.” They did that, but they never got it down as small as was comfortable for Secretary Acosta, so they just got approval from the White House to remove the analysis entirely. So this proposal was released without any quantitative economic analysis about the impact the proposed rule would have on workers, even though they are legally required to quantify the economic impact to the extent possible.
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RV: So not only did they try to figure out a methodology to get a number they were comfortable with—in terms of how much employers were going to end up pocketing in the way of workers’ tips and wages—but they decided because they couldn’t get the number down they were just going to pretend they’d never done it at all? Is that what we’ve learned?
HS: Yes, that’s what we’ve learned. They said in their proposal that they were—quote—“unable to quantify how customers would respond to the proposed regulatory change” and that the department “currently lacks the data to quantify possible reallocation of tips.” So they just said in a bunch of different ways, “We can’t do this.” But we know they did do it. The numbers looked bad for them, so they buried it. This is real malpractice. The public deserves to have those numbers. They make the department look like it is not living up to its mission of actually protecting workers—in fact, it’s just going to transfer a whole bunch of money from workers to employers and they wanted to hide that fact.
RV: When they went to crunch the numbers on this policy it looks like they found something similar to what you guys at the Economic Policy Institute had already been telling people for a while. You did some analysis finding that if this rule goes into effect, workers will lose billions in lost tips and wages.
HS: So we don’t know exactly what the DOL estimate was. We know it’s in the billions but no one knows the actual number. I worked at the Department of Labor. I worked on many, many analyses like this. I have full confidence that the analysis that we did at EPI likely used the same data that DOL used for their analysis. And when we did it we came up with an estimate that $5.8 billion would be shifted from workers to employers as a result of the rule and that nearly 80% of that, or $4.6 billion, would be taken from the pockets for women who work for tips, and that’s primarily because women are much more likely to work in tipped jobs.
RV: It’s not just tipped workers who are actually at risk of being hurt here, correct?
HS: One of the interesting things that’s the backdrop to this is that the DOL has been trying to sell this rule as something that will make restaurants more egalitarian, because now we’ll have this sharing between better-paid tipped workers and lower-paid back of the house workers like dishwashers and cooks. But it is very unlikely that they will do that. The rule does not require them to do it. They would be no more likely to share tips with back of the house workers than they would be to make any other choice about what to do with that shiny new revenue stream, which is what being able to confiscate tips would mean to them. They could increase executive pay. They could make capital improvements to their establishment. They could just line their own pockets. Under basic economic logic, those back of the house workers are not going to get more pay.
RV: This is hardly the first time that the Trump administration has been caught either lying or hiding evidence about the policies they’re looking to advance or the Obama-era policies they’re looking to roll back. You mentioned that because there are very specific rules governing how rule-making is supposed to happen in this country—rules that it appears that the Trump administration has clearly broken here by withholding and lying about evidence in their possession about this rule during a [public] comment period—can you explain a little bit about how that works?
HS: In this particular case, they are simply required as part of the rule-making process to quantify to the extent possible the economic impact so that the public has that information in hand in order to comment on the purposed rule.
The rule-making process in general is really basic in some sense: The agency puts out a proposed rule, anyone can comment on it. The public, advocates, business groups, anyone has the right to tell that agency what they think about their rule. The agency is actually required to read [the comments] and to take them into account as they’re crafting their final rule. So it’s absolutely crucial the public is given all the information so it can understand the impact of the rule and comment on it.
DOL claimed it wasn’t possible for them to do this quantification. But we produced an estimate in less than two weeks. It wasn’t rocket science. And now we know that they did do an analysis, buried it, and then claimed that they couldn’t do it.
Given all that has happened, they need to withdraw this rule, re-do the economic analysis, and let the public comment with all the information at hand.
This interview was conducted for Off-Kilter and aired as part of a complete episode on February 2. It was edited for length and clarity.