Seven Facts About Tipped Workers and the Tipped Minimum Wage

Posted at https://www.epi.org/blog/seven-facts-about-tipped-workers-and-the-tipped-minimum-wage/

Posted May 31, 2018 at 4:40 pm by Elise Gould and David Cooper

As debate continues on a referendum to raise the tipped minimum wage in Washington, D.C., to the minimum wage for nearly all other workers, we wanted to take a few minutes to set the record straight on the facts about tipped worker wages and incomes. Currently, eight states do not have differential treatments of the tipped workforce in terms of the minimum wage.1 Throughout this post, these will be referred to as “equal treatment” states. To be clear, tipped workers in these equal treatment states receive the full, regular state minimum wage plus tips.

Over the last several years, there has been a great deal of research about the minimum wage and tipped restaurant workers, in particular, and we are going to draw on some of that research to make several key points: 1. In the District of Columbia, women, African American, and Hispanic workers are disproportionately minimum wage workers, including tipped minimum wage workers; 2. Maintaining a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities; 3. In states that have a lower tipped minimum wage, tipped workers have worse economic outcomes and higher poverty rates than their counterparts in equal treatment states; 4. Tipped work is overwhelmingly low-wage work, even in D.C.; 5. Wage theft is particularly acute in food and drink service, and restaurants across the country have been found to be in violation of wage and hour laws; 6. Waitstaff have higher take-home pay in equal treatment states than in D.C.; and 7. The restaurant industry thrives in equal treatment states.

Here, we take a closer look at each point:

1. Women, African Americans, and Hispanic workers have disproportionately benefited from minimum wage increases in Washington, D.C.Furthermore, contrary to popular opinion, the vast majority of minimum-wage earners are not teenagers or college students working part-time jobs.
2. Research indicates that having a separate, lower minimum wage for tipped workers perpetuates racial and gender inequities, and results in worse economic outcomes for tipped workers. Forcing service workers to rely on tips for their wages creates tremendous instability in income flows, making it more difficult to budget or absorb financial shocks. Furthermore, research has also shown that the practice of tipping is often discriminatory, with white service workers receiving larger tips than black service workers for the same quality of service.
3. The clearest indicator of the damage caused by this separate wage floor for tipped workers is the differences in poverty rates for tipped workers depending on their state’s tipped minimum wage policy. As shown in Figure A, in the states where tipped workers are paid the federal tipped minimum wage of $2.13 per hour (just slightly less than the district’s $2.77 at that time), 18.5 percent of waiters, waitresses, and bartenders are in poverty. Yet in the states where they are paid the regular minimum wage before tips (equal treatment states), the poverty rate for waitstaff and bartenders is only 11.1 percent. Importantly, the poverty rates for non-tipped workers are very similar regardless of states’ tipped minimum wage level. This strongly indicates that the lower tipped minimum wage is driving these differences in outcomes for tipped workers.

FIGURE A

4. Tipped work is overwhelmingly low-wage work, even in Washington, D.C. Some tipped workers at high-end restaurants do well, but they are the exception, not the norm. The median hourly wage of waitstaff in the district in May 2017 was only $11.86, including tips. At that time, D.C.’s minimum wage was $11.50 per hour. In other words, the typical D.C. server made a mere 36 cents above the minimum wage. Proponents of maintaining a lower tipped minimum wage may note that the average hourly wage of waitstaff in D.C. at that same time was $17.48, but this average is skewed by the subset of servers in high-end restaurants that do exceptionally well. The fact that the average is so far from the median wage is indicative of significant wage inequality among district waitstaff.
5. Wage theft is particularly acute in food and drink service, and restaurants across the country have been found to be in violation of wage and hour laws. It is true that the law requires restaurants to ensure that tipped workers receive at least the regular minimum wage when their tips are included, but the reality is that huge numbers of restaurants—helped by too-weak enforcement efforts—ignore these requirements. In investigations of over 9,000 restaurants, the U.S. Department of Labor (DOL) found that 84 percent of investigated restaurants were in violation of wage and hour laws, including nearly 1,200 violations of the requirement to bring tipped workers’ wages up to the minimum wage. Among the restaurants that were investigated, tipped workers were cheated out of nearly $5.5 million. Workers in the food and drink service industries are more likely to suffer minimum wage violations than workers in other industries.
6. The data show that tipped workers’ median hourly pay (counting both base wages and tips) is significantly higher in equal treatment states. Waiters, waitresses, and bartenders in these states earn 17 percent more per hour (including both tips and base pay) than their counterparts in states where tipped workers receive the federal tipped minimum wage of $2.13 per hour. There is no evidence that net hourly earnings go down, such as from customers tipping less, when tipped workers are paid the regular minimum wage.

Looking at data specific to the District of Columbia shows a clear advantage to waitstaff in equal treatment states. In California, when the minimum wage was $10.50—8.7 percent less than D.C.’s $11.50—waitstaff there still earned 2 percent more per hour than waitstaff in D.C. In San Francisco, when the minimum wage was $13.00—13 percent higher than D.C.’s $11.50—waitstaff in San Francisco earned 21 percent more than waitstaff in D.C. In Washington state, when the minimum wage was $11.00—4.3 percent less than the minimum wage in D.C.—waitstaff there still earned 5.1 percent more than their counterparts in D.C. Fears of lower wages from equal treatment are unfounded for the large majority of waitstaff.

7. The restaurant industry thrives in equal treatment states. In one of the most comprehensive studies on the minimum wage, researchers aggregated the results of over four decades of studies on the employment effects of the minimum wage. They concluded that there is “little or no significant impact of minimum wage increases on employment.”Affected businesses are typically able to absorb additional labor coststhrough increases in productivity, reductions in turnover costs, compressing internal wage ladders, and modest price increases. Furthermore, research specific to the tipped minimum wage also found no significant effect on employment.

According to the Quarterly Census of Employment and Wages, full-service restaurants in equal treatment states saw stronger growth both in terms of number of establishments and number of jobs compared to states with a separate, lower minimum wage for tipped workers (Figure B). Between 2011 and 2014, equal treatment states saw 6.0 percent growth in the number of establishments compared to 4.1 percent growth in states with separate, lower tipped minimum wages. Likewise, employment grew 13.2 percent in equal treatment states compared to 9.1 percent in other states.

Furthermore, higher minimum wages mean better working and living conditions for numerous workers in the region, and it will put more money in the hands of consumers likely to spend in area businesses.

FIGURE B

1. ---

   Tipped workers in Hawaii may be paid $0.75 less than the regular minimum wage, but only if they earn a combined hourly wage (tips + base wage) of at least $7.00 more than the regular minimum wage.