The word “minimum” is not difficult to define. Several synonyms immediately come to mind: lowest, least, smallest, littlest…
So you might reasonably assume that the “minimum wage” is the lowest wage employers can legally pay their workers, right?
Wrong. Some 3.3 million workers are paid the sub-minimum wage—often called the “tipped minimum wage”—of only $2.13 per hour. For these workers, employers may claim a “tip credit,” by converting tips received by the worker into income. So long as this tip credit, when combined with the tipped minimum wage, adds up to the minimum wage, the employer need not pay more than $2.13 per hour. If tips fall short of this amount, the employer is supposed to make up the difference. The federal minimum wage is currently $7.25 per hour, so the maximum tip credit that an employer can claim is $5.12 per hour at the federal level. The law effectively transforms tips earned by the worker into a subsidy for the employer.
The tipped minimum wage hasn’t been raised in 22 years.
When it was first established in 1966, the tipped minimum wage was set at 50 percent of the federal minimum wage, allowing employers to take a tip credit of up to half of the minimum wage in each hour. In spite of multiple increases in the minimum wage, the tipped minimum wage has remained frozen since 1991. Over that period, its value has sunk to less that 30 percent of the federal minimum wage. At a time when the minimum wage itself affords a woefully inadequate standard of living, tipped employees experience additional income insecurity and hardship.
Fortunately, the tipped minimum wage may finally be getting some long-overdue attention from legislators. Last week, labor experts and representatives of restaurant service workers—the largest group of tipped employees—participated in a Senate HELP committee briefing, urging lawmakers to raise the tipped minimum wage.
During the briefing, Sylvia Allegretto, a labor economist at the University of California, Berkeley, highlighted the relationship between the tipped minimum wage and poverty rates. Tipped workers are more than twice as likely to live in poverty as are average Americans, and they experience high levels of income insecurity. In the thirty-two states that have passed laws to raise the tipped minimum wage above $2.13 per hour—ranging from $2.23 in Delaware to $9.19 Oregon—Allegretto’s research shows that tipped employees are significantly less likely to be poor.
Contrary to what opponents of raising the minimum wage often claim, tipped workers are not predominately teenagers working part-time for extra spending money. More than two-thirds of tipped employees are aged 21 or older. The tipped minimum wage also falls disproportionately on women, who make up sixty-six percent of recipients.
Such low wages seem particularly egregious at a time when industries with high concentrations of tipped workers—particularly the restaurant industry—are projecting record growth and seeing astronomical CEO pay. Even more disconcerting is the finding that tipped employees frequently do not even receive the wages to which they are entitled. At the briefing, Department of Labor representatives reported an astounding 84 percent violation rate of wage and hour laws among inspected restaurants. Wage theft, illegal tip pooling, overtime violations and failing to provide employees with required information were common violations.
Interestingly, the seven states in which the tipped minimum wage is highest are experiencing faster growth in the restaurant industry than are states with lower tipped wages, according to Allegretto’s testimony. Speaking during the briefing, the owner of a restaurant in Detroit, Michigan, indicated why this might be the case. He pays his employees above-average wages so that they can support a better lifestyle—but he also finds that his staff have greater loyalty to the restaurant, require less managerial oversight and are less likely to leave his business for a similar employer down the block. Consistent with this experience, empirical research shows that an increase in the minimum wage would not lead to job losses, in part by reducing employee turnover rates. This, in turn, lowers employers’ costs of searching for, hiring and training new employees. Furthermore, at a time when the economy is depressed, the benefits increasing wages for the lowest earners would not be limited to employees and employers; it would provide a boost to the overall economy.
The Fair Minimum Wage Act of 2013, introduced by Representative George Miller and Senator Tom Harkin, would not only raise the federal minimum wage, but would also increase the tipped minimum wage to 70 percent of the federal minimum wage. The proposal would also index both measures to the Consumer Price Index so that as prices go up, the minimum wage would automatically be adjusted. In his State of the Union address last January, President Obama declared that “in the wealthiest nation on earth, no one who works full time should have to live in poverty.” Increasing the wages of tipped workers would be an important step toward addressing poverty in America and ensuring that a fair day’s work is rewarded with a fair day’s pay. It’s high time to give these women and men a raise.