Testimony | Wages, Incomes, and Wealth

D.C.’s Fair Shot Minimum Wage Amendment Act of 2016: Testimony Before the Council of the District of Columbia Committee on Business, Consumer, and Regulatory Affairs

Thank you for holding this hearing and giving me the opportunity to speak with you about the Fair Shot Minimum Wage Amendment Act of 2016. This is an important and powerful piece of legislation that would improve conditions for workers, families, and businesses here in the District and throughout the regional economy.

Raising the city’s minimum wage to $15 per hour would raise wages for 114,000 working people – about 14 percent of all DC workers, and over one-fifth of DC private-sector workers (Cooper 2016). Once the minimum wage reaches $15, the average affected worker would earn roughly $2,900 more each year than she does today.

Women, African Americans, and Hispanic workers are disproportionately affected by an increase to $15 an hour. The vast majority of minimum-wage earners are not teenagers or college students working part-time jobs: 97.5 percent are at least 20 years old; nearly three-quarters (72.8 percent) work at least 35 hours per week; and more than a quarter (29.0 percent) are parents. For these workers, a raise to $15 per hour would be a significant step toward meeting the area’s high cost of living.

I’d like to discuss the importance of raising the city’s tipped minimum wage and eliminating the differential treatment of the tipped workforce – a step that eight states have already taken. These are referred to as equal treatment states.

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 (Lynn et al 2008).

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), 18.0 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 10.2 percent.

Figure A

Tipped workers’ poverty rates are lower in states where they’re paid the full minimum wage: Poverty rates of non-tipped workers, tipped workers, and waiters and bartenders, by state tipped-minimum-wage level

Nationwide Low ($2.13 tipped minimum wage)  Medium (above $2.13 and below regular minimum wage)  Equal treatment (full minimum wage)
Non-tipped workers 6.5% 7.0% 6.0% 6.8%
Tipped workers 12.8% 14.5% 12.5% 10.8%
Waiters/bartenders 14.9% 18.0% 14.4% 10.2%
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Source: Adapted from Allegretto and Cooper (2014)

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In opposition to changing this policy, you are likely to hear three major claims from some restaurant owners and even some restaurant staff. First, they will claim that having a lower tipped minimum wage is not a problem because tipped workers love the tipping system, make well above minimum wage, and restaurants must already ensure they get the regular minimum wage when tips are inadequate. Second, they will claim that tipped workers will earn less when their minimum wage is higher because customers will tip less or go out to eat less frequently if menu prices rise. And, third, they will argue that a higher tipped minimum wage will destroy the restaurant industry, with businesses and jobs disappearing. I will explain systematically how each of those claims is false.

On the first point, the data are very clear that tipped work is overwhelmingly low-wage work, even here in the District. Some tipped workers at high-end restaurants do well – that is why industry advocates may point to data showing an average hourly wage of $13.15 among waiters and waitresses in the District. But this average is skewed by those waitstaff that do exceptionally well – they are the exception, not the norm. The median hourly wage of waitstaff in the District in May 2015 (the most recent available data) was only $9.58, including tips (OES 2015). At that time, the District’s minimum wage was $9.50 per hour. In other words, the typical DC server made a mere eight cents above the minimum wage.

It is true that the law requires restaurants to ensure that tipped workers receive at least the regular minimum wage, but the reality is that this requirement is nearly impossible to enforce and violations are frequent. In investigations of over 9000 restaurants, the US Department of Labor 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 (Allegretto and Cooper 2014).

On their second point, 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 20 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 (Cooper 2016).

Looking at data specific to the District shows a clear advantage to waitstaff in equal treatment states. In California, when the minimum wage was $9.00 (compared to DC’s $9.50), waitstaff earned 16.8 percent more per hour than waitstaff in DC. In Alaska, when the minimum wage was $8.75, waitstaff earned 11.5 percent more per hour than DC waitstaff. In Washington state, when the minimum wage was $9.47 (almost exactly the same as the District’s regular minimum of $9.50), hourly earnings were 19.7 percent more than in DC (OES 2015). Fears of lower wages from equal treatment are unfounded.

Finally, the third point that treating tipped workers equally with all other workers will destroy the restaurant industry—like the others—is not borne out in the data. 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” (Schmitt 2013). Affected businesses are typically able to absorb additional labor costs through increases in productivity, reductions in turnover costs, compressing internal wage ladders, and modest price increases (Schmitt 2013). Furthermore, research specific to the tipped minimum wage also found no significant effect on employment (Allegretto and Nadler 2015).

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.

The Fair Shot Minimum Wage Amendment Act of 2016 will improve 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 (Aaronson et al 2008). I strongly urge the council to strengthen the city’s economy and lift up its lowest paid workers by increasing the minimum wage and eliminating the separate and unequal system for tipped workers.

Figure B

Growth in the number of establishments and employment by type of tipped wage, 2011–2014

Equal treatment states States with a lower tipped minimum wage
Growth in the number of establishments 6.0% 4.1%
Growth in employment 13.2% 9.1%
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Note: Equal treatment states are states that have the same minimum wage for all workers. Equal treatment states include Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon, and Washington.

Source: Quarterly Census of Employment and Wages (2011-2014)

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References

Aaronson, Daniel, Sumit Agarwal, and Eric French. 2008. “The Spending and Debt Response to Minimum Wage Hikes.” Federal Reserve Bank of Chicago.

Allegretto, Sylvia, and Carl Nadler. 2015. Tipped Wage Effects on Earnings and Employment in Full-Service Restaurants. Industrial Relations. October 2015, Vol. 54 Issue 4, p. 622-647. http://www.irle.berkeley.edu/cwed/allegretto/pubs/AllegrettoNadler.pdf

Allegretto, Sylvia, and David Cooper. 2014. Twenty-Three Years and Still Waiting for Change. Economic Policy Institute, Briefing Paper #379. http://www.epi.org/publication/waiting-for-change-tipped-minimum-wage/

Cooper, David. 2016. Raising the D.C. minimum wage to $15 by 2020 would lift wages for 114,000 working people. Economic Policy Institute. http://www.epi.org/publication/raising-the-d-c-minimum-wage

Lynn, M., Sturman, M., Ganley, C., Adams, E., Douglas, M. and McNeil, J. 2008. Consumer Racial Discrimination in Tipping: A Replication and Extension. Journal of Applied Social Psychology, 38: 1045–1060. http://onlinelibrary.wiley.com/doi/10.1111/j.1559-1816.2008.00338.x/full

Occupational Employment Statistics data. 2015. Survey conducted by the Bureau of Labor Statistics. Washington, D.C. http://www.bls.gov/oes/#data

Quarterly Census of Employment and Wages data. Various years. Survey conducted by the Bureau of Labor Statistics. Washington, D.C. http://www.bls.gov/cew/data.htm

Schmitt, John. 2013. “Why Does the Minimum Wage Have No Discernible Impact on Employment?” Center for Economic and Policy Research. http://www.cepr.net/documents/publications/min-wage-2013-02.pdf


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