Summary and key findings

In June, voters in the District of Columbia passed Initiative 77, a ballot measure that raises the District’s tipped minimum wage over eight years until it is equal to the District’s regular minimum wage in 2026. In doing so, District voters opted to follow the lead of eight “one-fair-wage” states where tipped workers are treated no differently than other workers and receive the same minimum wage as a base wage, regardless of tips.1 The city of Flagstaff, Arizona, also recently voted to gradually raise its lower tipped minimum wage until it reaches the level of the regular minimum wage.

Although Initiative 77 passed with 56 percent of the vote, D.C. mayor Muriel Bowser and members of the D.C. Council have publicly stated that they intend to overrule the will of the voters and repeal Initiative 77 (Jamison 2018; D.C. Board of Elections 2018). They claim that letting the initiative take effect would unduly harm the restaurant industry in D.C., leading to layoffs and closures. Opponents of the measure—led by the National Restaurant Association and the Restaurant Association of Metropolitan Washington—have also claimed that raising the base wage for tipped workers would ultimately do more harm than good, on the premises that some tipped workers will lose their jobs, restaurant patrons will tip less, and many businesses will move to a no-tipping model.

There is no evidence to support these opponents’ claims. In fact, the evidence overwhelmingly indicates that in one-fair-wage cities and states—where tipped workers are paid the regular minimum wage regardless of tips—tipped workers receive higher take-home pay, customers still tip, and restaurants big and small are operating successfully, just as they do in the District of Columbia.

This report analyzes the tipped workforce and restaurant industry in Washington, D.C., and compares findings for D.C. with two prominent one-fair-wage cities that, like D.C., have enacted $15 minimum wages: San Francisco and Seattle. Tipped workers in San Francisco receive the regular minimum wage as a base wage, regardless of any tips. Tipped workers at large employers in Seattle also receive the regular minimum wage as a base wage regardless of tips, and tipped workers at small employers in Seattle must be paid a base wage no less than $1.00 below than the regular minimum wage. That means tipped workers in both cities were paid much higher minimum wages than D.C. tipped workers during the period of our analysis (even though the $15 minimum wage had not yet been fully phased in in either city during the study period).

Tipped workers include restaurant servers and bartenders but also barbers, hairstylists, and other workers in occupations that customarily receive tips. (Appendix Table A1 provides the list of tipped workers included in this analysis.) Among the key metrics examined are wages, poverty rates, and tipped workers’ earnings as a share of nontipped workers’ earnings; these provide a measure of the relative welfare of tipped workers in each city.

Key findings for the District of Columbia include:

• Tipped workers in the District of Columbia are disproportionately people of color (who account for 70 percent of the tipped workforce, but only 55 percent of the overall workforce).
• The majority of tipped workers (65 percent) work full time, and tipped workers are more likely than workers overall to be District residents (24 percent versus 19 percent).
• The median wage of tipped workers in D.C. is $14.41 per hour, inclusive of tips, which is 44 percent of the median hourly wage of nontipped workers in D.C. And because tipped workers get fewer hours on average, median tipped workers in D.C. annually earn only 34 percent of the median annual earnings of nontipped workers.
• There are significant pay disparities within the tipped workforce. Black tipped workers are paid 23 percent less per hour (in wages and tips) than white tipped workers. Women tipped workers are paid 8 percent less per hour, and 20 percent less annually, in wages and tips than men tipped workers. Women tipped workers tend to work fewer hours per week than men, for reasons that are likely involuntary for some.
• The poverty rate of tipped workers in D.C. is 13.7 percent—more than three times the poverty rate of nontipped workers (4.5 percent). Black tipped workers have a poverty rate of 18.5 percent.

Key findings comparing D.C. with one-fair-wage cities Seattle and San Francisco:

• Servers and bartenders, and tipped workers more broadly, earn more per hour (including both base wages and tips) in one-fair-wage cities than they do in the District of Columbia. Servers and bartenders in San Francisco earn 21 percent more per hour than their counterparts in D.C. Servers and bartenders in Seattle earn 7 percent more per hour than their counterparts in D.C.2
• There is less inequality between tipped and nontipped workers in one-fair-wage cities than in the District of Columbia. Tipped workers in Seattle and San Francisco have median annual wage earnings (including tips) that are 45 percent and 42 percent, respectively, of the median for nontipped workers. In D.C., tipped workers’ annual wage and tip earnings are only 34 percent of nontipped workers’ earnings.
• Tipped workers in Seattle and San Francisco are roughly twice as likely as nontipped workers to be in poverty; in the District of Columbia, tipped workers are three times as likely as nontipped workers to be in poverty.
• Tipped workers make up a larger share of the overall workforce (including public, private, and nonprofit sectors) in both San Francisco and Seattle than they do in the District of Columbia. Tipped workers in the District make up the same share of the private-sector workforce as tipped workers in San Francisco and an only slightly greater share (by 0.9 percentage points) than the tipped workers’ share of the private-sector workforce in Seattle. Paying tipped workers the regular minimum wage does not appear to have reduced the prevalence of tipped work in these two one-fair-wage cities.
• Restaurants in the District of Columbia are less likely to be “small businesses” than restaurants in Seattle and San Francisco. This holds true for both restaurants with fewer than 50 employees and restaurants with fewer than 20 employees.

The next section provides background on the tipped minimum wage and Initiative 77. The subsequent section describes D.C.’s tipped workforce, noting important racial and gender disparities among tipped workers. The section after that compares wages, incomes, and poverty rates of tipped workers in D.C. with those of tipped workers in Seattle and San Francisco. The final section compares the restaurant industry in D.C. with the restaurant industries in Seattle and San Francisco.

Unless otherwise noted, the analyses in this report are based on American Community Survey (ACS) microdata. All hourly wage and annual wage income values are inflated to 2017 dollars. The various workforces described are workers whose place of work is within the specified jurisdiction, regardless of where they live, e.g., D.C. tipped workers are workers whose place of work is in the District of Columbia, though they may live in Maryland or Virginia. For data related to race and ethnicity, “white” workers refers to non-Hispanic white workers, “black” workers refers to non-Hispanic black workers, and “Hispanic” workers include individuals of any race who identify as Hispanic in the Hispanic ethnicity question.

Background

Under existing law in the District of Columbia—and in much of the rest of the country—there is a regular minimum wage and a separate “tipped minimum wage” that applies to workers who customarily receive tips. As Allegretto and Cooper (2014) explain in detail, in these areas tipped workers can be paid an hourly rate as low as $2.13 per hour, provided the tips they receive over the course of a week raise their effective hourly wage rate (combining both base pay and tips) to at least the regular minimum wage ($2.13 is the federal tipped minimum wage, applicable in jurisdictions that have not enacted higher subminimum wages). If a worker’s tips are inadequate, employers are supposed to “top off” their pay—that is, employers are supposed to raise the worker’s base wage for that week just enough to bring their total earnings up to a regular minimum wage income.

In D.C. the regular minimum wage is currently $13.25 per hour, having attained that rate in July 2018 under a schedule of gradual increases established by a 2016 D.C. Council ordinance that raises the regular minimum wage in the District to $15.00 an hour by July 1, 2020. The legislation, which adjusts the regular minimum wage for inflation after 2020, also increases the tipped minimum wage to $5.00 an hour by 2020. In July, the tipped minimum wage increased from $3.33 per hour to $3.89 per hour.

Thus, as of July 1, 2018, employers in the District of Columbia may pay any worker who regularly and customarily receives tips a base wage as low as $3.89 per hour, provided that worker’s weekly tips are sufficient to bring their total earnings (base wage plus tips) up to at least $13.25 per hour.3 In other words, as long as tipped workers are receiving at least $9.36 per hour in tips ($13.25 minus $3.89), the wage they receive from their employer need only be $3.89 per hour.

Under this system, if employers are fully complying with the law, tipped occupations guarantee only a minimum wage income—pay above and beyond the minimum wage is entirely at the discretion of customers. In fact, even when generous customers want to reward good service by leaving a good tip, that goodwill can be effectively negated later in the workweek by stingier patrons, bad weather, slow business, patrons displeased by a kitchen mix-up affecting their order, or a manager with a grudge who assigns a worker only small parties—anything that results in periods in which the tipped worker is not receiving similarly strong tips.

For example, consider a server who is paid the tipped minimum wage and works a Monday night for six hours, during which time she receives $100 in tips. If she stops working for the week, she’s made a pretax income of $123.34 ($3.89 times 6, plus $100) or an hourly wage of $20.56 per hour. It’s worth noting that of the $100 she received in tips, $56 essentially went to her employer. How? Under existing law, her employer must ensure that she receives $13.25 per hour through base wages and tips. Thus, for six hours of work, she is guaranteed $79.50; however, the law allows her employer to reduce her base wage dollar-for-dollar out of tips up to $9.36 per hour—meaning that the first $56.16 (6 times $9.36) in tips that she receives during that six-hour shift effectively goes straight to her employer. It is money the employer would have had to pay as base wages, had the server not received any tips.

Now, consider what happens if that same server works two more six-hour shifts that week, but the weather is bad, business is slow, and she only receives another $70 in tips over those two shifts. She has now worked 18 hours and received $170 in tips. Even though she has now worked three times as many hours, her employer need only pay her $3.89 per hour for those additional 12 hours, reducing her hourly take-home pay to $13.33 per hour, before taxes—just above the District’s minimum wage.

Cooper (2017) explains that this unusual system—no other country worldwide employs a similar system for service industries—creates a host of problems for tipped workers. It means their weekly and monthly incomes are unstable, making it difficult to budget. Tipped workers’ incomes are subject to racial and gender biases, and research has shown that restaurant customers are often discriminatory in how they tip (Lynn et al. 2008). Because the bulk of a restaurant worker’s pay is at the customer’s discretion, restaurant worker advocates assert that pressure to ensure customer satisfaction forces restaurant workers to tolerate high rates of sexual harassment (Casteel 2018). Workers in other tipped occupations face similar pressure to please the customer at all costs, lest their earnings take a hit.

Although employers are legally supposed to ensure that the tipped workers they employ receive at least the full minimum wage for all hours worked each week, there is considerable evidence that employers often do not meet this obligation. For example, studies have shown that workers in the food and drink service industry experience wage theft at significantly higher rates than workers in other industries (see Cooper and Kroeger 2017 or Bernhardt et al. 2009). In fact, in August 2018 one of the largest restaurant groups in the District of Columbia settled a $1.5 million lawsuit with nearly 1,000 employees for failing to “top off” tipped workers’ wages and for not providing sick leave (Steingart 2018).

Proponents of the tipping system claim that tips ensure good service, yet Lynn (2001) shows that quality of service often has little relationship to tip amounts. Check size is the only consistent determinant of tip amounts. This may encourage tipped workers to attempt to inflate customers’ bills, but it also encourages tipped workers to vie with each other for the busiest shifts, the largest service sections, and the biggest parties—all factors that are at the discretion of supervisors. In this type of environment, it is not realistic to expect that workers will be able to police their employers to ensure proper compensation. If a worker demands that her paycheck be “topped off” because of insufficient tips, there is nothing to stop her employer from subsequently giving her fewer shifts, smaller parties, or simply firing her.

In June 2018, voters in the District of Columbia passed Initiative 77, a ballot measure that gradually raises D.C.’s tipped minimum wage over eight years until it is equal to the regular minimum wage in 2026. At that time, tipped workers in D.C. will be paid the full regular minimum wage for every hour they work, regardless of any tip income. This is how tipped workers are currently paid in eight states: Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon, and Washington State.4 The city of Flagstaff, Arizona, also recently voted to gradually raise its lower tipped minimum wage until it reaches the level of the regular minimum wage. As Cooper (2017) shows, tipped workers in these states—sometimes called “equal treatment” or “one-fair-wage” jurisdictions—have higher typical (median) take-home pay and lower poverty rates than tipped workers in states that have a separate lower tipped minimum wage. Moreover, these one-fair-wage states continue to have vibrant restaurant industries, including in cities that have enacted high local minimum wages, such as San Francisco and Seattle.

Since the ballot measure’s passage, D.C. mayor Muriel Bowser and several members of the D.C. Council have indicated that they do not support the measure and may act to repeal the initiative. As the following sections in this report show, repealing the initiative would be a loss for some of the most vulnerable workers in the city, particularly women, single mothers, and black workers.

Who are D.C.’s tipped workers?

There are approximately 16,100 tipped workers in the District of Columbia—equaling 2.0 percent of the overall D.C. workforce, as shown in Table 1. Roughly two-thirds (10,500) of these workers are waiters, waitresses, and bartenders—hereafter referred to collectively as “servers and bartenders.” Because they make up the lion’s share of the tipped workforce, servers and bartenders dominate discussions of tipped minimum wage policy. However, workers in other tipped occupations may also be paid base wages below the regular minimum wage. In the District, there are 5,600 workers in other traditionally tipped occupations, such as nail salon workers, hairstylists, bussers, and barbacks. (Appendix Table A1 lists the occupations considered “tipped workers” in this report and shows the share of D.C.’s tipped workforce in each occupation.)

Appendix Table A2 presents demographic characteristics of the District of Columbia’s overall workforce, the nontipped workforce, the tipped workforce, and servers and bartenders. As the table shows, men and women are equally represented among the District’s tipped workers. This is somewhat surprising since nationally, tipped workers are far more likely to be women: two-thirds of U.S. tipped workers are women and nearly 70 percent of U.S. servers and bartenders are women (Allegretto and Cooper 2014).5 The fact that D.C.’s tipped workforce has such an atypically large proportion of men may reflect particular characteristics of the city’s restaurant industry, such as its high concentration of fine dining or generally higher-end restaurants; however, this report does not contain data that can verify this theory.

As shown in Figure A, tipped workers are disproportionately people of color. Roughly 45 percent of the D.C. workforce is white, yet only 30 percent of D.C.’s tipped workers are white. Hispanic workers make up only 12 percent of the overall D.C. workforce, yet they constitute over a quarter of all tipped workers. Black workers make up 27 percent of tipped workers—slightly larger than the share of Hispanic workers among tipped workers, yet a smaller share than black workers’ 33 percent share of the overall workforce. Workers who are Asian or identify as some other race or ethnicity make up 17 percent of tipped workers despite being only 10 percent of the overall D.C. workforce.

Tipped work, particularly in restaurants, is commonly thought to be part-time work, e.g., jobs held by college students while they’re in school or secondary jobs for people wanting to supplement their income. It is true that nationally a minority of tipped workers (46.5 percent) maintain a full-time schedule (Allegretto and Cooper 2014). But in the District of Columbia, most tipped workers work full time. As shown in Figure B, 65 percent of D.C. tipped workers work full time. Another 30 percent work at least 20 hours per week.

Notably, tipped workers in the District of Columbia are more likely than D.C. workers overall to be residents of D.C. Figure C shows that nearly a quarter of tipped workers who work in the District also live in the District, compared with only 19 percent of the overall workforce. In other words, the tipped minimum wage is a policy that disproportionately affects D.C. residents.

Appendix Table A2 also shows a number of other ways that D.C.’s tipped workforce differs from the overall D.C. workforce. For example, tipped workers in D.C. tend to be younger than the overall D.C. workforce. However, the overwhelming majority of D.C.’s tipped workers (79 percent) and servers and bartenders (73 percent) are age 25 or older. And the District’s tipped workers are older than tipped workers nationally, 62 percent of whom are 25 or older (Allegretto and Cooper 2014). The data also show that while D.C.’s tipped workers typically have less formal education than the overall D.C. workforce, a majority have at least some college experience. One in four D.C. tipped workers has completed a bachelor’s degree or more education.

Largely consistent with tipped workers nationally (Allegretto and Cooper 2014, Table 2), more than a quarter (28 percent) of D.C. tipped workers have children. And 10 percent of D.C. tipped workers are single parents, a slightly higher percentage than in the overall D.C. workforce.

How do wages, incomes, and poverty rates of tipped workers compare with those of nontipped workers?

Tipped work is overwhelmingly low-wage work, even including income from tips. (The hourly and annual wage income values throughout this report all include base wages and tips.) As shown in Figure D, the median hourly wage of tipped workers in D.C.—as reported in the American Community Survey (ACS)—is $14.41, inclusive of tips. The median hourly wage of servers and bartenders is $14.24.6 In contrast, the median hourly wage of nontipped workers in D.C. is $32.45—meaning that the typical tipped worker is paid roughly 44 percent of what the typical nontipped worker is receiving.

Earnings gaps between tipped and nontipped workers are even more pronounced when considering annual wage income (base wages and tips). As shown in Appendix Table A3, nontipped workers in the District have median annual wage income of $69,462. The median annual wage income of tipped workers in the District is $23,798 (34 percent of the median annual wage of D.C. nontipped workers) and the median annual wage income of servers and bartenders is $22,763 (33 percent of the median annual wage of D.C. nontipped workers).

The annual earnings gap for tipped workers relative to nontipped workers is larger than the hourly earnings gap because tipped workers work fewer total hours throughout the year. In many cases, this may not be voluntary. As previously discussed, the tipping system encourages tipped workers to compete for access to the most lucrative shifts, and there is nothing to prevent managers from giving preference in scheduling to some workers over others. Work hours in many tipped occupations are irregular, often responding unpredictably to changes in customer traffic. And most tipped workers do not have paid time off, so any time dedicated to vacation, visiting family, or any other nonwork activity often comes at the expense of paid work hours. As shown in Allegretto and Cooper 2014, less than half (45 percent) of all workers in accommodation and food service industries nationally have paid vacations, and only 36 percent receive paid holidays. These percentages likely greatly overstate the percentage of tipped workers who receive paid time off because they include managers and supervisors in accommodation and food services, who are not tipped workers. The District of Columbia only began requiring hospitality industry employers to provide paid sick leave in 2016, and compliance remains problematic (see Steingart 2018).

As a result of their low hourly wages and low annual earnings, tipped workers experience poverty at far greater rates than nontipped workers. As shown in Figure E, tipped workers in the District of Columbia have a poverty rate of 13.7 percent—more than three times the 4.5 percent poverty rate of nontipped workers in D.C. Servers and bartenders in D.C. have a poverty rate of 13.9 percent. Even when compared with workers in other low-wage industries, tipped workers are still more likely to be in poverty. The same ACS data used throughout this report shows that retail workers in the District of Columbia have a poverty rate of 11.0 percent—still high, but 2.7 percentage points lower than that of D.C. tipped workers.

The data in Appendix Table A2 further show that a large proportion of tipped workers are either in poverty or remain close to it. Nearly one-third (31 percent) of all tipped workers have total family incomes within 200 percent of the poverty line (14 percent are in poverty and 18 percent are just above the poverty line). In comparison, only 11 percent of nontipped workers have total family incomes within 200 percent of the poverty line. About 70 percent of tipped workers in D.C. have incomes within 400 percent of the poverty line—that means that about seven in 10 D.C. tipped workers qualify for either Medicaid or subsidized health insurance on the healthcare exchanges.7 For comparison, only 28 percent of nontipped D.C. workers would similarly qualify for healthcare assistance.

There is significant inequality within the D.C. tipped workforce

Although low hourly wages, low annual incomes, and high poverty rates are common features among tipped workers generally, there are significant disparities in job quality and economic outcomes within the tipped workforce.

Disparities by gender

Figure F shows that tipped men workers in D.C. are paid significantly more than tipped women workers, both on an hourly and annual basis. The top panel of Figure F shows that the median hourly wage (including tips) of tipped men in D.C. is $14.49 per hour, compared with a wage of $13.39 per hour for women in D.C.—an 8 percent gap. On an annual basis, the difference is even starker: the median annual wage income of tipped men in D.C. is $26,350, while tipped women in D.C. have a median annual wage of only $21,080—more than $5,000 (or 20 percent) less per year. All data on hourly wages, annual wage income, poverty rates, and average weekly work hours, by gender, race/ethnicity, and family status, are presented in Appendix Table A4.

As with the differences in annual income between tipped and nontipped workers, some of the earnings gap between tipped men and tipped women workers is a function of hours. As shown in Figure G, tipped men in D.C., on average, work 3.4 more hours per week than tipped women. However, as with tipped workers overall, some tipped women workers in D.C. are likely working fewer hours not by choice. Women are more likely than men to be caregivers and thus may face greater constraints on their available work hours. Women may also face discrimination in requesting schedules. Because income for tipped workers is so dependent upon optimizing one’s schedule to maximize potential tips, tipped workers often must negotiate their work schedule in the same way that other workers negotiate pay. As Gould, Schieder, and Geier (2016) note in the context of salary negotiation, “men and women face different social incentives for negotiation, and there is evidence that women are more likely to be penalized when they negotiate.” It stands to reason that women face similar disadvantages in schedule negotiation as they do in salary negotiation.

As a consequence of their lower hourly pay, fewer weekly hours, lower annual income, and greater likelihood of having children under their care, tipped women workers in D.C. have significantly higher poverty rates than tipped men workers.8 Figure H shows that tipped women workers in D.C. have a poverty rate of 15.7 percent—nearly 4 percentage points higher than the poverty rate of tipped men workers in the District.

Disparities by race and ethnicity

Just as there are significant earnings disparities among D.C. tipped workers by gender, there are also large gaps in hourly wages and annual wage incomes by race and ethnicity. As in earlier analyses, hourly wage and annual wage incomes include wages and tips.

The top panel of Figure I shows that non-Hispanic white tipped workers are paid hourly wages that are noticeably higher than those for tipped workers of color. With an hourly wage of $16.40, the median white tipped worker earns $3.72 (or 29 percent) more per hour than the median black tipped worker, who receives only $12.68 per hour.9 The median hourly wage for Hispanic workers is $13.46—that’s 6 percent higher than the median for black tipped workers, but still 18 percent less than that of white tipped workers. Tipped workers who identify as Asian or of some other race or ethnicity have a median hourly wage of $15.22.

The bottom panel of Figure I shows that these disparities remain—with some relative changes—when considering annual wage income. White tipped workers have a median annual wage income of $27,810—more than $6,400 (or 30 percent) higher than the $21,393 median annual wage income of black tipped workers. The median annual wage income of Hispanic tipped workers is $24,832—11 percent less than that of white tipped workers—and the median annual wage income of tipped workers who are Asian or some other race or ethnicity is $22,763—18 percent less than that of white tipped workers.

Poverty rates for tipped workers vary noticeably by race and ethnicity, with some perhaps unexpected differences. As shown in Figure J, black tipped workers in D.C. have the highest poverty rate of any group at 18.5 percent—nearly one in five of these workers are in poverty. In contrast, Hispanic workers have the lowest poverty rate among D.C.’s tipped workforce, at 8.6 percent. The poverty rate for white tipped workers is 12.1 percent, and for tipped workers who are Asian or some other race or ethnicity, 16.7 percent.

Tipped workers are better off in one-fair-wage jurisdictions where they receive the regular minimum wage before tips

As noted earlier, one-fair-wage jurisdictions are those that have eliminated the subminimum wage for tipped workers, requiring that tipped workers be paid the full regular minimum wage for every hour they work, regardless of any tip income. Cooper (2017) compares wages and poverty rates of tipped workers in one-fair-wage states with wages and poverty rates of tipped workers in states that use the federal $2.13 per hour tipped minimum wage as well as in states that have a tipped minimum wage higher than $2.13 per hour, but still below the regular minimum wage. The report shows that tipped workers in one-fair-wage states receive significantly higher hourly wages and have lower poverty rates than tipped workers in states with lower tipped minimum wages. For example, restaurant servers in one-fair-wage states have median hourly wages that are 20 percent higher, and poverty rates that are 7.4 percentage points lower, than tipped workers in states that use the federal $2.13 per hour tipped minimum wage (Cooper 2017, Table 1 and Figure A).

Still, skeptics of the District of Columbia’s Initiative 77 question whether the city’s tipped workers will be better off if D.C.’s tipped minimum wage is gradually raised and then eliminated in favor of a single minimum wage, given that the city’s regular minimum wage—currently $13.25 and scheduled to rise to $15.00—is relatively high compared with minimum wages in much of the rest of the country. City-level data presented here strongly indicate that the answer is yes: Tipped workers are unambiguously better off in cities that have eliminated their lower tipped minimum wages, even when those cities have a relatively high regular minimum wage.

The first two major cities in the United States to adopt a $15 per hour regular minimum wage were Seattle and San Francisco.10 These cities’ minimum wage hikes came on the heels of prior increases—both city and state—that had put their minimum wages well above the federal minimum wage of $7.25 an hour. Notably for our analyses below, both Washington State and California are one-fair-wage states—meaning that tipped workers are treated no differently than nontipped workers. Tipped workers there receive the regular minimum wage as a base wage, regardless of any tips.11 Thus, while the $15 tipped minimum wage had not yet been fully phased in for workers in either city during the years of our pooled data (2012–2016), both cities effectively already had tipped minimum wages ranging from just over $9.00 to well over $13.00 an hour in the years of the study period—far higher than the federal tipped minimum wage of $2.13 per hour and the $2.77 tipped minimum wage in the District of Columbia in 2014.12

As shown in Figure K, the median wages (base wages and tips) of tipped workers in Seattle and San Francisco are $15.12 and $15.50 per hour, respectively, 4.9 percent and 7.5 percent higher than the median wage of tipped workers in the District of Columbia.13 Restaurant servers in Seattle and San Francisco do even better than the overall tipped workforce relative to their peers in D.C. In Seattle, the median restaurant server earns $15.22 per hour, 6.9 percent more than in the District of Columbia. In San Francisco, the median restaurant server earns $17.16 per hour, 20.5 percent more than the median server in D.C. Appendix Table A5 presents additional wage data on restaurant servers from the Occupational Employment Statistics (OES) that are largely consistent with these ACS-based findings. According to the OES data, the median wage of waiters and waitresses is 21 percent higher in the San Francisco-Redwood City-South San Francisco metro division than it is in D.C. In the Seattle-Bellevue-Everett metro division, the median wage of waiters and waitresses is 16 percent higher than in D.C. The wage gaps between servers and nontipped workers reported in the OES data are also similar to what we find in the ACS, with larger gaps in D.C. than in the Seattle and San Francisco regions.

Tipped workers in Seattle and San Francisco also have annual earnings closer to the annual earnings of their city’s nontipped workers. Figure L shows that in Seattle, the median annual wage income (base wages and tips) of tipped workers is 45 percent of the median annual wage of nontipped workers; in San Francisco, tipped worker median annual earnings are 42 percent of nontipped worker median annual earnings. In other words, in these one-fair-wage cities, tipped workers typically make a little less than half of what the typical nontipped worker earns in a year. In contrast, tipped workers in D.C. typically only make about a third of what nontipped workers are paid: the median annual earnings of tipped workers in D.C. is only 34 percent of the median annual earnings of nontipped workers.

Appendix Table A6 shows tipped and nontipped workers earnings in 2017 dollars in all three cities, as well as earnings of servers and bartenders and the overall workforce. D.C. has the highest median annual wage income for nontipped workers, at $69,462, yet tipped workers in the District have a median annual wage of only $23,798.

In San Francisco, the nontipped median annual wage is $60,269—13 percent lower than in D.C.—while San Francisco tipped workers’ median annual wage of $25,538 is 7 percent higher than in D.C.

In Seattle, the median annual wage for tipped workers is $22,763—4 percent less than the tipped worker median annual wage in D.C. However, the median annual wage of nontipped workers in Seattle is only $50,593—27 percent less than in D.C. In other words, tipped workers in Seattle have annual wages comparable to tipped workers in D.C. despite the fact that wages in Seattle overall are significantly lower than in the District of Columbia.

Again, consistent with Cooper’s (2017) state-level findings, poverty is less concentrated among tipped workers in cities that have eliminated their separate tipped minimum wage. As shown in Figure M, poverty rates of tipped workers in both Seattle and San Francisco are roughly twice the poverty rates of nontipped workers. Because tipped workers typically have lower incomes than nontipped workers, even in one-fair-wage cities, tipped workers’ high relative poverty rates in these cities are not surprising. However, they stand in stark contrast to the relative poverty rates of tipped workers in the District of Columbia, who experience poverty at three times the rate of the nontipped workforce. The data in Appendix Table A6 show that poverty rates of tipped workers across the three cities are similar, but poverty rates overall and among nontipped workers are moderately higher in both San Francisco and Seattle than in D.C. Whatever other factors are contributing to these cities’ higher prevalence of poverty, the strong base wage for tipped workers seems to moderate how these factors impact the tipped workforce.

How does D.C.’s restaurant industry compare with Seattle’s and San Francisco’s?

Opponents of Initiative 77 have claimed that raising and gradually eliminating the lower minimum wage for tipped workers will badly damage the District of Columbia’s booming restaurant industry, leading to closures, layoffs, and worse economic outcomes for the workers the policy is intended to help. Many of these claims are similar, if not identical, to claims routinely made by business groups in response to proposals to increase regular minimum wages (see National Employment Law Project 2013). As explained by Cooper, Mishel, and Zipperer (2018) and Schmitt (2013), over the past several decades, research on the effect of higher minimum wages has grown ever more conclusive that moderate increases in minimum wages largely have their intended effect: raising wages for low-wage workers with little to no impact on employment levels.

Indeed, these findings were recently confirmed by Allegretto et al. (2018), who analyzed the impact of city minimum wages of $10 or higher on workers in food service industries in Chicago, Oakland, San Francisco, San Jose, Seattle, and Washington, D.C. The authors state that they “cannot detect significant negative employment effects. Our models estimate employment effects of a 10 percent increase in the minimum wage that range from a 0.3 percent decrease to a 1.1 percent increase, on average.”

In the one study that has looked specifically at changes in the tipped minimum wage, Allegretto and Nadler (2015) analyzed the impacts of higher tipped minimum wages on workers in the restaurant industry over 20 years of data and arrived at the same conclusion: higher tipped minimum wages were associated with higher industry wages, and little, if any, change in employment levels.

Data presented here on the full-service restaurant industries in Seattle and San Francisco show that the restaurant industries in these cities are still successful. In fact, the restaurant industry—particularly small restaurants—is an even bigger part of the local economy in those cities than it is in the District of Columbia. Both Seattle and San Francisco have higher concentrations of tipped workers and boutique restaurants than the District of Columbia. As noted earlier, because of state and local legislation, both Seattle and San Francisco have had tipped minimum wages far higher than the District of Columbia for decades.

Table 2 shows employment counts and shares of tipped workers and servers and bartenders in the District of Columbia, San Francisco, and King County, Washington (the county that includes Seattle). As previously noted, the roughly 16,000 tipped workers in D.C. represent 2 percent of the overall District workforce. San Francisco has roughly 21,000 tipped workers (about 30 percent more than D.C.) in a total workforce of only about 687,000 (15 percent less than D.C.). San Francisco’s tipped workers constitute 3 percent of the city’s overall workforce. The roughly 30,000 tipped workers in King County account for 2.4 percent of the county’s total workforce. Similarly, in San Francisco and King County, servers and bartenders make up larger shares of the total workforce than they do in the District of Columbia.

Of course, as the seat of the federal government, D.C. has a much larger concentration of government and nonprofit workers than both San Francisco and King County. Table 2 also shows employment counts and shares for tipped workers and servers and bartenders in the private sector and the broader nongovernment sector, which includes both private, for-profit businesses and nonprofit entities (tipped occupations can exist in all three sectors).14 The data show that when only considering the nongovernment sectors, there is still a slightly higher concentration of tipped workers in San Francisco (3.4 percent) than in D.C. (2.9 percent). King County’s tipped worker share of the nongovernment workforce (2.7 percent) is nearly the same as D.C.’s. Among just servers and bartenders in the nongovernment sector, San Francisco has a slightly higher concentration (2.1 percent) than D.C. (1.9 percent). King County has a slightly lower concentration (1.6 percent) of servers and bartenders, though this difference may simply be because King County encompasses both the city of Seattle and parts of the surrounding suburbs.

Looking only at workers in the private, for-profit sector, tipped workers make up the same shares of the private-sector workforce in both D.C. and San Francisco, at 3.9 percent. The tipped worker share of total private-sector employment in King County is lower, at 3.0 percent—again, some of this may be because King County encompasses a broader area than just the city of Seattle. Servers and bartenders make up nearly equivalent shares of the private sector in San Francisco and the District of Columbia, at 2.6 percent and 2.8 percent, respectively. In King County, servers and bartenders account for 1.9 percent of private-sector employment—lower than their shares in D.C. and San Francisco, again likely due at least in part to the differences in the geographic units being compared.

The upshot of these data is that in two cities where tipped workers are paid the regular minimum wage, tipped workers make up a larger share of the overall workforce than in D.C., where tipped workers make a subminimum wage. Tipped workers make up similar, if not equal, shares of the nongovernment and private-sector workforces in San Francisco as well. The concentration of tipped occupations in King County is lower than it is in D.C., although this may be largely because King County encompasses a broader geographic area than just the city of Seattle, where there are likely higher concentrations of restaurants and other employers of tipped workers.

The District of Columbia has experienced a boom in its restaurant industry in recent years. Table 3 presents data on full-service restaurant establishments, employment, and wages for the District of Columbia, San Francisco, and the Seattle-Tacoma-Bellevue metropolitan statistical area (henceforth the “Seattle MSA”) from the Quarterly Census of Employment and Wages (QCEW).15

The data show that D.C. has experienced strong growth in the number of full-service restaurant establishments and in restaurant employment since 2010, with the number of establishments increasing by an average of 3.9 percent per year from 2010 to 2017, and restaurant employment growing by 6.4 percent per year from 2010 to 2017—faster, in both cases, than restaurant establishment and employment growth in San Francisco and in the Seattle MSA. It is worth noting, however, that over the past four years, as all three cities have begun to phase in raises to their minimum wages, the growth rates in D.C., San Francisco, and the Seattle MSA have started to converge (with one exception). From 2013 to 2017, growth in the number of restaurant establishments in the Seattle MSA averaged 3.8 percent, compared with 4.0 percent in D.C. (San Francisco’s 0.8 percent growth rate in this measure is the outlier.) Similarly, restaurant employment in the Seattle MSA grew by 3.5 percent and San Francisco restaurant employment grew by 3.2 percent—in both cases slower than D.C.’s 4.0 percent, but not dramatically so.

However, from 2013 to 2017, average weekly wages (base wages and tips) grew much faster in Seattle and San Francisco restaurants than they did in D.C., rising by 5.3 percent in the Seattle MSA and by 6.0 percent in San Francisco, compared with 3.0 percent growth in D.C.

D.C.’s restaurant scene has a lower concentration of “small business” restaurants than other cities

Finally, it is important to recognize that D.C.’s restaurant boom has not been entirely an emergence of small, locally owned, boutique restaurants. In fact, the share of the District’s restaurant industry made up of “small businesses” has actually shrunk since 2010 (and this is true for both businesses with fewer than 20 employees, and for businesses with fewer than 50 employees). Appendix Table A7 shows that the share of District restaurants with fewer than 50 employees fell by 2.4 percentage points from 2010 to 2016, the most recent year for which relevant data are available. As the table shows, this is a larger reduction in the small-business share of the industry than occurred in both San Francisco (down 2.2 percentage points) and King County, Washington (down 1.2 percentage points). The share of restaurants in D.C. that have fewer than 20 employees fell by 5.9 percentage points from 2010 to 2016.

As of 2016, the most recent year of available data, the share of restaurants in the District of Columbia that were “small businesses” was much smaller than in one-fair-wage cities San Francisco and Seattle. Figure N shows that in King County, Washington (where Seattle is located), 66.2 percent of all restaurants have fewer than 20 employees, and 91.0 percent have fewer than 50 employees. Similarly, in San Francisco, 70.5 percent of all restaurants have fewer than 20 employees and 90.0 percent have fewer than 50 employees. In contrast, restaurants in the District of Columbia are much more likely to be large employers: less than half (48.7 percent) have fewer than 20 employees, and only 78.3 percent have fewer than 50 employees. This is low compared with San Francisco, Seattle, and the U.S. as a whole—nationally, 63.2 percent and 87.2 percent of restaurants have fewer than 20 and 50 employees, respectively. (Though not in the scope of this report, the District of Columbia is an outlier compared with other major cities as well, including New York, Boston, and Portland, Oregon.)16

Why restaurants in the District of Columbia tend to be larger than restaurants in other major cities is not obvious. Whatever the reason, the notion that the restaurant industry in the District of Columbia is unique for its prevalence of small businesses is false. Many cities—including those where tipped workers are paid the regular minimum wage as a base wage—have a larger proportion of small-business restaurants than D.C. does.

Conclusion

When voters in the District of Columbia elected, by a 12-point margin, to gradually raise and eliminate the lower minimum wage for tipped workers, they were opting for a policy change that has been law for decades in seven states, and that has unambiguously improved economic outcomes for tipped workers there.17 Contrary to false rhetoric from Initiative 77 opponents, the data show that tipped workers have higher hourly pay (including both base wages and tips) in cities and states where they are paid the regular minimum wage as a base wage. This holds true in the two major cities—Seattle and San Francisco—that were first to adopt $15 minimum wages. In these cities, there is little evidence that the one-fair-wage policy is hurting tipped workers. In fact, tipped workers make up larger shares of the overall workforce in those cities than they do in the District of Columbia, and they make up similar shares of the private-sector workforces. The restaurant industries in those one-fair-wage cities continue to grow.

If the District of Columbia’s city council members choose to overturn the will of the voters and undo Initiative 77, they will be doing a disservice to a segment of the city’s workforce that is disproportionately low-income, workers of color, and living within city limits. The facts show little justification for such a choice.

Endnotes

1. The states that have adopted one-fair-wage laws are Alaska, California, Hawaii, Minnesota, Montana, Nevada, Oregon, and Washington. In Hawaii, tipped workers may be paid a base wage $1.00 less than the regular minimum wage, but only if their combined base wage plus tips is at least $7.00 more per hour than the regular minimum wage.

2. In both Seattle and San Francisco, wages of the overall workforce and of nontipped workers are lower than wages for those groups in D.C. This strongly suggests that it is these cities’ adoption of a one-fair-wage policy that is leading to higher wages for tipped workers there.

3. Initiative 77, which passed in June 2018, would set the current tipped minimum wage at $4.50 (see One Fair Wage DC 2018). However, the initiative has not yet taken effect, and the tipped minimum wage under existing city ordinance still applies. Under current law, the District’s tipped minimum wage is scheduled to rise to $4.45 on July 1, 2019, and to $5.00 on July 1, 2020.

4. In Hawaii, tipped workers may be paid a base wage $1.00 less than the regular minimum wage, but only if their combined base wage plus tips is at least $7.00 more per hour than the regular minimum wage.

5. National shares from Cooper and Allegretto were calculated from pooled 2011–2013 Current Population Survey Outgoing Rotation Group microdata; D.C. shares in this report are calculated from pooled 2012–2016 American Community Survey microdata.

6. The ACS hourly wage data used in this report may even overstate true hourly earnings for tipped workers. According to the May 2017 Occupational Employment Statistics, the median hourly wage of waiters and waitresses in the District of Columbia was $11.86.

7. Income in the income-to-poverty calculations reflect total family income from all sources, not just wage and tip income.

8. The ACS data indicate that 17 percent of tipped women workers in D.C. are married with children—roughly equal to the share of U.S. tipped workers overall that are married with children. However, 18 percent of tipped women workers are single parents—markedly higher than the 10 percent share of the national tipped workforce. Unfortunately, the ACS sample size of tipped workers in D.C. is not large enough to produce statistically precise shares of tipped workers by both gender and family status. Thus, while these findings are suggestive and seem plausible, they are not statistically different from the overall national tipped workforce shares and are not published in this report.

9. The wage data in this report are the average over the period from 2012 to 2016, yet all values have been inflated to 2017 dollars using the Consumer Price Index for all urban consumers (CPI-U). The overall minimum wage in the District of Columbia was $11.50 from January to June 2017 and was $12.50 from July to December 2017.

10. Seattle enacted its own minimum wage in 2014 by city council ordinance. For employers with 500 or fewer employees, the minimum wage is currently $14.00 an hour and will reach $15.00 an hour January 1, 2019, with annual indexing thereafter. With annual indexing, the minimum wage for Seattle employers with more than 500 employees is currently $15.45. San Francisco changed its minimum wage in 2014 by a ballot measure. The minimum wage is $15.00 an hour with annual indexing beginning January 1, 2019. See EPI’s Minimum Wage Tracker (EPI 2018).

11. The Seattle minimum wage ordinance allows businesses with fewer than 500 employees worldwide to credit a portion of tips against the regular minimum wage if they provide health insurance to their employees. As of January 1, 2018, this credit can lower tipped workers’ base wage to $11.50 per hour, provided workers receive at least $15 an hour in total compensation. This credit decreases each year and will be fully eliminated by 2025.

12. More details on the history of the three jurisdictions’ minimum wages can be obtained from Washington State Department of Labor & Industries 2018; Seattle Office of Labor Standards 2018; San Francisco Office of Labor Standards Enforcement 2018; and Allegretto and Cooper 2014, Appendix Table A1.

13. The place of work identified in the ACS microdata does not isolate the city of Seattle from the rest of King County, Washington. Thus, all statistics for Seattle reflect values for all of King County. Because wages in city centers are typically higher than in the surrounding region, reported wage values likely understate true tipped worker wages in Seattle.

14. It may strike some readers as odd that tipped workers could exist in the government or nonprofit sectors, but they can—although some employed through contractors may be misidentifying their employer. For example, a restaurant server at a university, a union hall, a professional association, or a government building is still a tipped worker. In some of these situations, tipped workers may technically be employees of some private contracted service provider. But it is likely that in responding to a survey, workers in such situations may not correctly identify—and may not even know—their true employer. See Katz and Kreuger 2016 for a discussion of these arrangements.

15. The entire state of Washington is a one-fair-wage jurisdiction, meaning tipped workers’ base pay must equal at least the state’s minimum wage, which was $9.32 in January 2014 and $11.50 as of January 2018, and which will reach $13.50 in 2020 (Washington State Department of Labor & Industries 2018). Additionally, within the Seattle-Takoma-Bellevue MSA, three cities—Seattle, Takoma, and SeaTac—have all raised their local minimum wages in the last few years to rates higher than the state rate (see Seattle Office of Labor Standards 2018; City of Takoma 2018; and City of SeaTac 2018).

16. EPI analysis of County Business Patterns data (U.S. Census Bureau, various years).

17. Hawaii changed its tipped minimum wage policy to become a one-fair-wage state in 2014. The other seven one-fair-wage states have all had one-fair-wage policies in place for decades.

Appendix

References

Allegretto, Sylvia, Anna Godoey, Carl Nadler, and Michael Reich. 2018. The New Wave of Local Minimum Wages Policies: Evidence from Six Cities. Institute for Research on Labor and Employment, University of California Berkeley, September 2018.

Allegretto, Sylvia, and Carl Nadler. 2015. “Tipped Wage Effects on Earnings and Employment in Full-Service Restaurants.” Industrial Relations 54, no. 4: 622–647.

Allegretto, Sylvia, and David Cooper. 2014. Twenty-Three Years and Still Waiting for Change: Why It’s Time to Give Tipped Workers the Regular Minimum Wage. Economic Policy Institute Briefing Paper no. 379, July 2014.

Bernhardt, Annette, Ruth Milkman, Nik Theodore, Douglas Heckathorn, Mirabai Auer, James DeFilippis, Ana Luz Gonzalez, Victor Narro, Jason Perelshteyn, Diana Polson, and Michael Spiller. 2009. Broken Laws, Unprotected Workers: Violations of Employment and Labor Laws in America’s Cities. Center for Urban Economic Development, National Employment Law Project, and UCLA Institute for Research on Labor and Employment.

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Bureau of Labor Statistics Quarterly Census of Employment and Wages (BLS-QCEW). Various years. Public data series accessed through the QCEW are available through the QCEW Databases and through series reports.

Casteel, Kathryn. 2018. “#MeToo Media Outrage Isn’t Enough to Change the Service Industry.” Quartz, August 21, 2018.

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Cooper, David. 2017. “Valentine’s Day Is Better on the West Coast (at Least for Restaurant Servers).” Working Economics (Economic Policy Institute blog), February 9, 2017.

Cooper, David, and Teresa Kroeger. 2017. Employers Steal Billions from Workers’ Paychecks Each Year. Economic Policy Institute, May 2017.

Cooper, David, Lawrence Mishel, and Ben Zipperer. 2018. Bold Increases in the Minimum Wage Should Be Evaluated for the Benefits of Raising Low-Wage Workers’ Total Earnings. Economic Policy Institute, April 2018.

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Gould, Elise, Jessica Schieder, and Kathleen Geier. 2016. What Is the Gender Pay Gap and Is It Real? Economic Policy Institute, October 2016.

Jamison, Peter. 2018. “Majority of D.C. Council Moves to Overturn Tipped-Wage Ballot Measure.” Washington Post, July 10, 2018.

Katz, Lawrence F., and Alan B. Krueger. 2016. “The Rise and the Nature of Work Arrangements in the United States.” National Bureau of Economic Research Working Paper No. 22667, September 2016.

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Schmitt, John. 2013. Why Does the Minimum Wage Have No Discernible Effect on Employment? Center for Economic and Policy Research.

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Steingart, Jon. 2018. “Restaurant Group Agrees to $1.49M Pay, Sick Leave Settlement.” Bloomberg Law, August 22, 2018.

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Washington State Department of Labor & Industries. 2018. “History of Washington Minimum Wage” (web page). Accessed September 6, 2018.