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News from EPI The Separate Tipped Minimum Wage Should Be Eliminated

For the millions of workers who rely on tips, the federal tipped minimum wage is grossly inadequate, according to new research from the Economic Policy Institute. In Twenty Three Years and Still Waiting for Change, EPI research associate Sylvia Allegretto and economic analyst David Cooper examine the economic conditions of tipped workers and conclude that lawmakers should eliminate the tipped minimum wage and require that tipped workers be paid the full minimum wage.

The federal subminimum wage for tipped workers, or the “tipped minimum wage,” is currently set at $2.13 an hour and, unlike the minimum wage, has not been increased since 1991. The erosion in value of the tipped minimum wage has led to drastically different economic conditions for tipped workers compared to the overall workforce. The poverty rate for tipped workers is nearly double that for non-tipped workers and they are also far less likely to receive paid leave of any kind, health care, or retirement benefits.

Importantly, many states have set their tipped minimum wages above the federal tipped minimum, and some don’t allow for a tipped minimum at all—requiring employers to pay the full minimum wage regardless of whether an employee receives tips. These states have seen no negative effect on employment as a result having a higher tipped minimum wage, while the poverty rate for tipped workers in these states is much lower.

“The extremely low level of the tipped minimum wage along with its erosion over decades has left millions of tipped workers struggling with inconsistent and low pay” said Allegretto. “We know from states with no subminimum wage that we can raise wages without harmful disruptions to businesses or employment. We owe it to these workers to do so.”

The low tipped minimum wage effectively shifts an increasing share of the wages of tipped workers from employers to customers, a subsidy known as the “tip credit,” which is written into the law. The tip credit currently stands at $5.12 an hour—more than twice the base wage paid by employers. While employers are required to ensure that tipped workers earn at least the full minimum wage after accounting for their tips, this requirement is fraught with problems and difficult to enforce.

“Nearly every employer in America is required to pay at least the minimum wage, except those that employ tipped workers,” said Cooper. “Why have we given these businesses special status, where consumers are paying the bulk of employees’ wages?”

More than 60 percent of tipped workers are employed in food service. Two-thirds of tipped workers are women. Tipped workers are younger than the overall workforce, but only 12.6 percent of tipped workers are teenagers; the majority are 25 or older.