The Minimum Wage For Tipped Workers Hasn’t Increased Since the Fall of the Soviet Union

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In this June 2, 2014 photo, Wendy Harrison, a waitress at the icon Grill in Seattle, carries food to a table as she works during lunchtime. An Associated Press comparison of the cost of living at several other major U.S. cities found that a $15 minimum wage, like Seattle adopted this week, will make a difference, but won’t buy a lavish lifestyle. (AP Photo/Ted S. Warren)
In this June 2, 2014 photo, Wendy Harrison, a waitress at the icon Grill in Seattle, carries food to a table as she works during lunchtime. (AP Photo/Ted S. Warren)

In 1991, the US invaded Iraq for the first time. That year, the Soviet Union would dissolve into 15 independent states. Emma Roberts was born. Dances with Wolves won the Oscar for Best Picture, and Bryan Adams’ “Everything I Do, I Do It For You” topped Billboard’s chart as the year’s top hit.

It also marked the last time that the federal minimum wage for tipped workers was increased — by a whopping four cents, from $2.09 per hour to $2.13. At the time, the minimum for tipped workers was half of the overall floor of $4.25. Today, it stands at just 29 percent of the regular minimum wage (which, at $7.25 per hour, is already well below its real peak value of $10.71 in 1968).

On Thursday, Sylvia Allegretto and David Cooper released a report for the Economic Policy Institute (EPI) detailing who these workers are, how many of them are struggling to make ends meet, and debunking a few common myths about tipped work.

They write:

The creation of the tip credit—the difference, paid for by customers’ tips, between the regular minimum wage and the sub-wage for tipped workers—fundamentally changed the practice of tipping. Whereas tips had once been simply a token of gratitude from the served to the server, they became, at least in part, a subsidy from consumers to the employers of tipped workers. In other words, part of the employer wage bill is now paid by customers via their tips.

Today, this two-tiered wage system continues to exist, yet the subsidy to employers provided by customers in restaurants, salons, casinos, and other businesses that employ tipped workers is larger than it has ever been. At the federal level, it currently stands at $5.12 per hour.

Proposed federal minimum-wage legislation, the Fair Minimum Wage Act of 2014—also known as the Harkin–Miller bill—would not only increase the federal regular minimum wage to $10.10, but for the first time in decades would also reconnect the subminimum wage for tipped workers back to the regular minimum wage by requiring the former be equal to 70 percent of the latter. This would be a strong step in the right direction; however, we present evidence that tipped workers would be better off still if we simply eliminated the tipped minimum wage, and paid these workers the full regular minimum wage.

Some key findings:

  • There are approximately 4.3 million tipped workers in the United States, and roughly 2.5 million are waiters and bartenders.
  • Tipped workers’ wages typically fall at the bottom of the income ladder, even after accounting for tips.
  • Tipped workers are a growing portion of the US workforce. “Employment in the full-service restaurant industry has grown over 85 percent since 1990, while overall private-sector employment grew by only 24 percent,” write the authors.
  • “Ensuring fair pay for tipped workers is also a women’s issue. Women comprise two out of every three tipped workers; of the food servers and bartenders who make up over half of the tipped workforce, roughly 70 percent are women.”
  • The poverty rate for tipped workers (12.8 percent) is nearly twice that of working people subject to the full minimum wage (6.5 percent).
  • “Tipped workers have a median wage (including tips) of $10.22, compared with $16.48 for all workers.”
  • The public subsidizes the incomes of tipped workers twice: directly, when we leave a gratuity, and indirectly, as 46 percent of them rely on public benefits to make ends meet.

Most important, the study blows up the myth that raising tipped workers’ to the ordinary minimum wage kills service jobs. “Paying tipped workers the regular minimum wage has had no discernible effect on leisure and hospitality employment growth in the seven states where tipped workers receive the full regular minimum wage,” Allegretto and Cooper write. “In fact, sector growth in these states has been stronger since 1995 than in the states where tipped workers are paid a subminimum wage.”

The hospitality industry often claims that raising tipped workers’ base salaries won’t help them because customers will only tip less, but in the seven states where tipped workers are guaranteed the same minimum wage as everyone else, overall earnings are higher and poverty rates are lower.

The study also dispels the notion that tipped workers tend to be college kids or young adults just starting out in the workforce. While tipped workers do skew younger than the population as a whole, 6 in 10 are at least 25 years old, and 3 in 10 are 40 and above.

You can read the entire report at EPI »

Joshua Holland is a senior digital producer for BillMoyers.com. He’s the author of The Fifteen Biggest Lies About the Economy (and Everything Else the Right Doesn’t Want You to Know about Taxes, Jobs and Corporate America) (Wiley: 2010), and host of Politics and Reality Radio. Follow him on Twitter or drop him an email at hollandj [at] moyersmedia [dot] com.
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  • Trapper

    Fortunately, in Washington, they make what everyone else makes.

  • NotARedneck

    The fall of the Soviet Union meant that the wealthy no longer needed average Americans to protect them from the commie bogeyman. They could let their greed go unfettered, without any risk and basically, that is what has happened over the past 25 years.

  • Anonymous

    This is not strictly true. Tipped workers are entitled to the same minimum wage as any other workers covered by the FLSA:

    “The Fair Labor Standards Act (FLSA) requires payment of at least the federal minimum wage to covered, nonexempt employees. An employer of a tipped employee is only required to pay $2.13 an hour in direct wages if that amount plus the tips received equals at least the federal minimum wage, the employee retains all tips and the employee customarily and regularly receives more than $30 a month in tips. If an employee’s tips combined with the employer’s direct wages of at least $2.13 an hour do not equal the federal minimum hourly wage, the employer must make up the difference.”

    The truth is that many employers do not follow the law; simplifying the law (removing the tipped employee provisions) makes sense for that reason.

    http://www.dol.gov/elaws/faq/esa/flsa/002.htm

  • Anonymous

    “Tipped workers’ wages typically fall at the bottom of the income ladder, even after accounting for tips.”

    Yes,
    because a large portion of these tips are in CASH. How much of that
    cash they earn in tips do you think these severs actually claim as
    income to the IRS? Ask me, I was a bartender for a good part of a
    decade.

    The ONLY reason these lawmakers and politicians want to raise the minimum wage on these people is they want to tax them more.

  • Anonymous

    You may want to consider changing the words “greed” with “success” and “wealthy” with “successful.”

  • Death Spiral

    Where an how long ago?

    Employers with tipped employees have payroll tax withholding, payment, and reporting responsibilities for tips that are considered taxable compensation. Some employers will qualify as large food and beverage establishments and may be subject to special tip allocation and reporting rules. Employers with tipped employees have payroll tax withholding, payment, and reporting responsibilities for tips that are considered taxable compensation. Some employers will qualify as large food and beverage establishments and may be subject to special tip allocation and reporting rules.

    In many States the division of taxation will share sales and use tax information with the IRS, which after attributing for acceptable loses, can, based on a very conservative model, identify unpaid taxes. In the 1980s court decisions deemed employers could be responsible and in many cases obligated to pay the unreported taxes. This is why today even modest size establishments withhold taxes on tips.

  • Scott Malec

    um, no, “greed”/”greedy” are more accurate. Where would the successful be without the extra appendages/eyes/ears provided by labor power?

  • Anonymous

    You’ve never worked in a tipped/restaurant environment I see…

  • Joe Blow

    And you’ve never been an accountant for such a business, I see…

  • Anonymous

    Bill and Friends, As much as I have solidarity with tipped workers (and applaud your support) I am still stunned by your silence on the wages of childcare workers, caregivers, and the state of stay at home motherhood –especially given that so much scientific evidence points to the lack of appropriate care during the years of 0-6 as a one of the most significant root causes and contributing factors to poverty, poor physical and/or mental health; poor learning outcomes; poor marketable work skills and so on.

    A recent report shows that the number one cause of poverty spells is having a baby. This means that many children experience a stressful environment at the same time their central nervous, neuromotor, limbic, vestibular, proprioceptive and other systems are completing their development. This can be compounded by low pay and low training in the area of caregiving.

    Yet, despite low wages, a recent survey shows that over half of our nation’s caregivers hold a college degree, and of those, a third hold a master’s. These (mostly) women carry on even though they find little support in the media (or anywhere), and at great sacrifice of themselves and their families, simply because they understand what is at stake. This issue exposes our cultural tendency to still devalue what has historically considered “women’s work.” Given that in some states 99% of caregivers are women, and that of those 59% are women of color, this lack of economic justice also speaks to the sexism and racism that is still rampant in our society.

    We talk about low wages, and low respect, for teachers. We champion the causes of wait staff, auto workers, and so on. WHO is going to show support those who care for our youngest and most vulnerable members of society? And, WHEN are we all going to realize the importance, and the impact on our future as a society, that is the direct result of biologically driven requisites during critical periods of human development (ie early childhood)?

    http://developingchild.harvard.edu/resources/multimedia/interactive_features/biodevelopmental-framework/

    http://bryanbruce.co.nz/sites/default/files/infant%20brain.jpeg

    U.S. Department of Labor, Bureau of Labor Statistics. (2013, September). National Compensation Survey: Employee Benefits in the United States, March 2013 (Tables 16 and 32)

  • Anonymous

    Really?? In upscale casual to fine dining, most of your tips are on credit cards. As a server, I pay taxes not only on that mighty $2.13 an hour, but on my tips too. There were weeks that I didn’t get a paycheck. If you weren’t declaring your tips… YOU were breaking the law.
    And as a parent, trying to pay the rent and put food on the table… making minimum wage AND getting tips… that would have been a GOD send!

  • Anonymous

    to DougD If you were replying to my comment you need to improve your reading comprehension because your reply doesn’t make sense at all.

  • Barbara Blough

    Thank God Reagan had the courage to make sure the tax loophole that allowed their tips to escape the IRS was closed. Maybe Wall Street, big bankers and corporations are still on the loose, but he got those wealthy waiters and waitresses! And now they want a living wage!!??!

  • Chris Herz

    These wages have not increased since the fall of the USSR? Pure coincidence.

  • Anonymous

    My Uncle
    Joshua just got an almost new white Kia Rio Hatchback only from working
    part-time off a home computer. try this C­a­s­h­f­i­g­.­C­O­M­

  • Death Spiral

    Family business for generations.

  • Anonymous

    No, never been. But I have tended bar for many a year, and I know a lot more about this subject than you do.

  • Anonymous

    Please explain just HOW you know the motivations of leaders who support updating the minimum wage. ONLY reason? Along your line of thinking maybe it is to get MORE votes? You really believe the ONLY reason is getting more taxes?

  • Joe Blow

    Well, there’s an open-minded claim, given that you have absolutely no idea what my background is, professional or otherwise. Must be nice to be sure you know more than other people regardless of who they are. You worked in a bar for less than 10 years (first it’s a good part of a decade, then it’s “many a year”), and that makes you more knowledgeable on the subject than anyone else on the planet about how tipped wages are reported to the IRS *everywhere*?