In January, Democrats introduced the Raise the Wage Act, which would increase the federal minimum wage to $15 an hour by 2025. The weeks since have been marked by extensive debate. While Republicans and moderate Democrats claim businesses will be unable to afford the higher base pay, activists from the left argue that $15 is too little and 2025 is too late, and advocates for the bill point to reports estimating the policy would lift 900,000 people out of poverty. Missing from this discourse is consideration of the bill's gradual elimination of the subminimum wage for tipped employees, who are currently guaranteed $2.14 an hour federally.
Where does the tipped minimum wage come from? Who are tipped workers? Where do tipped workers already earn a full minimum wage, and what are the implications of making this jump nationwide? Answers to these questions and more in this week’s newsletter.
$2.13 per Hour: Frozen In Time
Tipping wasn’t always a part of the American economy. It emerged alongside sharecropping in the years after Reconstruction, and aimed at preserving racial dynamics that existed under slavery. By forcing Black workers to rely on tips from customers, bosses could use their labor but pay nothing in wages. When Congress passed the Fair Labor Standards Act in 1938, tipped workers were excluded from a minimum wage, with Southern Democrats insisting that “you cannot prescribe the same wages for the black man as the white man."
A federal minimum wage was finally established for tipped workers in 1966, set to increase every year as a proportion of the regular minimum wage. In 1996 though, restaurant industry lobbyists successfully decoupled the tipped minimum wage from the regular minimum wage. The federal subminimum wage has remained frozen at the rate established in 1991 for thirty years, $2.13 per hour. Since then, cost of living has increased substantially, setting the buying power of the $2.13 federal subminimum wage at just over one dollar in 2021.
Tipping in America: Quick Stats Facts
Proponents of a separate wage for tipped workers argue that the law is fair, because if workers’ tips and hourly wage don’t add up to the minimum wage, employers are legally required to make up the difference. However, a quick look at the demographic data shows that tipped workers are among the lowest earners in the workforce, making on average half the wages of other workers, a disparity that’s larger for women and workers of color. This is closely related to the pervasiveness of wage theft in the U.S., a practice that the Economic Policy Institute estimates amounts to around $8 billion in stolen wages annually among the 10 most populous states. Additionally, while many assume that minimum wage workers are largely teenagers still financially dependent on parents, research finds that only 10% of workers who benefit from a $15 minimum wage increase are under 20 years old.
One Minimum Wage: A Case Study in Seven States
Establishing one minimum wage for all workers is not a new idea. In fact, a full minimum wage for tipped workers already exists in Alaska, Washington, Montana, Oregon, Nevada, California, and Minnesota. In these seven states, tipped workers earn higher wages, gender and racial pay gaps are smaller, and the impact on restaurant growth is positive. Furthermore, workplace sexual harassment, more common in restaurants than in any other industry, occurs at half the rate in states with one minimum wage compared to states with a separate tipped wage.
More than 150 years after tipping emerged as a strategy for keeping newly free Black people poor and subservient, the practice remains riddled with alarming racial implications. In two separate studies, one examining taxi drivers in New Haven and the other examining servers at a Southern diner, researchers found that Black workers were awarded significantly lower tips across an array of variables. The numbers also point to a troublesome dynamic preserved by wages based on tips, in which workers are encouraged to show subservience towards customers in order to earn a full wage that hour.
Masked Up and Earning Less
The pandemic has devastated America’s service industry, and low-wage, tipped workers are among the hardest hit. Alongside high levels of unemployment, a disproportionate number of service workers have contracted and died from the virus. Workers’ reliance on tips for a full hourly wage has exacerbated health risks. By enforcing safety protocols, workers face a demonstrated risk of receiving a lesser tip or experiencing hostile customer behavior. In a December survey conducted by One Fair Wage, one worker reported a customer comment that summarizes the issue well. She said, “When it came time to drop off the check, one gentleman was like, ‘Um, excuse me miss, I’m going to need you to take your mask off so we can see your face so we know how much to tip you.’”
Think about the last time you went to a restaurant. Did you tip? How much? Was your waiter making a real hourly wage, or was she relying on your tip to make up the majority of her pay? Was she taking home her entire tip, or tipping out to other restaurant staff?
You likely don’t know the answer to all of these questions, and probably didn’t do a deep analysis of how the amount you chose to tip factored into your waiter’s take-home pay that week, income that year, or total lifetime savings. However, in 43 American states, it is the consumer, not the employer, who decides and funds service workers’ pay.
There are 4.4 million workers in the United States who rely on tips for a living. They work in restaurants, bars, hotels, casinos, taxicabs, and beauty salons. Disproportionately women and people of color, tipped workers earn wages significantly below averages in comparable industries. They are less likely to receive healthcare and more likely to experience sexual harassment. Critics of a full minimum wage for tipped workers argue this is the wrong time for legislation like the Raise the Wage act. They claim that a wage increase will hurt restaurants already struggling to keep doors open amid the pandemic. Advocates, on the other hand, insist that in an industry marked by decades of low wages and poor benefits in the richest country in the world, the time for change is long past.
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Special thanks for our designers Olivia, Ellie, and Pete, and writer Katrina for this issue.