Did you know that the federal sub-minimum wage received by tipped workers has been $2.13 per hour for the past 22 years? No joke, it has been and it is way past due for a change. The figure shows the inflation adjusted value of the regular federal minimum wage along with the sub-minimum wage received by tipped workers.
The sub-minimum wage was decoupled from the federal minimum and frozen at its current level in 1996*; prior to that it was at least 50 percent of the regular minimum. Today the sub-minimum wage is at the lowest share of the regular minimum on record — just 29.4%.
This past July Senator Tom Harkin (D-IA) and Representative George Miller (D-CA) introduced the Fair Minimum Wage Act (FMW) of 2012. The act would increase the minimum wage in three steps from $7.25 to $9.80 per hour over the next two years.
Thus, low-wage workers in California would also get a raise over the state’s $8.00 minimum that has been in effect since 2008. Additionally, it would index the minimum wage to inflation thereafter so that its buying power would not erode over long periods of inaction — as are evident in the figure.
Of great importance, the FMW Act of 2012 would gradually increase the federal minimum wage received by tipped workers to a level that is 70 percent of the regular minimum wage, which would be $6.86 after full implementation of the proposed increases.
California is one of seven states that do not permit a ‘tip credit’ — meaning employers are not allowed to pay tipped workers below the state minimum wage which is currently $8.00. But, one in three workers who receive tips work in states with a $2.13 minimum pay rate. The two-tiered federal wage system is unknown to many — I’ve written about the history and economic outcomes of this system here.
*At that time the sub-minimum was $2.13 an hour and had been since 1991.