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This labor day … waiting for change

Sylvia Allegretto, Economist, Co-Chair of the Center on Wage and Employment Dynamics | August 31, 2012

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.

Comments to “This labor day … waiting for change

  1. At my group in ny tipped employees easily make $15 – $20 an hour in tips alone. We had a place in calif and the same thing. If you can’t make decent money waiting tables you either work at a dump or suck at it. Even mediocre places have good tips.

    • Your figures are anecdotal — it is simply not the case that high end restaurants are the norm. And, most food servers do not get anything more than their base pay plus tips after taxes — so, how much would a worker need to make in tips to pay for their: health care, sick days, retirement, vacation days, etc.? There are few occupations where if you want a day off or are sick you forgo all pay and you have to find a replacement worker to boot!

      While there are some food servers who may be going very well working at high end establishments in general this is a low wage, low benefit occupation.

  2. The hospitality industry use to provide a good living if you were willing to work hard and able to work a flexible schedule, which means you work when everyone else is playing. 30 years ago, I started as a waitress and then opened my own restaurant which was good & bad, then sold business and went back to school. Landed a good job at a software company which disappeared when the internet started.

    I thought, why not take a waitress job until I could find something decent. Oh what a rude awakening, now owners/managers want the wait staff to clean kitchens from top to bottom, scrub tables, chairs, vacuum, sweep, wash windows, everything but clean the bathroom, all for $2.13 per hour, which they call it ‘prep work’.

    Disgusted, I transferred to a Name Brand Hotel as a conference/banquet server, trading cleaning for heavy lifting, late nights and irregular schedule, but major Hotels have a little trick that they play on their customers. The customer is lead to believe that the hefty 20% service charge is being paid to the servers, but instead it is goes directly into the managers pocket. Fortunately, I moved onto sales and marketing and never looked back.

  3. Um, how much does a typical tip earner make in tips?

    This seems like an obvious question, but I couldn’t even find the answer skimming through the report you linked to.

    • There are not good data on tips but median wages that includes tips are reported in Table 3 of the paper referenced in the post.

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