Raising the Tipped Wage Reduces Opportunity for Tipped Workers

Abstract

Over five million Americans currently work in restaurants as tipped servers or bartenders in restaurants. By one estimate, nearly one in three American workers worked in the restaurant industry as their first job. Despite the industry’s popularity as a place of employment, it has been the subject in recent years of a well-funded attack by a labor group called the Restaurant Opportunities Center (ROC). ROC dedicates a large amount of its annual budget of approximately $10 million to attacking the current tipping system; in particular, ROC advocates for the elimination of the tip credit.

A bill in Congress called the “Raise the Wage Act of 2019” would eliminate this credit at the federal level. ROC has pursued similar legislation in state capitols and at the ballot box, with few instances of success thus far.

To better understand how these policies have impacted tipped employees in the few states that have embraced them, Drs. David Macpherson from Trinity University and Bill Even from Miami University, examined multiple Census Bureau data sets in areas that have a compromised tip credit.

Key takeaways of the new study include:

  • In markets with a higher tipped wage—such as San Francisco and Seattle—tipped workers represent a nearly 18-percent lower share of employment in full-service restaurants, compared to lower-cost states;
  • In these same cities, tipped employees represent a nearly 19-percent lower share of hours worked in full-service restaurants, compared to lower-cost states.

The study’s findings suggest that a higher minimum wage for servers and bartenders is speeding these employees' replacement by iPads, tablets, and “fine casual” business models that emphasize customer self-service.  Overall, the study suggests a direct correlation between higher tipped minimum wages and lower employment and fewer hours worked for tipped employees.