Still waiting for change: tipped workers and the ‘subminimum wage’

Before she became an economist, Sylvia Allegretto earned her living in a variety of low-wage jobs, including seven years as a “tipped worker,” waiting tables in diners and restaurants and tending bar. Now a co-director of the Center on Wage and Employment Dynamics — part of UC Berkeley’s Institute for Research on Labor and Employment — she has just published a report documenting the challenges faced by millions of such U.S. workers, most of them women, for whom even the federal minimum-wage law doesn’t apply.      

Sylvia Allegretto

Sylvia Allegretto

Her report, “Twenty-Three Years and Still Waiting for Change,” was co-authored with David Cooper of the Washington, D.C.-based Economic Policy Institute, where she is also a research associate.

NewsCenter: Most everyone is aware of the debate going on right now over the federal minimum wage. But your new report focuses on a category of workers who don’t even qualify for the federal minimum.

Allegretto: I started writing about this several years ago, and found that most people don’t realize there’s a federal tipped-minimum wage, or what I also refer to as the subminimum wage. Basically, the federal minimum wage is $7.25 an hour, but the wage that an employer can pay a tipped worker, if they meet certain requirements — and the bar is pretty low — is $2.13 an hour. It’s been $2.13 since 1991.

Under current federal law, if a worker’s paycheck — tipped minimum plus tips — doesn’t add up to $7.25 an hour, the employer has to make up the difference.

That’s what the law says. But it’s an odd position to put a worker in, to have to say, ‘You owe me money.” It’s risky.. You can get moved from a busy shift to a slow one, and your income can be cut in half, or worse. You go from a lucrative Friday night shift to Monday or Tuesday afternoon, wow.

Even if an employer were trying to do the right thing, it’s really complicated. In my experience, it just rarely happens.

The federal minimum has risen over the years, however modestly. Why no change in the tipped minimum?

In 1966, amendments to the Fair Labor Standards Act instituted the subminimum wage for tipped workers, and said it should be half the regular minimum wage. So by the time we get to 1991 the regular minimum wage is $4.25, and half of that, generously [laughs], is $2.13 an hour.

Then, in  1996, new legislation was signed by President Clinton — but under enormous pressure from “the other NRA,” the National Restaurant Association, which finally said, “OK, an increase in the regular minimum wage, fine,” but insisted the subminimum wage for tipped workers be “frozen into perpetuity.”

Which, today, is 23 years and counting.

Right. You have this 23-year period where, in nominal terms, the subminimum wage has been $2.13. Which means, accounting for inflation, that it’s now the lowest ever, since it was instituted in 1966. It just keeps eroding, little by little, over this 23-year period.

Who are these tipped workers?

We estimate that 1.4 million people are currently getting the $2.13 tipped minimum plus tips, and another 2 million or so are getting between $2.13 and the federal minimum wage, plus tips. Food servers are the largest group of tipped workers, and 70 percent of food servers are women.

Why the disparities?

As with the minimum wage, you have states that have adopted different wage policies. Our minimum wage here in California just went up from $8 to $9. And we don’t have a subminimum wage. Which is very interesting, because if you listen to the restaurant industry, as an economist you would have to conclude that there are no restaurants in California. They say they can’t increase the $2.13 minimum wage because it would be really harmful to the restaurant industry. Clearly that’s not the case.

Your report refers to the “tip credit.” What is this, and how does it work?

Employers are allowed to use what they call a “tip credit.” Which sounds nice and positive, but it depends who you are, right? What it means is that an employer can take a certain amount of an employee’s tips and say that’s not really a tip, that’s part of your wage

Tipped workers have to make the federal minimum wage, which is now $7.25. You have $2.13 as the subminimum wage. So the tip credit at the federal level is $5.12 an hour.

And that means?

It means that for every tipped worker, $5.12 of their tips is actually part of their wage, subsidized by customers.

So instead of expressing gratitude for good service…

You’re subsidizing the employer wage bill.

Another study you did found that McDonald’s workers received more than $1 billion in public assistance every year from 2007 to 2011. What about tipped workers?

We know that many minimum-wage workers rely on public assistance to survive, and this is apparently — and not surprisingly — a still bigger issue with tipped workers. In that previous study we found that 52 percent of fast-food workers were on public subsidies, compared to about 23 percent of other workers. So there are whole industries that seem to use this as a business model.

When we looked at tipped workers, we found they, too, are disproportionately using public subsidies to make ends meet. Instead of making a decent wage and being able to afford things on their own they have to have food stamps, or housing vouchers, or whatever. So even taxpayers who never eat out or go to a bar are subsidizing the profits of these low-wage firms.

Opponents of raising the minimum wage claim it would cost jobs. As you mentioned, though, California’s minimum wage is higher than the federally mandated level, and we don’t have a tipped minimum wage at all.

I think we’ve already had eight states pass new legislation this year to increase their minimum wage. And in fact, only 19 states have the $2.13 tipped-minimum wage. The rest are all over the board.

You can just look at all the variation that’s out there — all these states that have $2.13 an hour all the way up to Washington state, where tipped and regular workers are making well over $9 an hour. According to the National Restaurant Association, all these places that don’t have a subminimum wage shouldn’t have restaurants. But they do. In many cases chain restaurants that are located in states that follow the $2.13 subminimum and $7.25 minimum are the same restaurants you find in states with no subminimum wage, and minimum wages that are much higher.

Reps. George Miller and Tom Harkin have a bill that would eventually raise the federal minimum wage from $7.25 to $10.10 an hour, and set the wage floor for tipped workers at 70 percent of that rate. But your report suggests doing away with this two-tier system entirely.

Right. Compared to their counterparts in the rest of the country, tipped workers in the seven states that don’t have a subminimum wage are noticeably better off, with higher total wages and lower poverty rates. Meanwhile, industries with tipped workers in these seven states are thriving. They’ve actually said that growth in the no-tip-credit states — those where tipped workers receive the same protection as other workers — is going to be higher in the future than in the full-tip-credit states.

If we’re really serious about some of the biggest problems we have in this country — including rising inequality and working poverty — one of the things we have to do is find a way to bring up those at the bottom.

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