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The Subminimum Wage Plus Tips: A Bad Bargain for Workers [1]

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Date: 2023-05-16 18:47:31+00:00

This article, published in the May 2023 issue of the New Labor Forum discusses the systemic flaws in the United States’ two-tiered minimum wage system, focusing on the long-overlooked federal subminimum wage for tipped workers. While many think of the federal minimum wage as $7.23/hour, the subminimum wage for tipped workers is, in fact, $2.13/hour — and has been since 1991.

Using data spanning from 1966, when Congress made it legal to pay tipped workers a subminimum wage, the article shows how the federal tip-credit, which is the difference between the minimum wage and the subminimum wage, has grown over time. Originally set at a 50–50 split, the tip-credit now represents 71 percent of a tipped worker’s wage as shown in the figure. Many consumers are unaware that their tips, in part, essentially function as a wage subsidy to employers.

The article traces the history of the tipped minimum wage, describes the policies that have allowed the situation to deteriorate, and proposes legislative and labor-based solutions. It also explores the vast state differences in minimum and subminimum wages across the country, as well as the lack of access to employer-provided benefits for minimum and subminimum wage workers.

Every worker has the right to work with dignity at a fair wage. The U.S. can pursue and successfully implement high-road wages and labor protections at the federal level to uplift millions of workers and institute a fairer labor system regarding the tipped workforce.

“The Subminimum Wage Plus Tips: A Bad Bargain for Workers” can be read online at the New Labor Forum’s website here. For a PDF version of the article, click here

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[1] Url: https://cepr.net/the-subminimum-wage-plus-tips-a-bad-bargain-for-workers/

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