Tipped workers and the minimum wage

Tipped workers hold a uniquely vulnerable position in our nation’s employment landscape. Federal law allows for pay discrimination between tipped and non-tipped workers, permitting employers to pay tipped workers as little as $2.13 per hour.

This is an equality issue

Nearly 70% of tipped restaurant workers are women, 40% of whom are mothers. The sub-minimum wage for tipped workers is in effect legislated pay inequity for a predominately female workforce. Eliminating the sub-minimum wage will help address the persistent gender pay gap, where women are paid just 78 cents for every dollar that men are paid.

  • The typical full-time, year round, female restaurant worker is paid 79% of what her male counterpart earns. For female servers – a tipped classification – that amount drops to just 68% of what their male counterparts are paid ($17,000 vs. $25,000 annually).(1)
    • Black female servers are paid only 60% of what male servers overall are paid, costing them more than $400,000 over a lifetime.
    • Tipped restaurant workers in states with a sub-minimum wage for tipped employees have a much higher poverty rates than states without a sub-minimum wage (20% vs. 14%). Because tipped workers are predominately female, this poverty burden falls disproportionately on women. Women restaurant workers are nearly 30% more likely to experience poverty than their male counterparts.(2)
  • The restaurant industry is the single largest source of sexual harassment claims in the U.S. This is largely the result of the fact that tipped workers earning a sub-minimum wage are dependent on the generosity of customers for their income, rather than their employers. As a result, they must often tolerate inappropriate behavior from customers, and are vulnerable to sexual harassment from coworkers and managers.
    • While 7% of American women work in the restaurant industry, it is responsible for 37% of all sexual harassment claims to the Equal Employment Opportunity Commission.

This is an economic issue

Tipped workers in states with a sub-minimum wage are twice as likely to live in poverty and rely on food stamps than the rest of the U.S. workforce. The vast majority of tipped workers earn just slightly above the minimum wage, even once tips are included.

  • In the seven states that have eliminated the tipped minimum wage, the poverty rate among tipped workers is lower by one third, 14% compared to 20%.
  • The reduction in poverty is even more significant for workers of color – a full 25% of workers of color in states with a sub-minimum wage live in poverty, compared to just 14% in states without a sub-minimum wage.
  • The restaurant industry is one of the largest growing industries in the nation, and the largest employer of minimum wage workers (1 in 12 Americans). The Bureau of Labor Statistics projects that the occupation sector of Food Preparation and Serving will add nearly a million jobs—one of the largest projected occupational increases across occupations—from 2010 to 2020.
  • Putting more money into the pockets of the growing number of low-income tipped workers, who will spend their additional earnings at local businesses, boosts the consumer spending that drives our nation’s economy.

This is a bipartisan issue

One Fair wage is a unifying issue with the power to transcend party lines. 71% of Americans – Democrats, Independents and Republicans – support a proposal to increase the minimum wage for tipped workers.

  • A recent national poll conducted by the National Employment Law Project shows that 71% of Americans favor the proposal to increase the minimum wage for tipped workers to match the regular minimum wage.
  • The measure to increase the minimum wage for tipped workers has polled positively on both sides of the aisle, 78% of Democrats, 71% of Independents, and 62% of Republicans favor the increase.

The current system doesn’t work

Under federal wage rules, when tips are not enough to bring a worker’s average wage up to the full minimum wage, the employer is supposed to make up the difference by “topping up” the employee. But this complex system requires extensive tracking and accounting of tip flows, leaving tipped workers vulnerable to abuse and inaccuracy.

  • While employers are legally required to “top-off” a tipped worker’s pay when it falls short, the complicated system enables employers to routinely violate wage and hour laws with minimal repercussion.
  • From 2010-2012, the Wage and Hour Division of the US Department of Labor conducted nearly 9,000 investigations in the full service sector of the restaurant industry, and found an 84% noncompliance rate. $56.8 million was recovered in back wages for nearly 82,000 workers and $2.5 million was assessed in civil money penalties.

This is an issue we can fix

The seven states, including the entire West Coast, that have already eliminated the sub-minimum wage account for over one million tipped workers and boast flourishing restaurant industries.

  • These states have higher restaurant sales per capita and higher average employment growth for tipped workers, and yet average menu prices are not higher than in states with a subminimum wage.(3) All of the states that require employers to directly pay the full minimum wage to tipped workers are expected to have greater restaurant job growth than states with a sub minimum wage for tipped workers in the next decade – in most cases, much greater.(4)
  • The restaurant industry projects employment growth over the next decade to be higher in states without a tipped minimum wage, 10.5% compared to 9.1% in states with a subminimum wage.
  • Equal minimum wage rates for tipped and non-tipped workers result in smaller wage gaps for women overall and lower poverty rates for tipped workers.(5)

1 Restaurant Opportunities Centers United, 2012. Tipped Over The Edge: Gender Inequity in the Restaurant Industry.
2 Economic Policy Institute, 2014. Low Wages and Few Benefits Mean Many Restaurant Workers Can’t Make Ends Meet.
3 National Restaurant Association, 2014. 2014 Restaurant Industry Forecast.
4 National Employment Law Project Policy Brief, 2014.
5 National Women’s Law Center. 2014. States with Equal Minimum Wages for Tipped Workers Have Smaller Wage Gaps for Women Overall and Lower Poverty Rates for Tipped Workers.

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Women and the minimum wage

Minimum wage workers in Pennsylvania—mostly women—cannot support themselves and their families onearnings of just $7.25 per hour, or the tipped minimum cash wage of $2.83 per hour. Raise the Wage PA and the PA Campaign for Women’s Health support proposed legislation that would raise Pennsylvania’s minimum wage to at least $10.10 per hour, raise the tipped minimum wage to at least 70 percent of the minimum wage, index these wages to keep up with inflation, and increase penalties for employers who fail to pay workers the wages they are due. Increasing the minimum wage and tipped minimum wage are key steps toward fair pay for women in Pennsylvania.

KEY FACTS

• Women are nearly three-quarters of minimum wage workers in Pennsylvania—a higher share than all but two other states.(9) Women are also nearly three-quarters of Pennsylvania’s tipped workers.
• Raising Pennsylvania’s minimum wage to $10.10 per hour or more would boost pay for over 1.2 million workers, most of them women,(10) and help close the wage gap.
• Of the workers who would receive a raise if the minimum wage increased to at least $10.10 per hour, roughly two-thirds or more are at least 25 years old, and nearly one-quarter are parents.(11)

Minimum wage workers and tipped workers in Pennsylvania need a raise.

• A Pennsylvania woman working full time at minimum wage earns just $14,500 annually, more than $4,500 below the official U.S. poverty line for a mother with two children.(1)
• Pennsylvania is in the minority of states nationwide —and one of only two in the Northeast—with a minimum wage of $7.25 per hour,(2) the lowest level permitted under federal law.
• Pennsylvania’s $2.83 hourly minimum wage for tipped workers is unchanged since 1998 and just 70 cents higher than the federal minimum of $2.13 per hour.  Although obligated to ensure their tipped
employees receive at least the regular minimum wage, many employers fail to do so.(3)
• Nearly three-quarters of Pennsylvania’s tipped workers are women.(4) Over 18 percent of Pennsylvania’s female tipped workers live in poverty, more than double the rate for working women overall. Almost one-quarter of female servers and bartenders in Pennsylvania live in poverty.(5)
• Workers relying on variable tips from customers— rather than set wages from their employer—for the bulk of their income may be more vulnerable to sexual harassment. A recent study from the Restaurant Opportunities Centers United found that
female tipped workers in states with a $2.13 tipped minimum wage are more likely to experience sexual harassment than their counterparts in states where employers are required to pay the regular minimum
wage before tips.(6)

Raising the minimum wage would help close
the wage gap.

• Since women are the majority of Pennsylvania’s minimum wage workers, increasing the minimum wage and the tipped minimum wage would help close the wage gap.(12) Pennsylvania women overall
working full time, year round are typically paid only 76 cents for every dollar paid to their male counterparts,(13) and the gap is even wider for women of color: Black women working full time, year round make only 69 cents, and Hispanic women only 55
cents, for every dollar paid to their white,
non-Hispanic male counterparts.(14)
• The average wage gap in states with a minimum wage at or above $8.00 is 22 percent smaller than the average wage gap in states with a $7.25 minimum wage.(15)

Raising the minimum wage and the tipped
minimum wage would boost wages for hundreds
of thousands of working women in Pennsylvania,
helping them support themselves and their
families.

• The Keystone Research Center estimates that if the minimum wage were increased to $10.10 per hour by 2016, over 1.2 million Pennsylvania workers would get a
raise. Of the total affected workers, about 742,000 (59 percent) are women.(7)
• Of the Pennsylvania workers who would benefit from a $10.10 minimum wage in 2016, 296,000 (23 percent) are parents; an estimated 530,000 children live with a parent who would get a raise.(8)

Raising the minimum wage would reduce poverty
and strengthen the economy in Pennsylvania.

• Increasing Pennsylvania’s minimum wage to $10.10 per hour would boost annual full-time earnings by $5,700 to
$20,200, enough to pull a family of three just above the poverty line.(16) Raising the tipped minimum wage to at least 70 percent of a $10.10 minimum wage—or ideally,
eliminating it altogether—would provide a more stable and adequate base income for tipped workers.
• Raising the minimum wage can benefit communities and the broader economy, as workers spend their higher earnings at local businesses.(17) Research indicates that
following a $1 increase to the minimum wage, low-wage worker households spent an additional $2,800 the following year.(18) Higher wages can also benefit employers
by reducing turnover and increasing worker effort.(19)

 

 

 

 

 

 

 

 

 

 

Raising the minimum wage to at least $10.10 per hour, and raising the tipped minimum wage to at least 70 percent of
the minimum wage, are important steps toward fairer pay—but more needs to be done to provide real economic stability
for Pennsylvania’s hardworking women and their families.

 

Citations

1 U.S. Census Bureau, Poverty Thresholds for 2014, https://www.census.gov/hhes/www/poverty/data/threshld/index.html (last visited Apr. 23, 2015). The poverty line in
2014 for a mother and two children is $19,073. Throughout this analysis NWLC calculations regarding full-time earnings assume 40 hours per week, 50 weeks per year.
2 See NWLC, Women, the Minimum Wage, and the Wage Gap, State by State (May 2015), available at
http://www.nwlc.org/sites/default/files/pdfs/women_the_minimum_wage_and_the_wage_gap_state_by_state_5.20.15.pdf.
3 See, e.g., Sylvia A. Allegretto & David Cooper, Econ. Policy Inst. (EPI) & Ctr. on Wage & Employment Dynamics, Univ. of Ca., Berkeley, Twenty-Three Years and Still
Waiting for Change, at 17-18 (2014), available at http://s2.epi.org/files/2014/EPI-CWED-BP379.pdf.
4 NWLC calculations based on American Community Survey (ACS) 2008-2012 five-year averages using Steven Ruggles et al., Integrated Public Use Microdata Series:
Version 5.0 [Machine-readable database]. Minneapolis: University of Minnesota, 2010. Figures are for employed workers. NWLC defines tipped workers as all workers in a
set of predominately tipped occupations identified in Allegretto & Cooper, supra note 3, at 20, 23.
5 Id.
6 Restaurant Opportunities Ctr. United & Forward Together, et al., The Glass Floor: Sexual Harassment in the Restaurant Industry, at 14-16 (Oct. 2014), available at
http://rocunited.org/wp-content/uploads/2014/10/REPORT_The-Glass-Floor-Sexual-Harassment-in-the-Restaurant-Industry2.pdf.
7 David Cooper, EPI, & Mark Price, Keystone Research Ctr., Falling Short: The Impact of Raising the Minimum Wage in PA to $8.75 vs. $10.10 (Feb. 2015), available at
http://keystoneresearch.org/sites/default/files/KRC_PolicyWatch_FallingShort.pdf.
8 Id.
9 See NWLC, Women, the Minimum Wage, and the Wage Gap, State by State, supra note 2. The share of minimum wage workers who are women is higher than
Pennsylvania only in Louisiana and Arkansas.
10 See Keystone Research Ctr., Characteristics of Pennsylvania workers who would be affected by increasing the minimum wage to $8.75, $10.10, $12 and $15 per hour
(May 2015), available at http://keystoneresearch.org/sites/default/files/KRC_Table2_4Proposals.pdf.
11 Id.
12 A higher minimum wage generally would narrow the wage distribution, effectively narrowing the wage gap. See Nicole M. Fortin & Thomas Lemieux, Institutional
Changes and Rising Inequality, 11 J. Econ. Perspectives 75, 78 (1997), available at https://www.aeaweb.org/atypon.php?return_to=/doi/pdfplus/10.1257/jep.11.2.75.
See also Francine D. Blau & Lawrence M. Kahn, Gender Differences in Pay, 14 J. Econ. Perspectives 75, 93 (2000), available at
http://econ2.econ.iastate.edu/classes/econ321/orazem/blau_wages.pdf.
13 NWLC, Women, the Minimum Wage, and the Wage Gap, State by State, supra note 2.
14 Id.
15 Julie Vogtman & Katherine Gallagher Robbins, NWLC, Higher State Minimum Wages Promote Fair Pay for Women (May 2015), available at
http://www.nwlc.org/sites/default/files/pdfs/higher_state_minimum_wages_promote_fair_pay_for_women_may_2015.pdf. Figures are for 2013.
16 See U.S. Census Bureau, supra note 1.
17 See generally T. William Lester et al., Ctr. for Amer. Progress, Raising the Minimum Wage Would Help, Not Hurt, Our Economy (Dec. 2013), available at
https://www.americanprogressaction.org/issues/labor/news/2013/12/03/80222/raising-the-minimum-wage-would-help-not-hurt-our-economy/. See also John Schmitt,
Ctr. for Econ. & Policy Research, Why Does the Minimum Wage Have No Discernible Effect on Employment? (Feb. 2013), available at
http://www.cepr.net/publications/reports/why-does-the-minimum-wage-have-no-discernible-effect-on-employment (reviewing research demonstrating that minimum
wage increases historically do not cause job loss, even during periods of recession).
18 Daniel Aaronson, Sumit Agarwal & Eric French, Fed. Reserve Bank of Chicago, The Spending and Debt Responses to Minimum Wage Increases, at 10 (Rev. Feb. 2011),
available at http://www.chicagofed.org/digital_assets/publications/working_papers/2007/wp2007_23.pdf.

National Women’s Law Center
www.nwlc.org
202.588.5180
info@nwlc.org

Women’s Law Project
www.womenslawproject.org
Philadelphia: 215.928.9801/info@womenslawproject.org
Pittsburgh: 312.281.2882/infopitt@womenslawproject.org

Raise the Wage PA
www.raisethewagepa.org
212.557.0822
info@philaup.org

Raising the minimum wage does not stop employment growth

Despite what opponents claim, the evidence shows that raising the minimum wage does not lead to job loss. Check out what the Economic Policy Institute has to say about raising the minimum wage nationally:

Based on the economic multiplier effect that results from putting additional income in the hands of lower-income workers, raising the minimum wage will likely have a modest but positive impact on job creation, leading to an additional 85,000 net new jobs when fully phased in. Lower-income earners spend their income more immediately, more completely, and more locally, than do higher income earners, and therefore generate more economic activity. Increasing the wages of 27.8 million workers by $35 billion over the phase-in period generates an additional GDP impact of $22 billion.1

This finding is consistent with the most recent, highly rigorous, peer-reviewed economic literature based on an analysis of real-world minimum wage increases across counties on state borders that shows essentially no disemployment effect resulting from raising the minimum wage.2” (Source: EPI)

 

Last time Pennsylvania raised the minimum wage, job creation continued well into the Great Recession, when the national economy collapsed:

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In fact, according to the Keystone Research Center raising the minimum wage to $10.10 would lead to the creation of 6,000 jobs across the state. That’s on top of increased wages for over 1.2 million Pennsylvania workers

General Facts about the Minimum Wage

Raising the minimum wage to $10.10 an hour benefits 1.2 million low-wage workers and boosts the economy

 

A person in Pennsylvania working full-time, 40 hours a week, 52 weeks a year, earns only $15,080 annually, well below the poverty line for a family of two. Increasing the wage floor to $10.10 an hour and connecting the rate to inflation would increase the purchasing power of 1.2 million Pennsylvania workers and boost the state’s struggling economy.

 

 

The state minimum wage and the tipping minimum wage

                      

  • The minimum wage has remained at $7.25 an hour since 2009.
  • The minimum wage for tipped workers is only $2.83 an hour
  • Neither wage rises with inflation, meaning the purchasing power of workers is decreasing.

 

 

After adjusting for the change in prices, the minimum wage is worth less today than in 1968.

  • This decline is not due to economic necessity. Since 1968, the U.S. economy has expanded greatly and our ability to produce goods and services for the same amount of work has doubled.
  • However, the purchasing power of the minimum wage declined by 23% in the last 45 years.
  • The minimum wage would be $10.65 if it has risen at the same wage rate as the typical American worker and it would be $18.30 if the wage had grown with productivity.

 

Increasing the minimum wage to $10.10 an hour helps more than one million workers in Pennsylvania[1]

  • The vast majority (84%) of people who would see their wages go up are adults in the prime of their working years, not teenagers, as some have claimed.
  • Almost half (49%) of workers who will benefit from a minimum wage increase work full time and another third (32%) work more than 20 hours per week.

 

Eliminating the tipped minimum wage is critical

  • The tipped minimum wage at $2.83 has not changed since 1998.
  • When tips fall short, low-wage workers, who are predominantly women, have unstable incomes that fall short of minimum wage.
  • Tipped workers earn more in states with a higher tipped minimum wage and the gap in earnings between tipped workers and workers overall is smaller the higher the tipped minimum wage is in a state. In other words, a good way to reduce inequality in a state is to raise the tipped minimum wage.

 

Working families benefit from a $10.10 an hour minimum wage

  • The earnings of minimum wage workers are crucial to their families’ well-being. Nearly a quarter (24%) of the workers who would benefit from raising the minimum wage are parents with children.
  • The average parent working minimum wage brings home just over half of their family’s income.
  • Nearly one in five children (18%) have a parent who would be helped by raising the minimum wage to $10.10 an hour.

 

Raising the minimum wage will help close the wage gap for women

  • Nationwide women earn only 77 percent of what their male counterparts make – leaving a wage gap of 23 cents on the dollar.
  • The majority (56%) of workers getting a raise by increasing the minimum wage to $10.10 are women.
  • Women make up over three-quarters of the tipped workforce.
  • Raising the minimum wage is an important step towards fair pay for women – especially women of color.

 

Pennsylvania workers are falling behind those in other states

  • Already 29 states have raised their wage floor above Pennsylvania’s $7.25 an hour.
  • All of our surrounding states have a higher minimum wage. These include Ohio, New York, New Jersey, Delaware, West Virginia and Maryland.
  • The majority of Pennsylvania workers who would see their incomes rise are white (74%), along with 35% of Latino workers, 25% of African American workers would benefit and 29% of Asian workers.

Increasing the minimum wage will boost the state’s economy.

  • Pennsylvania’s economy needs a boost. Job growth has been weak since 2010 and the state ranked 48th in the nation last year. Slow job growth holds down wages for all of us.
  • One way to get the economy going again is to put more money in the hands of the lowest-paid workers. With more income, workers here will do things like have their car repaired at the local service station or make a long-delayed trip to the dentist.
  • Raising the minimum wage is a modest but important step towards creating an economy powered by good jobs.

 


[1] Unless otherwise noted the demographics of the workers affected by a minimum wage increase were drawn from David Cooper, Raising The Federal Minimum Wage to $10.10 Would Lift Wages for Millions and Provide A Modest Economic Boost, Economic Policy Institute, Briefing Paper #371, December 2013, available at http://s2.epi.org/files/2013/minimum-wage-state-tables.pdf.

Who will be affected by an increase in the Pennsylvania minimum wage to $10.10 per hour?

Workers currently making less than the increased minimum wage will be directly affected plus workers who make just above the new minimum wage will be indirectly affected by the “ripple effect” of an increase.
  • 1,265,000 Pennsylvania workers would get an increase in pay.
  • 58.6% of those affected will be women.
  • 87% of those affected would be over age 20 (not teenagers).
  • 73.4% of affected workers will be white.
  • 36.4% of all Latino workers will get a raise with an increase.
  • 32.3% of all Black workers will be affected.
  • 29.6% of all Asian workers will be affected.
  • 23.4% of affected workers have children.
  • 40.3% of affected workers will have full time jobs.
  • 83.6% of workers who will be affected by a minimum wage increase have a high school degree or more.
  • 28.8% of affected workers will have some college education.
  • 16.4% of affected workers who have children will be the only bread winner in their family.

Source: Economic Policy Institute analysis of Harkin-Miller minimum wage proposal using Current Population Survey Outgoing Rotation Group microdata

 

According to the Keystone Research Center, 530,000 Pennsylvania children have parents who will see a raise if the minimum wage is increased to $10.10 an hour. Click here for more info