Millions of Americans who work for tips have now been dragged into the political battle over the federal minimum wage and whether it should be raised to $10.10 per hour. Since 1991, the federal minimum wage has been adjusted 5 times, increasing three dollars to its current $7.25. These changes have been made while the minimum wage for America’s largest workforce, tipped workers, has remained unchanged at $2.13 for 23 years.
Although tips are meant to be a gratuity that shows appreciation for good service, they have become the difference between poverty and a living wage for nearly 20 million Americans. Saru Jayaraman, founder of the labor advocacy group Restaurant Opportunity Centers United, says that abolishing the tipped minimum wage in favor of one fair wage will help reduce poverty, especially in families.
But the National Restaurant Association has a different view. In response to a study on tipped wages by the left-leaning Economic Policy Institute, the NRA states:
Ninety percent of restaurants are independent or franchisee owned and operate on razor thin profit margins. Drastic increases to the minimum wage will only hurt restaurants ability to continue to create jobs and provide real opportunity to young people looking to step into the workforce and those who are finding their economic footing.
According to a report issued by the White House, 72 percent of the tipped workforce consists of women, and nearly half of those who have children are single mothers. The risk for a tipped worker to fall under the poverty line is three times higher than the national workforce, creating unique challenges for women, whose responsibility to be the sole or co-breadwinner for their family is rising.
Unlike those receiving the minimum wage, tipped workers are “dependent upon the mercy and spending power” of their customers to make a living wage, Jayaraman says. Tips are unreliable, varying each shift, season, and especially during economic downturns, “When you live off of tips, your rent and your bills don’t go up and down, but your income does,” he states.
Under federal law, employers must compensate for their employee’s earnings if their tips do not bring them up to the level of standard minimum wage, but it often does not work out that way. Jayaraman explains, “Enforcement is not just difficult, it is practically impossible for employers to have to count hour by hour to make sure that tips make up the difference for every worker for every hour they’ve worked.”
Proponents of raising the federal minimum wage, including Jayaraman, believe that if the government forces employers to pay workers, including those who are tipped, a $10.10 wage, it will go a long way to lift these workers from subsistence living. Although no compassionate person wishes to see individuals and families suffering, the solution of lifting the poor out of poverty may not be creating a “one fair minimum wage.”
Rev. Gerald Zandstra, a pastor in the Christian Reformed Church in North America, suggests another approach this this problem:
The problem with the ‘living-wage solution’ is that it leads to negative consequences that are equal to, or sometimes worse than, the problem that the policy sought to remedy. Studies over the past forty years indicate that even a legally determined minimum wage leads to fewer available jobs. Furthermore, companies that have a living wage imposed on them may be forced to move their operations to another location, resulting in a further loss of jobs. And finally, the extra costs produced by living-wage legislation will not be borne by the affected companies. The companies will, of course, pass along the costs to those who buy their products, which will include the employees who have just had their wages raised, thus making those same wages that much less ‘livable.’
There is a moral obligation for employers to pay a living wage, but in deciding this, it must be in the context of free negotiation between employers and employees – not by government edict. For instance, Gabriel Frem, owner of Brand 158, a restaurant in Glendale, California, has already made the decision to acknowledge the issue of low wages in the restaurant industry, which makes up the majority of the tipped workforce. Frem has eliminated tipping in his restaurant altogether, but instead, pays his employees $15 an hour.
For Frem’s employees, this means stability, which pays for a more productive and consistent staff that yields savings. Frem is aware that this model would be a struggle to implement, especially in states where the tipped wage is at the federal minimum, but the owner-initiated approach makes sense no matter what a businesses’ bottom line is.
As Zandstra puts it, “wages, like the price of goods and services, are not the capricious decisions of employees; they are the response of business owners to what consumers are saying that they value. To disregard this economic law is to invite economic disaster.” The reality of a raised federal minimum wage is that the very people it is meant to help, will only suffer greater financial strain as a result.
This article was updated on July 14.