Thanks to Obama’s State of the Union, the federal minimum wage is finally getting some long-overdue attention. Not that Washington deserves credit for the idea: Last November, voters in ten states elected to raise their states’ standards above the federal minimum.
But what’s still missing from the national conversation—and has been for over two decades—is the group of employees that makes below the federal minimum wage. Some 3.3 million workers receive the tipped minimum wage, set at only $2.13 per hour. Although the federal minimum wage has increased five times in the past two decades, the tipped minimum wage has been frozen for 21 years.
A lot has happened in 21 years. Like, inflation.
According to the Department of Labor, tipped employees are those who “customarily and regularly” receive $30 or more per month in tips. That’s about $1.50 a day in tips during a typical working month—a pretty low bar for classifying an employee as “tipped.” Once a worker is so classified, the employer may claim a “tip credit” of up to $5.12 per hour: So long as the direct wage ($2.13) plus tips sum to at least the federal minimum wage, the employer need not pay the worker more. If the direct wage plus tips do not amount to $7.25, the employer must make up the difference…in theory.
But theory and practice are all too often different. If you’re working a low-skill job at a rock-bottom wage, you probably don’t have much bargaining power. The cost to your employer of replacing you—especially with the high jobless rate among low-skill workers—is fairly negligible. So when your boss cuts corners with the credit, or overtime pay, you may do well to keep your mouth shut. Workplace tip-pooling practices are not prohibited, nor are laws about distributing the tip pool well enforced. Furthermore, the reality that many thousands of low-wage workers do not have legal documents to work in this country makes exploitation all the easier, in spite of the fact that such workers are equally protected by most labor laws.
The tipped minimum wage is effectively a hand-out to low-paying employers. Most of these employers are not mom-and-pop small businesses: According to the NELB, 66 percent are large conglomerates with more than 100 employees. Yet the first $5.12 in tips earned by an employee in each hour subsidizes these employers’ already low cost of labor. Initially, employers could collect a credit equal to 50 percent of the minimum wage. Today, the credit is 68 percent. It’s no wonder lobbyists for the National Restaurant Association have protected the sub-minimum wage so fiercely.
As a result, poverty among tipped workers is rampant. A new book by Saru Jayaraman at Berkeley’s Labor Center—released last week—documents the effects of the tipped minimum wage in the restaurant industry. Behind the Kitchen Door tells the story of restaurant and service workers, more than 20 percent of whom live in poverty (a rate of poverty three times greater than among American average workers). The sub-minimum wage hits women hard: Female workers make up less than half of the labor force, but represent over 70 percent of tipped workers.
Fortunately, a few in the federal government have gotten the message: Congressman George Miller and Senator Tom Harkin have introduced the Fair Minimum Wage Act. In addition to enacting the changes that the President mentioned (raising the federal minimum wage and linking it to an annual inflation index), the bill would slowly increase decrease the tip credit.
It’s high time to pass that bill. A living wage for low-wage workers puts money in the pockets of those who are most likely to spend every cent of it. That’s the most effective form of economic stimulus this country could hope for. We’re long overdue for an increase in the minimum wage—for alllow-wage workers.