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Report: Tipped Workers, Disproportionately Women, Experience Higher Poverty Rates

Emily Crockett

The report from the Economic Policy Institute finds that the wage gap between tipped and non-tipped workers is the highest it's ever been.

Low-wage women workers have been speaking out in recent months about how they are disproportionately affected by too-low minimum wages. The same disproportionate impact holds true for tipped workers—and a new report details how tipped workers experience unique challenges due to their separate “subminimum wage.”

The report from the Economic Policy Institute finds that the wage gap between tipped and non-tipped workers is the highest it’s ever been. The federally mandated minimum wage for tipped workers is now only 29 percent of the regular minimum wage, down from 50 percent in 1966. Tipped workers, two-thirds of whom are women, experience about twice the level of poverty as other workers (12.8 percent versus 6.5 percent). The median wage for tipped workers is $10.22 per hour, while it’s $16.48 for all workers. Tipped workers also rely on public assistance at higher levels than non-tipped workers.

The report spells out how customers are expected to subsidize most of the earnings of servers, bartenders, and other tipped workers, contrary to popular belief that tips are just “extra” money to reward good service. Since 1966, service workers who routinely receive tips have been guaranteed only a separate, subminimum wage that is 50 percent of the regular minimum wage. That wage has remained stagnant at $2.13 per hour since 1991, partly because President Clinton decoupled the two wages in 1996. That meant that even as the federal minimum wage rose, the federal tipped minimum wage was not required to rise in turn, and its purchasing power has gone down with inflation. Only seven states in the country mandate a tipped minimum wage that is equal to the regular minimum wage.

Customers’ tips are expected to make up more than twice of what employers pay, $5.12 and $2.13 respectively, which adds up to the federal minimum wage of $7.25 per hour. Employers are supposed to make up the difference if tips don’t reach that threshold—but that doesn’t always happen. Enforcement is difficult and spotty, and tipped workers are often subject to wage theft. Even good-faith employers can have difficulty on this front: It’s up to the worker, who may not know the law, to request that the difference be made up, and the federal wage standards are assessed on a fixed “workweek” basis that may not match service workers’ often-erratic schedules.

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Contrary to popular perception, the report says, most tipped workers are not teenagers. They are disproportionately young compared to the rest of the workforce, but about 63 percent of them are over 25, and less than 13 percent are teenagers. Moreover, about 30 percent of women working in tipped industries have children.

Tipped workers also have generally poorer jobs when it comes to benefits. Workers in the accommodation and food service industry are offered paid leave, health insurance, and retirement benefits at a much lower level than the rest of the private sector. Meanwhile, from 1990 to 2013, the restaurant industry grew 86 percent while the rest of the private sector only grew 24 percent. So more people are taking service jobs, many of which rely on tips, and that fewer of those jobs have good benefits. 

Some states and localities are taking action to raise their minimum wages in the absence of congressional action, and a few are including tipped workers in the raises. But restaurant industry lobbying often succeeds in keeping the subminimum wage from rising, as in Washington, D.C., this year. The city council raised the minimum wage to $11.50 by 2016 and passed paid sick days for all workers, but left the subminimum wage for tipped workers at $2.77 per hour.

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