Raising the minimum wage for tipped workers will not close the gender and minority wage gap

David Neumark
| Detroit News

Last week, hundreds of tipped workers in Michigan took to the state Capitol to advocate for maintaining the minimum wage for tipped workers, saying the Supreme Court’s “Adopt and Amend” ruling — which paves the way for the elimination of the minimum wage for tipped workers — would “destroy” the industry.

However, the ruling was welcomed by One Fair Wage, which says repealing the minimum wage for tips would end inequality and discrimination against women and minorities in the restaurant industry.

Now research refutes this claim.

Current federal and Michigan state law permits employers to pay tipped employees the minimum wage below the base wage, provided their hourly earnings, including tips, meet the minimum wage rate. This perspective, that eliminating the tip credit will reduce wage and earnings inequality, oversimplifies the economics of tipped restaurant work.

A new study we conducted with Emma Wohl estimates the impact of changing tipped minimum wage rates across states on restaurant workers’ earnings. The results show that raising the tipped minimum wage does not close the earnings gap between women and minorities in the restaurant industry—in fact, it may worsen it.

Studies show that among hourly workers, tipped workers earn more per hour than nontipped workers across all racial and gender groups. This means that tipped workers are not necessarily the lowest-paid workers in the economy.

When we compared what happened to wages for restaurant workers in states that had already raised or repealed their tipped minimum wage with states that had not, we found that raising the tipped minimum wage resulted in a relative decline in hourly earnings for black and Latino tipped workers. While hourly earnings increased slightly for women, the simultaneous loss of hours negated the hourly impact on overall earnings for tipped women.

In hourly terms, the impact of these changes on the racial and gender wage gap is mixed. Higher wages narrow the hourly wage gap between women and men but widen the hourly wage gap between white and minority workers.

We also look at weekly earnings to determine whether higher tipped wages increase earnings while controlling for the impact on hours worked. On a weekly basis, we find that tipped wage increases have no clear effect on the weekly earnings gap between minority and white tipped workers. And despite increases in women’s hourly wages, tipped wage increases cause many employers to reduce the hours their female employees work. Thus, increases in the tipped minimum wage have no clear effect on closing the weekly gender earnings gap.

The data also show that the presumed base wage increases resulting from higher minimum wages do not reduce these gaps and in some cases worsen existing pay gaps.

Our research found that regular minimum wage increases that leave the tipped minimum wage intact increase the hourly and weekly earnings of women, black, and Latino restaurant workers compared with white men. However, these increases were driven by wage increases for nontipped workers and had no significant impact on tipped workers.

Tipped workers—and restaurant workers in general—should be valued for their contributions to our economy. But it’s essential to approach wage reforms with a comprehensive understanding of their potential impacts. The data doesn’t support the notion that raising the minimum wage for tipped workers will directly address the lower wages of women and minorities in the industry. The solution to wage inequality likely lies elsewhere.

David Neumark is a distinguished professor of economics at the University of California, Irvine.