The Subminimum Wage Plus Tips: A Bad Bargain for Workers

In a new report published Monday in the New Labor Forum, the Center for Economic and Policy Research’s (CEPR’s) Sylvia Allegretto sheds light on the systemic flaws in the United States’ two-tiered minimum wage system, focusing on the long-overlooked subminimum wage for tipped workers. While many think of the federal minimum wage as $7.23/hour, the subminimum wage for tipped workers is, in fact, $2.13/hour – and has been since 1991.

Using data spanning back to 1966, when Congress made it legal to pay tipped workers a subminimum wage, Allegretto shows how the federal tip-credit provision, which is the difference between the minimum wage and the subminimum wage, has grown over time. Originally set at a 50–50 split, the tip-credit now represents 71 percent of a tipped worker’s wage as shown in the figure. Many consumers are not aware that their tips, in part, essentially function as a wage subsidy to employers.

In her article, Allegretto traces the history of the tipped minimum wage, describes the policies that have allowed the situation to deteriorate, and proposes legislative and labor-based solutions. She also explores the vast state differences in minimum and subminimum wages across the country, as well as the lack of access to employer-provided benefits for minimum and subminimum wage workers.

“Every worker has the right to work with dignity at a fair wage. It is ludicrous to think that the U.S. cannot pursue and successfully implement high-road wages and labor protections at the federal level to uplift millions of workers and institute a fairer labor system regarding the tipped workforce,” said Allegretto.

“The Subminimum Wage Plus Tips: A Bad Bargain for Workers” can be read here.