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The Subminimum Wage Has Been Stuck at $2.13 Since 1991 The Subminimum Wage Has Been Stuck at $2.13 Since 1991

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Economy

The Subminimum Wage Has Been Stuck at $2.13 Since 1991

Repeat, two dollars and 13 cents. For 23 years.

(Photo by Spencer Platt/Getty Images)

photo of Catherine Hollander
January 27, 2014

President Obama is expected to make yet another call to raise the federal minimum wage in his State of the Union address Tuesday night, but one thing he probably won't talk about is its kissing cousin, the lesser-known "subminimum wage."

That's the minimum applied to workers who earn most of their income in tips (think waiters and hair stylists) and the one that's been stuck at $2.13 for 23 years. Repeat, two dollars and 13 cents. For 23 years.

Labor advocates are agitating for a boost to that lower wage, but they're facing off against a more influential restaurant lobby, which paints a pretty bleak picture of the impact a wage hike would have on its industry. According to the National Restaurant Association, an increase in the subminimum wage would raise menu prices and cause restaurants to cut service jobs. Plus, the group says a pay raise couldn't come at a worse time as businesses struggle to recover from the recession.

 

But there is evidence—from states that don't have a separate, lower wage for tip-earning workers—that the restaurant owners are wrong to make such a dire and definitive case.

Seven states—Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington—don't have a tipped wage at all: The minimum wage is the minimum wage for everyone. (Nineteen states follow the federal subminimum wage, and the rest are somewhere in between).

"You can ... look anecdotally to the experiences of California and Washington and Oregon, where the restaurant industry is doing very well, even though those states don't even have a tipped minimum wage," said David Cooper, an economic analyst at the left-leaning Economic Policy Institute.

Graphing the change in gross domestic product for those states' restaurants and bars compared with the national change shows they roughly track one another over time (with the states performing better in recent years), and suggests there haven't been any major negative impacts for growth in the industry in those states.

The restaurant industry says this tells a misleading story. The above-average increase in the number of restaurants in Washington and Oregon, two of the states without a separate tipped minimum wage, was due to above-average population growth, the National Restaurant Association said. Despite that expansion, the association says restaurant job growth in both states lagged the national average due to minimum-wage increases there.

While the minimum wage is researched and hotly debated in academic circles, the subminimum gets a lot less love. That may be partly because it's hard to tease information on tipped workers out of government data, says EPI's Cooper. Tipped workers also make up a relatively small share of the workforce, according to a briefing paper from EPI.

That may also be why it's been harder to get a raise in the tipped wage through Congress, despite increases in the federal minimum. The "tipped wage" is now just 29 percent of the federal minimum of $7.25 per hour.

The latest effort to increase the federal minimum wage, a bill introduced by Democrats Sen. Tom Harkin of Iowa and Rep. George Miller of California, would bring non-tipped workers up to $10.10 per hour from $7.25 and also lift tipped workers to $7.10 per hour through a series of incremental increases.

One of the few economists who has studied this issue, Sylvia Allegretto of the University of California (Berkeley), concludes in her latest working paper that raising the subminimum wage to something like $7 an hour is unlikely to "unduly harm" restaurant employment. (Her paper has yet to be published in a peer-reviewed journal.)

Restaurant owners' concern about the impact of higher tipped wages on menu prices is a more open question. Allegretto is studying thousands of menu prices from San Jose, Calif., which increased its minimum wage from $8 to $10 this year, to try to answer it.

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