The Subminimum Wage Has Been Stuck at $2.13 Since 1991

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

NEW YORK, NY - NOVEMBER 22: A waiter clears a table at a midtown restaurant popular for business lunches on November 22, 2011 in New York City. As retailers prepare for the start of the traditional holiday shopping season, the Commerce Department revised third-quarter GDP downward to 2 percent from 2.5 percent Tuesday for the quarter that ended on September 3. While economists are not expecting the country to slip back into a recession, many analysts will be closely watching consumers in the coming month for evidence on the overall health of the economy. 
National Journal
Catherine Hollander
Jan. 27, 2014, 4:27 p.m.

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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