On Tuesday, lawmakers in Hawaii voted to increase the state’s minimum wage to $10.10 an hour by 2018 and it was signed into law by Gov. Neil Abercrombie (D) the next day. While the state is the third to raise its wage to that level this year, it’s unique in one aspect: its wage will apply to tipped and nontipped workers alike.
That means Hawaii will become the eighth state to require businesses like restaurants, nail salons, bars, and barber shops to pay the employees who earn tips the same minimum wage as everyone else. Before Hawaii, Alaska, California, Montana, Minnesota, Nevada, Oregon, and Washington had already done the same. Those seven states have more than 1 million tipped workers that make the full minimum wage.
There are opportunities for more to join the club. According to Saru Jayaraman, co-director of ROC United, ballot measures in Michigan and Washington, DC as well as legislation in Florida and Pennsylvania would get rid of the lower tipped minimum wage. “Our focus is on the ballot measures,” she told ThinkProgress, which she says “are likely to pass.”
Those seven states that have already eliminated the two-tier system stand out. The federal minimum wage for tipped workers is $2.13, about 30 percent of the $7.25 wage for all other workers, and it hasn’t been raised in two decades. But among those who did away with the lower wage, the minimum for tipped workers reaches as high as 130 percent of the federal level. And their experience with a higher wage for people who earn tips shows it could have positive benefits for the whole economy.
The low tipped wage leaves many people who earn it struggling to get by. Across the country, workers in predominantly tipped jobs are twice as likely to experience poverty, and restaurant servers have a poverty rate that is nearly three times the rate for everyone else. Servers are also twice as likely to use food stamps to feed themselves. But the situation is different in states with higher tipped wages. In those seven states, the poverty rate for tipped workers has been reduced by a third.
Part of the reason so many tipped workers struggle to get by is that their employers don’t live up to their obligation to fill in their wages. If a workers’ hourly wage plus tips doesn’t add up to $7.25 an hour, the employer is required to make up the difference. But few do. More than one in ten tipped workers say their pay adds up to less than that even with tips. The Department of labor found 84 percent of employers weren’t compliant with the rule when it conducted 9,000 investigations over two years.
It doesn’t just help the workers themselves. A report from ROC United found that these states also experienced above average employment growth in the restaurant industry compared to the rest of the country. It’s set to grow 10.5 percent in those seven states, compared to 9.1 percent in the others. Job growth for tipped workers also tends to be higher where they make more than $5 per hour and is even higher in those seven states without a lower wage.
And restaurants themselves can benefit. The report found that per capita actual sales in the industry over the last three years increased as the tipped minimum wage increased. One reason, it posits, could be an improvement in customer service and a reduction in turnover — a survey of 1,000 employers in the industry found that higher wages cut their turnover in half. The higher wage also puts more money in workers’ pockets, which can translate to more money spent at these establishments.
Some restaurants have already decided that the benefits outweigh the costs. From a bar in Washington, DC to a high-end sushi restaurant in New York City, some places are banning tips for their workers in favor of just paying them a higher wage and giving them benefits. One restaurant owner said doing so improved both his service and revenues.
They have not just recognized that tipping can leave their workers making less, but that it doesn’t necessarily come with benefits. While customers think that tipping allows them to get better service, that doesn’t actually play out: their perception of service accounts for just a percentage point or so in what tips they leave. Meanwhile, tipping can perpetuate racism and sexism, rewarding attractive women and white servers over others.