People who work for tips are far more likely to live in poverty, according to a new report from the Economic Policy Institute (EPI).
The poverty rate for workers who don’t make tips is 6.5 percent, but the rate for tipped workers is 12.8 percent — meaning that people working for tips are nearly twice as likely to live in poverty. They are also more likely live in low-income households, as 47.2 percent of tipped workers are in families that make less than $40,000 a year, compared to 30.5 percent of the general workforce.
Given all this, it’s not surprising that tipped workers are more likely to rely on public benefits such as food stamps, housing and energy subsidies, the Earned Income Tax Credit, school lunch subsidies, and the Supplemental Nutrition Program for Women, Infants, and Children (WIC). About 46 percent of tipped workers and their families use these programs, compared to 35.5 percent of those who don’t work for tips.
One big reason for the high poverty rate among tipped workers is that they have a lower minimum wage than all other workers. Since 1991, employers have been able to pay workers the same base rate of $2.13, although they are supposed to make up the difference if a worker’s tips don’t bring her total haul to $7.25 an hour. Tipped workers still end up making less, though: they have a median wage, including tips, of $10.22, compared to $16.48 for all workers.
But some states have different policies. Thirty-one require a higher tipped minimum wage than the federal $2.13 level, either at the same rate as the minimum wage for everyone in the state or one that is lower. Seven states treat all workers, tipped or non-tipped, as the same under their minimum wage laws:
In those seven states where tipped workers make the regular minimum wage, their poverty rate is also significantly lower. Those who work in a state with the $2.13 tipped minimum wage have a 14.5 percent poverty rate, while those who work in a state where there is no different minimum have a rate of 10.8 percent. Median wages for tipped workers are also higher where there is no wage difference: it’s $9.80 in $2.13 states, but $11.19 in those that require the regular wage.
More states could join the group of those that guarantee the same wage for all workers. Hawaii, which recently raised its minimum wage, will have the new level apply to all workers when it goes into effect. And ballot measures in Michigan and Washington, DC as well as legislation in Florida and Pennsylvania, would get rid of those places’ lower tipped minimum wages. Those states shouldn’t worry about it hurting job growth: a report from ROC United found that employment growth in the restaurant industry was actually above average in the states that have the same minimum wage for tipped and non-tipped workers. Job growth for tipped workers themselves is higher in states where they make more than $5 an hour and even higher where they make the regular minimum wage.
Some individual restaurants have also decided to do away with tipping and just pay everyone a higher minimum wage. There are high-end restaurants in New York and the West Coast doing it, but they have been joined by a bar in Washington, DC and a barbecue restaurant in Kentucky. The owners say the switch lowers turnover and improves both service and revenue.
The EPI report also illuminates who is making lower wages working for tips. Of the 4.3 million tipped workers in the country, two-thirds are women. More than 60 percent are employed in food service, often as waitstaff and bartenders. And while tipped workers tend to be younger than the overall workforce, just 12.6 percent are teenagers, while 62.8 percent are at least 25 and nearly 40 percent are 40 or older. A quarter of them are parents.