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The Subminimum Wage Plus Tips: A Bad Bargain for 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.

June 15, 2023 by CEPR Leave a Comment

By Sylvia Allegretto

This article, published in the May 2023 issue of the New Labor Forum discusses the systemic flaws in the United States’ two-tiered minimum wage system, focusing on the long-overlooked federal 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 from 1966, when Congress made it legal to pay tipped workers a subminimum wage, the article shows how the federal tip-credit, 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 unaware that their tips, in part, essentially function as a wage subsidy to employers.

The article 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. It 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. The U.S. can 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.

“The Subminimum Wage Plus Tips: A Bad Bargain for Workers” can be read online at the New Labor Forum’s website here. For a PDF version of the article, click here

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This post was previously published on cepr.net and under a Creative Commons license CC BY-ND 4.

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About CEPR

The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people’s lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.