When President-elect Joe Biden first proposed raising the minimum wage to $15 an hour on the campaign trail in 2019, the U.S. was experiencing its best unemployment figures in decades. Since then, the unemployment rate has nearly doubled to 6.7% as the pandemic has cost millions of Americans their livelihoods.
Some observers say it’s a better time than ever for Biden to push for a $15 minimum wage and end tip credits — a way to pay tipped workers less than minimum wage. But others say the timing couldn’t be worse for Biden’s wage proposals, which are part of his$1.9 trillion stimulus plan.
Dubbed the American Rescue Plan, the proposal also includes $1,400 stimulus checks and increased child tax credits.
“No one working 40 hours a week should live below the poverty line,” Biden said when he announced the package. “That’s what it means if you work for less than $15 an hour and work 40 hours a week, you’re living in poverty.”
While many workers and advocacy groups are applauding Biden for taking action to raise the minimum wage and end the tipped-wage credit, others worry that it would result in more job losses in industries that have taken the biggest hits during the pandemic.
Nearly 1 million Americans filed for unemployment benefits in the first week of this year, a five-month record high. The job losses come as more businesses are closing and state and local governments are reimposing restrictions to combat the accelerating spread of coronavirus.
The federal minimum wage has been $7.25 since 2009
The federal minimum wage has been $7.25 an hour since 2009. Workers at this level earn roughly $15,000 a year if they work 40 hours a week. Some workers are paid in base wages that are less than $7.25 an hour (or their state’s minimum wage) by their employers if they make up the rest in tips. If they don’t earn the difference in tips, their employers are required to pay it to them.
In 2019, House Democrats passed the Raise the Wage Act, a bill that would increase the federal minimum wage to $15 an hour. It also calls for phasing out the tipped-wage credit. The Congressional Budget Office, a nonpartisan federal agency, found that raising the wage to $15 an hour by 2025 would boost the wages of 17 million workers. The downside, however, is that 1.3 million workers could become unemployed as a result according to the CBO’s median estimate. The CBO says jobs are lost because higher wages lead to higher costs for businesses, which they in turn pass on to customers in the form of higher prices. That leads to consumers buying less of their goods and services, according to the CBO.
But some see a $15 minimum wage as a tool for helping businesses.
“Workers are also customers. The current minimum wage keeps workers in poverty, and that hurts businesses as well as workers,” said Holly Sklar, CEO of Business for a Fair Minimum Wage, a coalition of business owners that support raising the minimum wage. “Raising the minimum wage is a powerful way to boost businesses and the economy because it puts money in the hands of people who most need to spend it.”
However, a consequence of raising the minimum wage could be higher prices of goods and services, said Michael Saltsman, the managing director for the Employment Policy Institute, a think-tank that receives some funding from leaders of the restaurant and hospitality industry.
Ending the tipped-wage credit could cost even more jobs
Maine restaurant worker Joshua Chaisson, who has been waiting tables for over 20 years, said he’s made a good living under the existing tip-credit system. He’s “never once been in a position where [he] did not meet the minimum wage threshold,” he said. In other words, his tips have always added up to more than Maine’s minimum wage, which was increased to $12.15 an hour this year, up from $11 an hour in 2019.
That’s not uncommon for tipped workers.
On average, waiters and bartenders have earned nearly twice ($14.32) the federal minimum wage with tips included. That’s according to calculations based on data from the Current Population Survey performed by David Macpherson, an economist at Trinity University, and William Even, an economist at Miami University.
Before the pandemic, Chaisson said he earned around $28 an hour including tips and his base pay working at the Porthole Restaurant, a casual seafood eatery in Portland, Maine. He’s never had an issue affording living expenses and has never had to take on a second job, he told MarketWatch.
On average, waiters and bartenders have earned nearly twice ($14.32) the federal minimum wage with tips included
Even though the Porthole, like many restaurants across the country, has taken a hit from COVID, it has not laid off any workers. Chaisson, who is the vice president of Restaurant Workers of America, an employee advocacy group that works to preserve and promote the the tip credit across the U.S., considers himself extremely fortunate.
“It is heartbreaking, and devastating to watch the destruction of an industry that I’ve called home for over half my life.”
Biden’s proposal would eliminate employers’ ability to pay below minimum wage bases, regardless of what employees earn in tips.
Ultimately that could cause employers — particularly in the restaurant and hospitality industry — to lay off employees given that many won’t necessarily have the ability to raise prices to offset the higher cost of labor, said Saltsman.
“Today so many businesses are struggling to just keep the doors open. That’s why raising the minimum wage and eliminating the tipped-wage credit now seems ill-conceived,” Saltsman said.
Ending the tipped-wage credit would ‘would be the nail in the coffin for an industry that is clearly on life support’
Members of Biden’s team did not respond to MarketWatch’s request for comment regarding when a $15 minimum wage increase could take effect. Eliminating the tipped-wage credit would mean that employers who currently pay $2.13 an hour to tipped workers would have to pay $15 an hour, a more than 85% increase.
“Tipped-credit elimination on top of all things COVID is quite frankly irresponsible legislation,” Chaisson told MarketWatch. “It would be the nail in the coffin for an industry that is clearly on life support.”
Currently, there are seven states — California, Nevada, Oregon, Washington, Minnesota, Alaska, Montana — that don’t count tips towards workers’ hourly wages. Research has shown that raising the minimum tipped wage is associated with more restaurant closures and lower tips.
One Seattle, Wash. waitress, Simone Barron, who is a member of the Restaurant Workers of America, told Chaisson that the restaurant she previously worked at began implementing a 20% service charge to all diners shortly after the city’s $15 minimum wage began to go into effect in 2015. As a result, Barron said, she began to see her usual tips cut in half.
“I’ve experienced first-hand the consequences of no tip credit, having lost my job and seen my restaurant close because of Seattle’s unrealistic wage mandates,” she said in a statement.
Ending the tipped-wage credit could help close racial earnings gaps
The median monthly income of a Hispanic or Latina tipped worker is 35% of the median monthly income of a nontipped white, non-Hispanic man, according to a 2019 analysis based on U.S. Census Bureau data published by the Center for American Progress, a progressive think tank.
Tipped Hispanic or Latino workers earn 30% less than tipped white, non-Hispanic men.
Tipped Hispanic or Latino workers earn 30% less than tipped white, non-Hispanic men
Eliminating the “subminimum wage would be really beneficial for people of color, particularly women of color who are overrepresented in occupations that depend on tips,” said Lily Roberts, director of economic mobility at CAP.
Research has shown that “sexism and racism combine for lower tips and more sexual harassment of tipped workers by customers and employers,” she said.
‘We are at a critical moment for tipped service industry workers, mostly women and people of color, who are facing unprecedented rates of housing and food insecurity, unemployment and poverty’
On top of which, women of color disproportionately rely on tips compared to white men. Hispanic or Latino women are more than twice as likely to work tipped jobs compared to white, non-Hispanic men, Roberts’ research shows.
Importantly, during the pandemic many female service workers have been harassed by patrons asking them “take off their masks,” a report by One Fair Wage, a group advocating for ending tipped-wages.
Eliminating the tipped-wage credit and raising the minimum wage to $15 an hour “is long overdue,” Saru Jayaraman, president and co-founder of One Fair Wage, said in a statement.
“We are at a critical moment for tipped service industry workers, mostly women and people of color, who are facing unprecedented rates of housing and food insecurity, unemployment and poverty.”