And the Importance of Ensuring a Robust Tipped Minimum Wage
This report was prepared by the National Economic Council, the Council of Economic Advisers, the Domestic Policy Council, and the Department of Labor
Introduction and Summary
Over the past 30 years, modest minimum wage increases have not kept pace with the rising costs of basic necessities for working families. No one who works full time should have to raise his or her family in poverty. The President supports raising the minimum wage to help build real, lasting economic security for the middle class and create more opportunities for every hardworking American to get ahead. The President knows this is important for workers, and good for the economy. That is why the President has already signed an executive order to raise the minimum wage and tipped minimum wage for federal contract workers and is calling on Congress to raise the Federal minimum wage from $7.25 to $10.10 per hour and index it to inflation thereafter, while also raising the tipped minimum wage for the first time in over 20 years.
Raising the minimum wage is especially important for women because:
- Women in the workforce are more highly concentrated in low-wage sectors such as personal care and healthcare support occupations.
- Women account for more than half (55 percent) of all workers who would benefit from increasing the minimum wage to $10.10.
Women also make up the majority of workers in predominantly tipped occupations. Under Federal law, employers are allowed to pay a “tipped minimum wage” of $2.13 per hour to employees who regularly earn tips as long as their tips plus the tipped minimum wage meet or exceed $7.25 per hour.
- Women account for 72 percent of all workers in predominantly tipped occupations – such as restaurant servers, bartenders, and hairstylists.
- Average hourly wages for workers in predominantly tipped occupations are nearly 40 percent lower than overall average hourly wages.
- Workers in predominantly tipped occupations are twice as likely as other workers to experience poverty, and servers are almost three times as likely to be in poverty.
- About half of all workers in predominantly tipped occupations would see their earnings increase as a result of the President’s proposal.
The Federal tipped minimum wage has been stuck at $2.13 for over 20 years. Partly as a result, tipped workers are at greater risk of not earning the full minimum wage, even though employers are required by law to ensure that employees’ tips plus their employer-paid wage meet or exceed the full minimum wage.
- Since 1991, the tipped minimum wage has declined by 40 percent in real terms. Today, the tipped minimum wage equals just 29 percent of the full minimum wage, the lowest share since the tipped minimum wage was established in 1966.
- When surveyed, more than 1 in 10 workers in predominantly tipped occupations report hourly wages below the full Federal minimum wage, including tips. This fact highlights the challenges of ensuring compliance with minimum wage laws for tipped workers, as the employer contribution has been eroded by 20 years of inflation.
- Many states have recognized the need for a greater employer contribution to the wages of tipped workers. Currently 32 states (including the District of Columbia) require employers to pay tipped workers an hourly wage that exceeds the Federal tipped minimum of $2.13 – and seven of these states require employers to pay both tipped and non-tipped workers the same state minimum wage before tips.
Raising the full minimum wage and the tipped minimum wage will help reduce poverty among women and their families, as well as make progress toward closing the gender pay gap.
- About one-quarter (26 percent) of all workers who would benefit from increasing the minimum wage to $10.10 have dependent children, and 31 percent of female workers who would benefit have children.
- 2.8 million working single parents would benefit from the President’s proposed increase in the full minimum wage, more than 80 percent of whom are women.
- Research shows that raising the minimum wage reduces child poverty among female-headed households.
- Increasing the minimum wage can also help women work their way out of poverty and into the middle class.
- For every dollar that men earn, women earn just 77 cents. Estimates from the President’s Council of Economic Advisers suggest that increasing the minimum wage to $10.10 an hour and indexing it to inflation could close about 5 percent of the gender wage gap.