This was the headline of a Bloomberg article describing the debate over the base wage for tipped employees. The labor union-founded Restaurant Opportunities Center has similarly promoted the idea that employees who receive tip income have been “stuck at $2.13/hr for 22 years.” This narrative is being promoted in a series of media events on February 13th, and Sen. Sherrod Brown (D-OH) has even pledged to put forth a resolution in recognition of the day.
It’s an eye-catching claim, but it doesn’t stand up to scrutiny. A recent Employment Policies Institute analysis of Census Bureau data finds that tipped restaurant employees have seen their take-home pay rise in almost every year between 1994 and 2011–even in states where the $2.13 federal tipped wage didn’t change. These employees average more than $13 an hour with tip income included.
EPI used Census Bureau Current Population Survey data to analyze tipped employee earnings in the 19 states where the cash wage has been equal to the federal level of $2.13 between 1994 and 2011. These are the states where, if activists are to be believed, the numbers should show that tipped restaurant employees face stagnant pay.
But the numbers show just the opposite. On a nominal basis, the take-home pay for tipped restaurant employees has risen by almost 70 percent over this 18-year time period. Take-home pay averaged $13.13 an hour (with tip income included) in 2011. Even adjusted for inflation, the figures look promising: The $7.79 take-home wage in 1994 was worth $11.82 in 2011 dollars, which translates to 11 percent real wage growth over this time period.
In other words, not only have earnings for tipped employees not been “stagnant”—they’ve actually kept up with inflation (and even exceeded it) over the last two decades.
It make sense: Because restaurant menu prices rise slightly in most years to account for inflation, tipped restaurant employees have an automatic escalator built in to their hourly take-home pay. As the check total rises, tip income rises along with it. (Census data show that top earners in the restaurant industry collect $24 an hour or more when tip income is included.)
These numbers show that the status quo for tipped employees is actually quite good—even in states where the base wage has been unchanged over the last 20 years. It’s worth keeping this in mind, especially in light of economic evidence that shows raising the tipped wage can have a negative effect on the opportunities available to earn tip income.