This Thursday, a coalition of labor organizations and Rhode Island politicians will hold a press conference promoting an initiative to raise the state’s minimum wage for tipped employees by at least 211 percent by 2019. The legislative to accomplish this goal was introduced by Rep. Aaron Regunberg (D-Dist. 4, Providence).
Rep. Regunberg and other proponents have described the initiative as a net benefit for tipped restaurant employees, who they argue were excluded from past minimum wage increases. Government data from the Census Bureau tells a very different story: Tipped employees in Rhode Island already report earning $12.12 an hour on average–35 percent more than the state’s minimum wage.
More importantly, the accumulated academic evidence from other states that have raised their tipped minimum wage shows a clear harmful impact on restaurant-industry employment.
In this policy brief, Drs. David Macpherson of Trinity University and William Even of Miami University use Census Bureau data to estimate the employment impact of raising the tipped minimum wage in Rhode Island by 211 percent. They also provide data on the earnings and family composition of tipped employees in the state, and examine the determining factors for poverty rates of tipped and non-tipped employees.
Describing Tipped Employees in Rhode Island
According to Census Bureau data, there are approximately 17,700 tipped employees in the state of Rhode Island. Of these employees, nearly 80 percent are employed in hospitality industry as a hosts/hostesses, bartenders, servers, or server attendants.
Tipped employees tend to have less education than non-tipped employees in the state, with an average 12.7 years of education compared to 14 years of education for the rest of the state. They also tend to be younger: While the average age of a non-tipped employee is 42 years old, the average age of a tipped employee is 30 years old.
Importantly, tipped employees are far less likely to be single earners with families than are non-tipped employees: 21 percent of non-tipped employees fit that description, while just 12 percent of tipped employees do. By contrast, over 60 percent of tipped employees are either second- or third-earners living at home with family or relatives, or in a married couple with a spouse that also works.
Earnings & Poverty Rates of Tipped Employees in Rhode Island
Proponents of eliminating the base wage for employees who earn tip income have suggested that tipped employees in Rhode Island are at a disadvantage relative to those who aren’t tipped. Both the law and the data show that this isn’t true.
State labor law requires tipped employers to guarantee that their employees earn the same $9 hourly state minimum wage that applies elsewhere. For tipped employees, part of that $9 hourly wage comes from tips. But because both the state Department of Revenue and the federal Internal Revenue Service count tips as income, it would be unusual for the state to adopt a contrary position in its labor law.
Census Bureau data also shows that tipped employees earn hourly wages that are considerably higher than the state minimum. The average self-reported wage for tipped employees in the state is $12.12 an hour, which is 35 percent higher than the current state minimum and even above the $10.10 figure that Gov. Gina Raimondo has called for statewide.
Some proponents of dramatically raising the tipped minimum wage have argued that higher rates of poverty among tipped employees, compared to the workforce as a whole, supports their case. But in a forthcoming analysis, Drs. Even and Macpherson show that the vast majority of that difference is explained by factors that have nothing to do with tips, such as age and education level. The intuition backs up the evidence: If tipped employees tend to be less-educated than the population as a whole, then we’d expect them to have a slightly higher poverty rate. (Ironically, labor unions rely on this exact same argument when defending the higher earnings of public employees.)
Employment Effects of Raising the Tipped Minimum Wage
The anecdotal evidence on the consequences of a higher tipped minimum wage is ample. In Seattle, for instance, restaurants have reduced staffing levels for waitstaff and even stopped hiring attendants (or “bus boys”) to assist the servers. Currently, the California cities of Oakland and San Francisco are facing restaurant closures and dramatic price hikes in response to minimum wage increases in an environment where the tipped minimum wage is already high.
The empirical evidence supports these anecdotes. In an earlier study published in a peer-reviewed academic journal, Drs. Even and Macpherson studied two decades of Census Bureau data and found a clear relationship between increasing the tipped minimum wage and reductions in full-service restaurant employment.
Applying the results from this study to the legislation under consideration, the economists found a significant negative impact on full-service restaurant employment from a 211-percent minimum wage increase in Rhode Island by 2019. Specifically, they estimate that approximately 1,300 to 3,400 jobs full-service restaurant industry jobs would be lost, as businesses react to higher labor costs by reducing staff levels.
A note on the methodology
For this analysis, the economists rely on Census Bureau Current Population Survey data from 2012, 2013, and 2014. The full technical methodology for the job loss estimates associated with a tipped wage increase is available here.