Industrial Relations: A Journal of Economy and Society, 54(4):622–647. October 2015.
We exploit more than 20 years of changes in state-level tipped wage policy and estimate earnings and employment effects of the tipped wage using county-level panel data on full-service restaurants (FSR). We extend earlier work by Dube, Lester, and Reich (2010) and compare outcomes between contiguous counties that straddle a state border. We find a 10-percent increase in the tipped wage increases earnings in FSRs about 0.4 percent. Employment elasticities are sensitive to the inclusion of controls for unobserved spatial heterogeneity. In our preferred models, we find small, insignificant effects of the tipped wage on FSR employment.