Waiting for Change: Is it Time to Increase the $2.13 Subminimum Wage?


The federal subminimum wage for tipped workers is $2.13 an hour and has been for over two decades. The rationale for the lower subminimum wage for tipped workers is the ‘tip credit’ provision which allows employers to use tips, provided by customers, as credit towards a workers regular minimum wage. As with the regular minimum wage there is state variation in the subminimum wage to exploit. A panel of Quarterly Census of Employment and Wages from 1990q1 through 2012q3 is used to estimate earnings and employment effects of both minimum wages on limited- and full- service restaurants. Both wage floors indicate positive and statistically significant earnings effects for full-service restaurants but only on the minimum wage for limited-service restaurants. Employment estimates that include geographic controls that better account for unobserved heterogeneity are small and not distinguished from zero for the tipped wage -0.012 (-0.005) and the minimum wage -0.026 (-0.045) in the full (limited) service sector.