(C) Center for Economic & Policy Research
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Customer Tips Are Providing the Lion’s Share of Wages to Tipped Workers [1]

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Date: 2024-03 

Washington, DC — April 1, 2024 marks the 33rd anniversary of the federal law that permits tipped workers to be paid a cash wage of just $2.13 per hour. In a new brief published today, Sylvia Allegretto outlines the history of the United States’ two-tiered minimum wage system, with a close examination of the tip credit provision which sustains the system.

The so-called “tip credit” subsidizes employers while short-changing workers. Many customers do not know that their tips make up the difference between the tipped worker wage and federal minimum wage – essentially functioning as a wage subsidy to employers.

In the brief, Allegretto contextualizes today’s policies within their origin, rooted in a racist post-Civil War practice, and compares the differing policies, wage floors, and tip credits in states across the US. Allegretto places the spectrum of policies in buckets of low-road and high-road, along with many mixed policies in between. The federal wage floor is a low-road policy that is long overdue for major intervention. High-road policies include the seven states that have minimum wages much higher than the federal rate and do not allow for a subminimum wage — where all tips are gratuity on top of binding minimum wages.

“This two-tiered wage floor system, which hinges on allowing employers to take a “tip credit” to skirt paying wages, does not exist in other countries — and it should not exist in the US,” said Allegretto.

“Customer Tips Are Providing the Lion’s Share of Wages to Tipped Workers” can be read here.

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[1] Url: https://cepr.net/press-release/customer-tips-are-providing-the-lions-share-of-wages-to-tipped-workers/

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