Why do Americans pay tips? And why do tipped workers get a much lower minimum wage than most non-tipped workers?

Michael Paarlberg, an associate fellow at the Institute for Policy Studies, and Teo Reyes, National Research Director at the Restaurant Opportunities Center United, recently appeared on WOLB’s Lunch with Labor podcast to answer those questions.

The tipped wage system “was something that Americans imported from the European aristocracy,” said Paarlberg, “not coincidentally, right after the civil war.” For white-owned businesses, adopting the tip system was a “way to avoid having to pay salaries to newly freed slaves.”

Paarlberg noted that the tip system not only harms employees, but patrons as well. Tipping “shifts the responsibility of paying employees from [owners] to customers,” he explained.

The national minimum wage for tipped workers is an abysmally low $2.13. Tips are supposed to help workers reach the still-low non-tipped minimum of $7.25 an hour, and employers are supposed to make up the difference when they don’t. Of course, “this doesn’t always happen,” Paarlberg noted, leaving millions of tipped employees working for sub-minimum wage.

Yet “instead of raising wages,” said Reyes, “the industry pushes for higher tips,” passing the cost entirely onto customers.

Reyes also mentioned another little known fact about the two-tier wage system: “If you make more than $30 per month in tipped wages, you can be classified as a ‘customarily tipped employee,’ and can [legally] be paid sub-minimum wage.”

Based on his and Paarlberg’s recent research, Reyes refuted the stereotypical response from restaurant owners — that as wages are raised for employees, business owners will have to shrink staff sizes, leading to higher unemployment and poverty. “Poverty rates are [actually] lower in states who adopted” higher minimum wage policies, said Reyes.

In their study, Paarlberg and Reyes compared counties in New York, which in 2015 raised its tipped minimum wage to $7.50 an hour, and similar communities across the border in Pennsylvania, where the tipped minimum wage is a much lower $2.83. In New York, counties actually increased by an average of $1,600 per year, and the restaurant industry hired more employees than it let go. “And, on the Pennsylvania side, just across the border, wages also went up, but much less,” he said.

For more information on the fight to end the two-tiered wage system, visit onefairwage.com.

Listen to the full interview on WOLB’s Lunch with Labor.

Michael Paarlberg is an associate fellow at the Institute for Policy Studies

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