- ‘Irresponsible’ and ‘long overdue’: What economists and workers say about Biden’s bid for a minimum wage and end to tip credits
- The federal minimum wage has been .25 since 2009
- Ending the tipped-wage credit could cost even more jobs
- Ending the tipped-wage credit could help close racial earnings gaps
- Biden’s Wage Plan Faces Debate Over Pandemic-Era Impact (1)
- Varying State Impacts
- Effects Amid Pandemic
‘Irresponsible’ and ‘long overdue’: What economists and workers say about Biden’s bid for a $15 minimum wage and end to tip credits
When President-elect Joe Biden first proposed raising the minimum wage to $15 an hour on the campaign trail in 2019, the U.S. was experiencing its best unemployment figures in decades. Since then, the unemployment rate has nearly doubled to 6.7% as the pandemic has cost millions of Americans their livelihoods.
Some observers say it’s a better time than ever for Biden to push for a $15 minimum wage and end tip credits — a way to pay tipped workers less than minimum wage. But others say the timing couldn’t be worse for Biden’s wage proposals, which are part of his$1.9 trillion stimulus plan.
Dubbed the American Rescue Plan, the proposal also includes $1,400 stimulus checks and increased child tax credits.
“No one working 40 hours a week should live below the poverty line,” Biden said when he announced the package. “That’s what it means if you work for less than $15 an hour and work 40 hours a week, you’re living in poverty.”
While many workers and advocacy groups are applauding Biden for taking action to raise the minimum wage and end the tipped-wage credit, others worry that it would result in more job losses in industries that have taken the biggest hits during the pandemic.
Nearly 1 million Americans filed for unemployment benefits in the first week of this year, a five-month record high. The job losses come as more businesses are closing and state and local governments are reimposing restrictions to combat the accelerating spread of coronavirus.
The federal minimum wage has been $7.25 since 2009
The federal minimum wage has been $7.25 an hour since 2009. Workers at this level earn roughly $15,000 a year if they work 40 hours a week. Some workers are paid in base wages that are less than $7.25 an hour (or their state’s minimum wage) by their employers if they make up the rest in tips. If they don’t earn the difference in tips, their employers are required to pay it to them.
In 2019, House Democrats passed the Raise the Wage Act, a bill that would increase the federal minimum wage to $15 an hour. It also calls for phasing out the tipped-wage credit. The Congressional Budget Office, a nonpartisan federal agency, found that raising the wage to $15 an hour by 2025 would boost the wages of 17 million workers.
The downside, however, is that 1.3 million workers could become unemployed as a result according to the CBO’s median estimate. Though the same number of people would no longer be living below poverty levels if a $15 an hour minimum wage were enacted, the CBO found.
The CBO says jobs are lost because higher wages lead to higher costs for businesses, which they in turn pass on to customers in the form of higher prices. That leads to consumers buying less of their goods and services, according to the CBO.
Heidi Shierholz, an economist at the Economic Policy Institute, a progressive think-tank, argued that the CBO’s estimated job losses from enacting a $15 minimum wage are “overstated.”
“The crucial fact is that an employment decline as a result of a minimum wage increase doesn’t necessarily mean any worker is actually worse off,” she wrote in a July 2019 report. “For a wide variety of reasons, a sizeable share of low-wage workers routinely cycle in and employment; each quarter, more than 20 percent of the lowest-wage workers leave or start a job.”
“This means that even if employment does decline as CBO predicts, workers who work less can still come out ahead because they earn much more when they are working.”
Some also see a $15 minimum wage as a tool for helping businesses.
“Workers are also customers.
The current minimum wage keeps workers in poverty, and that hurts businesses as well as workers,” said Holly Sklar, CEO of Business for a Fair Minimum Wage, a coalition of business owners that support raising the minimum wage. “Raising the minimum wage is a powerful way to boost businesses and the economy because it puts money in the hands of people who most need to spend it.”
However, a consequence of raising the minimum wage could be higher prices of goods and services, said Michael Saltsman, the managing director for the Employment Policy Institute, a think-tank that receives some funding from leaders of the restaurant and hospitality industry.
Ending the tipped-wage credit could cost even more jobs
Maine restaurant worker Joshua Chaisson, who has been waiting tables for over 20 years, said he’s made a good living under the existing tip-credit system.
He’s “never once been in a position where [he] did not meet the minimum wage threshold,” he said. In other words, his tips have always added up to more than Maine’s minimum wage, which was increased to $12.
15 an hour this year, up from $11 an hour in 2019.
That’s not uncommon for tipped workers.
On average, waiters and bartenders have earned nearly twice ($14.32) the federal minimum wage with tips included. That’s according to calculations data from the Current Population Survey performed by David Macpherson, an economist at Trinity University, and William Even, an economist at Miami University.
Before the pandemic, Chaisson said he earned around $28 an hour including tips and his base pay working at the Porthole Restaurant, a casual seafood eatery in Portland, Maine. He’s never had an issue affording living expenses and has never had to take on a second job, he told MarketWatch.
“ On average, waiters and bartenders have earned nearly twice ($14.32) the federal minimum wage with tips included ”
Even though the Porthole, many restaurants across the country, has taken a hit from COVID, it has not laid off any workers. Chaisson, who is the vice president of Restaurant Workers of America, an employee advocacy group that works to preserve and promote the tip credit across the U.S., considers himself extremely fortunate.
“It is heartbreaking, and devastating to watch the destruction of an industry that I’ve called home for over half my life.”
Biden’s proposal would eliminate employers’ ability to pay below minimum wage bases, regardless of what employees earn in tips.
Ultimately that could cause employers — particularly in the restaurant and hospitality industry — to lay off employees given that many won’t necessarily have the ability to raise prices to offset the higher cost of labor, said Saltsman.
“Today so many businesses are struggling to just keep the doors open. That’s why raising the minimum wage and eliminating the tipped-wage credit now seems ill-conceived,” Saltsman said.
“ Ending the tipped-wage credit would ‘would be the nail in the coffin for an industry that is clearly on life support’ ”
Members of Biden’s team did not respond to MarketWatch’s request for comment regarding when a $15 minimum wage increase could take effect. Eliminating the tipped-wage credit would mean that employers who currently pay $2.13 an hour to tipped workers would have to pay $15 an hour, a more than 600% increase.
“Tipped-credit elimination on top of all things COVID is quite frankly irresponsible legislation,” Chaisson told MarketWatch. “It would be the nail in the coffin for an industry that is clearly on life support.”
Related: Restaurants lose 372,000 jobs in another crushing blow from the coronavirus across U.S.
Currently, there are seven states — California, Nevada, Oregon, Washington, Minnesota, Alaska, Montana — that don’t count tips towards workers’ hourly wages. Research has shown that raising the minimum tipped wage is associated with more restaurant closures and lower tips.
One Seattle, Wash. waitress, Simone Barron, who is a member of the Restaurant Workers of America, told Chaisson that the restaurant she previously worked at began implementing a 20% service charge to all diners shortly after the city’s $15 minimum wage began to go into effect in 2015. As a result, Barron said, she began to see her usual tips cut in half.
“I’ve experienced first-hand the consequences of no tip credit, having lost my job and seen my restaurant close because of Seattle’s unrealistic wage mandates,” she said in a statement.
Ending the tipped-wage credit could help close racial earnings gaps
The median monthly income of a Hispanic or Latina tipped worker is 35% of the median monthly income of a nontipped white, non-Hispanic man, according to a 2019 analysis U.S. Census Bureau data published by the Center for American Progress, a progressive think tank.
Tipped Hispanic or Latino workers earn 30% less than tipped white, non-Hispanic men.
“ Tipped Hispanic or Latino workers earn 30% less than tipped white, non-Hispanic men ”
Eliminating the “subminimum wage would be really beneficial for people of color, particularly women of color who are overrepresented in occupations that depend on tips,” said Lily Roberts, director of economic mobility at CAP.
Research has shown that “sexism and racism combine for lower tips and more sexual harassment of tipped workers by customers and employers,” she said.
“ ‘We are at a critical moment for tipped service industry workers, mostly women and people of color, who are facing unprecedented rates of housing and food insecurity, unemployment and poverty’ ”
— Saru Jayaraman, president and co-founder of One Fair Wage
On top of which, women of color disproportionately rely on tips compared to white men. Hispanic or Latino women are more than twice as ly to work tipped jobs compared to white, non-Hispanic men, Roberts’ research shows.
Importantly, during the pandemic many female service workers have been harassed by patrons asking them “take off their masks,” a report by One Fair Wage, a group advocating for ending tipped-wages.
Eliminating the tipped-wage credit and raising the minimum wage to $15 an hour “is long overdue,” Saru Jayaraman, president and co-founder of One Fair Wage, said in a statement.
“We are at a critical moment for tipped service industry workers, mostly women and people of color, who are facing unprecedented rates of housing and food insecurity, unemployment and poverty.”
Biden’s $15 Wage Plan Faces Debate Over Pandemic-Era Impact (1)
The minimum wage increases proposed as part of President-elect Joe Biden’s Covid-19 stimulus plan will face the usual forces for and against higher wage mandates—but with the heightened intensity of the pandemic’s effects on workers and businesses.
Biden had long promised to propose a $15 minimum wage, in line with the House-approved Raise the Wage Act, but on Thursday he flagged the wage increase as an early priority for his administration by including it in his $1.9 trillion stimulus and relief package.
“No one working 40 hours a week should live below the poverty line,” Biden said Thursday while unveiling the stimulus plan.
The wage increase— a number of proposals in his Covid-19 package—is ly to face opposition from Senate Republicans, whom the president-elect will have to court in order to get the 60 votes required to advance the legislation under normal Senate rules. It’s possible but disputed that the wage mandate could be enacted with a simple majority of senators through the chamber’s budget reconciliation process.
The impacts on businesses and the economy, particularly in the restaurant and retail industries, would be significant if Biden were to succeed at getting a $15 minimum wage enacted and implemented immediately or in the near term, said Kathleen Caminiti, an attorney and co-chair of the wage and hour practice at Fisher Phillips.
“It’s more ly, I believe, that President-elect Biden is kind of staking a ground at the $15 minimum wage and will negotiate towards having that fully implemented toward the end of his term,” she said.
If it were to happen sooner, “there are plenty of unintended consequences, including potentially the loss of jobs, jobs going overseas, more AI where you have automation replacing low-wage earners,” she added.
Worker advocates, such as the Fight For $15 campaign, cheered Biden’s announcement, saying a federal minimum wage increase is long overdue. The federal minimum stands at $7.25 an hour and hasn’t increased since 2009. Fight for $15 also is organizing a strike of fast-food workers in cities around the U.S. on Friday to call for higher wages and better working conditions.
“For me, $15/hr would be life changing,” North Carolina fast-food worker Rita Blalock said in a statement released by the Fight for $15 group. “I earn just $10 an hour after working at McDonald’s for 10 years. It’s a struggle to pay rent on the single room where I stay. Even getting enough to eat is a struggle sometimes.”
Varying State Impacts
Biden didn’t specify on Thursday a proposed timeline for reaching a $15 hourly minimum. He has previously voiced support for the Raise the Wage Act, which the Democratic-controlled House approved in 2019.
That legislation, which went nowhere in the Republican-controlled Senate in the last Congress, called for raising the minimum wage in steps until it reached $15 in 2025, as well as gradually increasing the minimum wage for tipped workers and those with disabilities.
On any schedule, a federal minimum wage increase would have its biggest impacts in states that don’t have their own higher minimum wages.
Twenty-one states follow the federal minimum wage, while the other 29 have set higher wage floors.
Nine of those have enacted laws that will gradually phase in a $15 minimum wage, including Florida, where more than 60% of voters approved the wage increase through a ballot question in November.
“People tell me that’s going to be hard to pass,” Biden said on Thursday. “Florida just passed it, as divided as that state is, they just passed it. The rest of the country is ready to move as well.”
The states still following the federal minimum wage are primarily those with Republican-controlled state governments, with many of them in the South including Alabama, the Carolinas, Georgia, Tennessee, and Texas. Florida, although now on a schedule for significant increases, currently has a state minimum wage barely higher than the federal level, at $8.65 an hour.
Effects Amid Pandemic
Biden’s stimulus proposal, including the wage increase, offers a significant and much-needed boost to low-wage workers who have struggled through the pandemic, with periods of unemployment, said Rebecca Dixon, executive director of the National Employment Law Project.
“Perhaps most exciting, and a credit to the relentless Fight for $15 movement, is the President-Elect’s recognition that raising the federal minimum wage to $15 per hour and eliminating discriminatory sub-minimum wages is also essential to our public health and our economic well-being,” Dixon said in an emailed statement.
While economists and researchers at progressive groups such as NELP and the Economic Policy Institute tout the broad economic benefits of a minimum wage increase, other researchers say the negative potential impacts, such as job losses and reduced work hours, are ly to outweigh the gains.
The nonpartisan Congressional Budget Office estimated in a 2019 report that a minimum wage increase to $15 by 2025 would result in job losses for about 1.
3 million workers and wage increases for 17 million workers who currently earn less than $15 an hour. The CBO also estimated the wage policy change would result in 1.
3 million fewer people whose incomes fall below the federal poverty threshold.
“The $15 minimum wage was kind of a tenuous idea even in good economic times and in higher wage markets,” such as San Francisco and Seattle, said Mike Saltsman, managing director at the Employment Policies Institute.
The strain on businesses following minimum wage increases in those cities was demonstrated by a slowdown in new restaurant openings and an increase in restaurant closures, he said. “The question is what does it mean to do it in a pandemic and to do it in places where you don’t have the tourists and the techies,” who can afford higher-priced restaurant meals.
Sean Kennedy, executive vice president of public affairs for the National Restaurant Association, also said the business support portions of Biden’s stimulus plan are overshadowed by the threat of higher labor costs “at a time when restaurants are spending more to keep their doors open.”
“As the pandemic has highlighted, the economic realities of each state are very different,” Kennedy said in an emailed statement. “A nationwide increase in the minimum wage will create insurmountable costs for many operators in states where restaurant jobs are most needed for recovery.”