Preview: New Study Shows Raising Tipped Wages Causes Jobs, Earnings Decline

The Restaurant Opportunities Center (ROC)’s nonprofit One Fair Wage has ramped up activity pressuring restaurants and lawmakers across the country to stop using tip credits and instead push for a flat minimum wage for traditionally-tipped restaurant employees.

Nationwide, the full-service restaurant industry has already been battered as states and cities have raised mandates for regular and tipped wages. According to the Bureau of Labor Statistics, growth of the U.S. full-service restaurant employment ground to a near halt by 2019, and further struggled with the onset of the pandemic. What began as roughly 3% or more annual employment growth from 2012 to 2015, dwindled to a mere 0.4% full-service restaurant growth in 2019.

The Employment Policies Institute will be releasing a new study by University of California-Irvine economists showing the continued damage One Fair Wage and similar proposals would wreak on states’ full-service restaurant industries. The study includes state minimum wage hikes over the last decade, among which New York’s have been prominent. Key findings include:

  • A $1 increase in the tipped wage could cause up to a 6.1% decrease in full-service restaurant employment.
  • A $1 increase could cause as much as a 5.6% decrease in total quarterly earnings for full-service restaurant employees.
  • Tipped employees are roughly 20 percent less likely to be below the federal poverty line than others earning at or below the minimum wage.
  • A higher tipped minimum wage is “never associated” with reducing poverty in state data from 2010 to 2019.

The findings from this new study are in good company: much of the economic literature surrounding minimum and tipped wages finds employment loss, earnings loss, and restaurant closure as a result of reduced tip credits and hiked cash wages mandated for tipped employees.