As the February 21 deadline fast approaches for Michigan lawmakers to fix a pending tip credit elimination law, anti-tip credit advocates are making false promises.
In a Senate Regulatory Affairs Committee hearing this week, Michigan Department of Labor and Economic Opportunity (LEO) deputy director Sean Egan claimed eliminating Michigan’s tip credit would not change residents’ tipping behavior, and hasn’t changed tipping behavior in other non-tip credit states.
To make this argument, he cherrypicks recent Toast data on tipping percentages across the country. But put in context, these claims that states without a tip credit see no difference in tipping behavior prove to be false.
#1 Toast’s latest report found no-tip-credit states, including California, Nevada, Washington, and Alaska, are in the bottom half of all state tipping percentages nationwide.
#2 Mr. Egan also fails to report that these tipping percentages are on the decline in these states: While California had a 17.8% average and Washington had a 18.3% average tipping percentage in 2024, those are down from 18.0% and 18.6% respectively from the same time last year.
#3 This concurs with a wider study of tipping behavior that includes more earnings, not just transactions made on credit cards: Cornell researcher Michael Lynn found conclusive evidence that raising tipped wages correlates with lower tipping percentages left by customers.
"The cross-sectional regression analyses also indicated that states with higher tipped minimum wages have lower average tip percentages in restaurants... Moreover, these effects remained significant after controlling for cost of living, which suggest that tipped minimum wages may directly affect tipping."
#4 This translates directly to lower earnings for tipped servers and bartenders: UC-Irvine economists David Neumark and Maysen Yen found every $1 increase in the tipped minimum wage causes a 5.6% loss in employees' earnings.
"In this case, we would conclude that higher tipped minimum wages do not help reduce poverty or the incidence of low income, and may even increase them slightly..."
"...clearly any argument that higher tipped minimum wages would have beneficial distributional effects rests on precarious evidence."
#5 This is bearing out currently in Washington, D.C. as the city has begun eliminating its tip credit: At a January hearing, local tipped workers reported their tips declined and overall earnings were up to 50% less than before tip credit elimination began. One worker said she used to average 25% tips on her customers' bills, and now it is down to 18% in less than 2 years under the policy.
There’s a reason 90 percent of tipped employees favor the status quo tip credit system: they say they can earn more through their tips than a flat wage system. In fact, 87% say they would earn less under a system where the tip credit is eliminated.
The false promises of “tips on top” and saying there are no adverse consequences on tipping under tip credit elimination schemes don’t line up with decades of evidence.