Raising Server Wage Would Kill Opportunities for Waiters and Waitresses in New Jersey
Research Finds More Than 17,000 Full-Time Equivalent Jobs Would Be Lost With State Proposal
Publication Date: March 2012
Topics: Minimum Wage
WASHINGTON – Today, the Employment Policies Institute (EPI) announced a study by economists William E. Even of Miami University and David A. Macpherson of Trinity University that examines the consequences for waiters, waitresses, and other tipped employees in New Jersey of reducing the “tip credit.”
The tip credit is a labor law provision that allows employers of tipped employees to pay a cash wage of $2.13 an hour, so long as the employee earns at least the federal minimum wage of $7.25 when tips are included. An analysis of Bureau of Labor Statistics data shows the average hourly wage for tipped employees in the restaurant industry, with tips included, is $10.95.
New Jersey lawmakers are currently considering a proposal (A. 2708) to reduce the tip credit. If the minimum wage stays at the current $7.25 per hour rate, New Jersey employers would be required to pay tipped employees $5.00 per hour by July 1, 2014—a 135 percent increase from the current hourly rate.
The authors find that each 10 percent increase in the cash wage reduces hours worked by tipped employees, such as servers and bartenders, by more than 5 percent. Further, they estimate that New Jersey’s A. 2708 would result in the loss of more than 17,000 full-time-equivalent tipped jobs. The loss of hours would be even higher if New Jersey lawmakers also pass a general minimum wage increase.
“Restaurants only keep about 3 cents for each dollar in food sales, and every increase in labor costs has to be offset elsewhere when cost-conscious customers aren’t willing to pay higher prices,” said Michael Saltsman, research fellow at the Employment Policies Institute. “This study shows how those offsets translate to fewer hours and fewer jobs for tipped employees.”
A chart with state-specific employment impacts and a policy brief summarizing all of the study’s key findings is available here.
“Recent polling data show that the vast majority of Americans tip 15 percent of the check or more for good service,” Saltsman continued. “These gratuities are what allow hard-working waiters and waitresses to earn an hourly wage that’s well above the minimum—nearly $11 an hour.”
Saltsman concluded: “This research confirms that attempts to increase the cash wage and reduce the tip credit aren’t only unnecessary, they’re harmful.”