The Case for the Tip Credit

June 2023


The tipping system provides substantial earning opportunities for workers across many industries, especially restaurant servers and bartenders – well beyond the current minimum wage, and even beyond the proposed $15 minimum wage.
Saving the tip credit is an employee-organized, bipartisan issue. Thousands of tipped workers across the country have pushed to save the tip credit, against the infringement of outside interests and activists. Employees have lived the consequences of tip credit elimination documented by decades of economic research on tipped minimum wages: as tip credits are reduced, therefore raising the mandated cash wage, traditionally-tipped workers’ jobs, earnings, and workplaces are threatened.
In 2021, a bipartisan group of U.S. Senators rejected a bill that would have eliminated the tip credit nationwide. Yet activists continue to fight against the preferences of tipped restaurant workers, and ignore the findings of economic research. Now, the focus on eliminating tip credits has largely shifted to state legislatures and ballot initiatives. In the 2023 state legislative session, there are bills in at least eight states to eliminate tip credits.
Eliminating the tip credit would have drastic negative economic impacts on America’s restaurant servers and bartenders. This brief provides a comprehensive analysis of workers’, restaurants’, and economists’ view of the merits of maintaining the tip credit over non-tipping alternatives, including:
  • Tipped employees consider the current system to be a profitable, flexible earning system: 97 percent prefer it over no-tipping alternatives.
  • Tipped workers nationwide report earning more-than-twice the current federal minimum wage ($15.51) per hour on average. When tips are included in the calculation of hourly earnings, tipped workers can make as high as $84 per hour.
  • Tipped workers are roughly 20 percent (3.6 percentage points) less likely to be poor than other minimum wage workers.
  • A $15 tipped minimum wage will cost more than 280,000 tipped workers their jobs and cost more than $2.2 billion in workers’ earnings.
  • Customers prefer the traditional tipping system (81%) to no-tip alternatives.
  • Many restaurants that have tried eliminating the tip credit and no-tip policies have switched back to traditional tipping, in response to workers’ and customers’ opposition to the change.