April 25 (Bloomberg) -- Gina Deluca says she was shocked when she moved to New Mexico from California and discovered that her hourly wage as a waitress fell to a federal minimum of $2.13. Her old state required at least $6.75 for all workers at the time.
Deluca says she became more dependent on tips, which varied with bill size, the seasons and customers’ moods, and her total income fell. While federal law requires employers to cover the gap if tips don’t take workers at least to the regular full minimum, now $7.25, Deluca says hers didn’t.
“The difference in San Francisco was that I felt valued,” said Deluca, 42, who served at both diners and high-end restaurants before quitting two years ago to pursue a degree in social work. Today her blog, “Wiser Waitress,” focuses on issues involving restaurant workers, including the federal minimum wage for workers who receive tips.
While states can require higher minimums, New Mexico and 12 other states use the federal level, which hasn’t been raised in 22 years. “I always had a base wage that I could count on,” Deluca said. “That brought a little bit of stability and security.”
Legislation in Congress this year would raise the $2.13 base for the first time since 1991. The move would help many of American’s 2.3 million servers, advocates of an increase say, as well as manicurists, bellhops and other workers who rely on tips for much of their earnings. It could also spur firings and reduced hours as thin-margin businesses grapple with higher costs, say some restaurant owners and economists.
President Barack Obama has included the tipped minimum in his plan to raise all minimum wages, which he announced in February. That has helped chances for future action even if a divided Congress stymies change in 2013, said economist Sylvia Allegretto.
“This wage has been kept at this rate for 22 years while the prices of everything else have been going up,” said Allegretto, a labor economist at the University of California Berkeley. “I believe it was stuck at $2.13 because people don’t know about it. There is an education that goes on, and I think it matters.”
The tipped minimum allows employers to pay less than the regular minimum wage to workers who customarily earn tips, assuming gratuities boost them past the current $7.25 hourly rate. The cash base was 50 percent of the regular national minimum until 1996 legislation froze the lower rate at $2.13. It now amounts to 29 percent of the full minimum, which has been raised four times since.
Representative George Miller of California and Senator Tom Harkin of Iowa, both Democrats, unveiled a bill in March that would connect the minimum wage for tipped workers to the full minimum, first moving it to $3 and then to 70 percent of the full wage through annual 95-cent increases.
The measure would also increase the regular federal minimum to $10.10 by 2015. It would then tie the wage to increases in the cost of living. The bill differs from the president’s proposal, which calls for an increase to $9 and doesn’t set forth tipped-wage specifics.
Moving the tipped minimum to 70 percent of the full wage would affect most states. Thirty-four states and the District of Columbia allow businesses to pay some or all tipped workers less than 70 percent, based on January 2013 Department of Labor data.
Seven states require the same wage floor for tipped and non-tipped workers. Washington state requires the highest minimum rate, at $9.19 per hour.
The biggest hurdle for any legislation boosting the minimum wage is the Republican-controlled House, said Keith Hennessey, former director of the National Economic Council under President George W. Bush and who now teaches at Stanford University in California, and opposes the changes. Previous increases have been enacted by a coalition of congressional Democrats and moderate Republicans, said Hennessey.
This time around, House Speaker John Boehner dismissed Obama’s proposal within hours of its being made in the State of the Union speech Feb. 12.
The National Restaurant Association doesn’t support Harkin and Miller’s proposal to increase tipped workers’ wages to 70 percent of the regular minimum wage, said Scott DeFife, executive vice president of policy and government affairs.
DeFife said the issue is overblown, since servers legally must earn at least the federal minimum wage and most make more. If the base is increased, restaurants might not be able to maintain jobs and sustain hiring, he said.
Service could suffer if restaurants automate to cut human costs, said William Even, a labor economist at Miami University in Oxford, Ohio, and menu prices could increase.
Christopher Savvides says his Black Angus Restaurant Community would struggle to pay base wages higher than $2.13 an hour at his three restaurants and catering service in Virginia Beach, Virginia, and on the Chesapeake Bay Bridge Tunnel.
The restaurateur says his servers already make $12 to $20 per hour once tips are included. While the company prides itself on service, a higher wage could prompt Savvides to “minimize the need for staff,” he said.
“Artificial, non-market-driven increases in labor only force an operator to seek to reduce that cost elsewhere, most often through the redesign of service and reduction in jobs,” he said in an e-mail.
A 2006 review of minimum wage studies found that among those with credible data “almost all point to negative employment effects.” The study was completed by David Neumark, director of the University of California’s Center for Economics and Public Policy in Irvine, and William Wascher, a Federal Reserve economist.
Even says that holds true for tipped workers. State-level increases in tipped wages reduced servers’ hours and employment, he found in a 2012 study. “The waiters and waitresses that are able to keep their jobs, they’ll get more per hour,” he said. “But there is going to be some significant job loss.”
Other studies show few or no job losses from higher minimum wages. A 1994 analysis by Alan Krueger, now Obama’s chairman of the Council of Economic Advisers, and David Card, director of the Labor Studies Program at the National Bureau of Economic Research, compared fast food restaurants in New Jersey and Pennsylvania after New Jersey raised its hourly minimum to $5.05 in 1992 from $4.25.
“The increase in the minimum wage increased employment,” they found. For low-wage workers, they found job prospects improved in New Jersey.
Besides having little impact on jobs, a higher tipped wage would encourage servers to stay in positions longer, Berkeley’s Allegretto said, cutting hiring and training costs.
Some restaurateurs agree. Jason Murphy is co-owner of Russell Street Deli in Detroit. He and his partner pay starting tipped workers $5 per hour, higher than the $2.65 state minimum, and those on slower morning shifts make $10 per hour.
“It gives the employees a sense of ownership and confidence,” he said. “With that sense of ownership, we can give them more responsibility,”
The instability and poverty workers experience while relying on tips is unacceptable, said Saru Jayaraman, Restaurant Opportunities Center United co-founder. ROC United, a national organizer of restaurant workers, has led advocacy efforts for a higher wage.
Tipped workers are more than twice as likely, and restaurant servers almost three times as likely, to fall under the federal poverty line, based on a 2011 Economic Policy Institute study by Allegretto and policy analyst Kai Filion.
ROC United has coordinated about 100 eatery owners into an alternative restaurant group working toward a higher wage. Murphy is a steering committee member of the group, which was announced in Washington, D.C. last week.
For Deluca, who worked as a waitress in New Mexico from 2002 to 2010 and now resides in Santa Fe, educating about the pay rate is crucial even if no bill passes. Her coworkers sometimes didn’t even know higher bases existed in other states, she said.
“Waiters make some of the lowest wages in the country,” she said. “A lot of people I’ve met here just think that’s how it is.”
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