The federal minimum wage for tipped workers has been $2.13 per hour since 1991. At that time it was half the regular minimum wage of $4.25. But Congress has failed to increase the tipped wage while regularly raising the regular wage floor. Today, tips are less than a third of the full federal minimum wage of $7.25.

As of October 2024, 30 states and Washington, DC had adopted their own, higher, regular minimum wages. The number of states taking this step continues to rise, in part because Congress has not raised the federal minimum wage since 2009. Over the years, many states have also implemented higher wages for tipped workers. Seven states have no tipped minimum wage at all, meaning employers must pay all employees, including those who earn tips, at least the state-mandated minimum wage.

If Massachusetts voters approve a ballot initiative on November 5, 2024, their state will gradually increase the state’s minimum wage until it equals the state’s minimum wage. That means it will rise from $6.75 to $15 per hour by 2029.

Massachusetts would join eight states that have or are moving toward requiring the full minimum wage for tipped workers: Alaska, California, Minnesota, Montana, Nevada, Oregon, Washington and Michigan. Two major cities, Chicago and Washington, DC, also have similar measures on their books.

To stimulate debate about tipping, we—a labor economist and a sociologist—analyzed the potential impact of adopting a full minimum wage on workers, businesses, and consumers in Massachusetts. We found more evidence of potential benefits than disadvantages.

Demographics of minimum tipped earners

For our study, we analyzed labor market data from the Bureau of Labor Statistics. We found that tipped workers are largely waiters, bartenders, hosts and bussers employed in bars and restaurants. They tend to earn low wages. Most are women, and they are disproportionately people of color.

In Massachusetts, tipped workers typically earn low wages: on average, they take home $20.30 an hour, including tips they receive. That’s about two-thirds of the national average hourly wage of $31.50.

About 66% of the tipped workforce is women, compared to 49% of the state’s total workforce. About 43% are people of color, compared to 29% of all workers in Massachusetts.

Teens also make up a disproportionate share of tipped workers in Massachusetts: 15%, compared to 4% of the broader workforce. But the vast majority of tipped workers are at least 20 years old.

Arguments for and against

Proponents argue that eliminating the tipped minimum wage would increase wages for tipped workers and better ensure that workers do not become victims of wage theft. U.S. Sen. Elizabeth Warren of Massachusetts wants the federal government to take this step.

Opponents argue that eliminating the lower minimum wage for tipped workers could backfire if their customers tip less, even though they know employers will have to pay tipped workers more — or some jobs will be eliminated. They also worry that the cost of doing business could rise and prices could rise. Massachusetts Gov. Maura Healey, a Democrat, opposes the measure.

In Arizona, voters will cast their ballots for another ballot initiative that calls for a different kind of minimum wage reform. This calls for the state minimum wage to be set at 25% below the full minimum wage. If approved, Arizona would effectively lower its minimum wage, currently $11.35 an hour, to $10.76. Today, Arizona’s tipped minimum wage is $3.00 less than the state’s full minimum wage of $14.35.

Vulnerable to wage theft

If tipped employees’ base wages plus tips do not equal or exceed the state minimum wage, employers must make up the shortfall. This makes these workers particularly vulnerable to underpayment, a form of wage theft.

The consequences of this vulnerability can be clearly seen in restaurants and hotels. The hospitality industry, which employs the highest proportion of tipped workers, accounts for less than 6% of the workforce in Massachusetts.

However, it accounts for nearly 14% of all complaints filed by workers with the Massachusetts Attorney General’s Office in 2023, including a disproportionate number of complaints about minimum wage violations, nonpayment of wages and tip violations.

The hospitality industry also accounts for over 36% of all enforcement actions identified by the Massachusetts Attorney General’s Office – investigations that uncovered evidence of labor violations.

Impact on the result

Two peer-reviewed economic studies that examined three decades of data found that tipped workers make measurably more money when wage rates rise below the minimum wage.

The current wage rates we observe in Bureau of Labor Statistics data support these results.

For example, consider the average hourly wage of $18.79 for tipped workers in states that treat tipped workers like other workers. That’s 21.2% higher than the $15.50 average among tipped workers in states where the federal minimum wage of $2.13 remains in effect.

Only part of this difference can be explained by the 15.7% difference in the average wage of all workers in these different clusters of states.

What could happen to business costs?

Certainly, doubling the tip rate from $6.75 in Massachusetts to $15.00 might seem like it could increase the cost of doing business. However, a few factors would soften the blow.

First, we calculated that the average tipped restaurant worker in Massachusetts earns about $11.75 per hour, excluding tips. Increasing this rate to $15.00 represents a 28% increase – a much smaller increase than increasing the wage from $6.75 to $15.00. Additionally, increasing a worker’s wage from $11.75 to $15.00 by 2029 represents an increase to $13.00 in today’s dollars, or a 10% increase adjusted for projected inflation.

Second, as we explained in our study, these numbers suggest that the elimination of the tipped minimum wage would occur by 2029, since tipped workers make up about 30% of restaurant workers in Massachusetts and these companies’ payrolls are in the Typically make up about 30% of their sales, increasing the costs of an average Massachusetts restaurant by 1%.

Employers may also give raises to some other employees, but are not required to do so. This suggests that the cost increase is more likely to be around twice as high, i.e. 2% of sales.

Expected impact on prices and jobs

If the average Massachusetts restaurant passed on all of its labor cost increase to the consumer through higher prices, that would mean restaurant prices would increase by about 2%.

This equates to a restaurant meal costing $50, up from $51 – probably a small price increase.

The two studies mentioned above, which examined decades of data to determine whether tipped workers earned more, also examined whether companies in states that increased their tipped minimum wage cut more jobs than companies in states in where this was not the case.

Although both research teams examined basically the same data, one study found evidence of more job losses and the other did not because they made different statistical decisions. These studies therefore did not provide conclusive results about the impact of raising the minimum wage on employment.

There is far more research into whether increasing the regular minimum wage has led to significant job losses. Studies have found that if there is an increase, employers will face cost increases similar to our estimates for Massachusetts employers if the state were to eliminate its tipped minimum wage. And this evidence suggests that there are no significant job losses.