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The Minimum Wage and Tipped Minimum Wage: Important Tools to Lift Wages and Reduce Poverty, Particularly for Women
March 26, 2014
02:04 PM EDT
Over the past 30 years, modest minimum wage increases have not kept pace with the rising costs of basic necessities. Moreover, the tipped minimum wage—the portion of wages that employers must cover for tipped workers—has fallen steadily in value since 1991, and is now at historically low levels.
Raising the minimum wage to $10.10 an hour and indexing it to inflation, while also increasing the tipped minimum wage, would have particular benefits for women. The following are four key points from a new report by the National Economic Council, Council of Economic Advisers, Domestic Policy Council, and Department of Labor. The full report discusses these four important facts in more detail:
1. Women would disproportionately benefit from a minimum wage increase.
Female labor force participation rose from the 1970s to the mid-1990s, and women currently constitute about half of the workforce. However, women are still more likely to work in low-wage jobs. Women are more likely than men to be working at the minimum wage or just above the current minimum wage. Altogether, women account for the majority (55%) of workers who would benefit from raising the minimum wage to $10.10 an hour, and an even greater fraction (74%) of workers in predominantly tipped occupations who would benefit from the increase.
2. The tipped minimum wage is at its lowest level since its creation in 1966, after adjusting for inflation.
The Federal tipped minimum wage has been stuck at $2.13 for over 20 years, with its purchasing power falling by 40 percent. Today, the tipped minimum wage equals just 29 percent of the full minimum wage, the lowest share since the tipped minimum wage was established.
The low value of the tipped minimum places tipped workers at a greater risk of not earning the full minimum wage and creates enforcement challenges. Employers are legally required to ensure that employees’ tips plus the employer-paid wage meet or exceed the full minimum wage, however when the tipped minimum wage is low many employers will need to “top up” wages, and in practice, too few who should actually do. This requirement is difficult to enforce, and more than 1 in 10 workers in predominantly tipped occupations report taking home less than the Federal minimum wage which can occur when their tips are not sufficient to make up the difference between the tipped minimum wage and the full minimum wage.
3. Raising the total minimum wage and the tipped minimum wage will help reduce poverty among women and their families and make it easier for lower wage workers to reach the middle class.
More than 30 percent of female workers who would benefit from increasing the minimum wage to $10.10 have dependent children. In total, 2.8 million working single parents would benefit from the President’s proposal, more than 80 percent of whom are single mothers. Historical experience suggests that raising the minimum wage reduces poverty, including child poverty in female-headed households.
In addition to reducing poverty and boosting incomes for low-wage workers, increasing the minimum wage can also reduce the wage gap between low- and middle-income women. For example, economic research shows that up to half of the growth in the women’s 50-10 wage gap (the difference in wages between low-earning women at the 10th wage percentile and women at the 50th wage percentile) in the 1980s can be attributed to decreases in the real minimum wage. A low value of the minimum wage (shown as a rise in the black line in the following chart) increases the gap between the minimum wage and the median wage, making it harder for lower wage workers to reach the middle class.
4. Raising the minimum wage will help reduce the gender pay gap.
For every dollar that men earn, women earn just 77 cents. Since women constitute the majority of workers who would see their wages increase by raising the minimum wage to $10.10, increasing the minimum wage can help narrow the gender wage gap. Estimates from the President’s Council of Economic Advisers suggest that increasing the minimum wage to $10.10 an hour and indexing it to inflation could close about 5 percent of the gender wage gap.
Betsey Stevenson is a member of the Council of Economic Advisers. Lily Batchelder is the Deputy Director of the National Economic Council.
Related Topics: Economy