The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare

Ofer Azar

Labour Economics, 2012, vol. 19, issue 5, 748-755

Abstract: Millions of workers derive much of their income from tips and are subject to the “tipped minimum wage” that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service charge in lieu of tipping to extract the economic rent enjoyed by waiters under tipping. Because servers are better off with tipping, this implies that increasing the tipped minimum wage in an attempt to increase servers' income may achieve the opposite result. Moreover, increasing the tipped minimum wage may reduce social welfare.

Keywords: Minimum wage; Tipping; The restaurant industry; Business strategy; Tipped workers (search for similar items in EconPapers)
JEL-codes: D21 J30 J38 K31 L20 M52 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:labeco:v:19:y:2012:i:5:p:748-755

DOI: 10.1016/j.labeco.2012.07.002

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