The Effect of Tip Credits on Earnings and Employment in the U.S. Restaurant Industry

William Even () and David Macpherson

No 7092, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: According to federal law in 2012, employers can take a credit of up to $5.13 for tips received by workers in satisfying the minimum wage requirement of $7.25. This study uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment and earnings in the U.S. restaurant industry. Using data from the Quarterly Census of Employment and Wages and the Current Population Survey, we find that a reduction in the tip credit increases weekly earnings but reduces employment in the full services restaurant industry and for tipped workers. The results are robust to controls for spatial heterogeneity in employment trends and are supported by a series of falsification tests.

Keywords: employment; tip credit; minimum wage; tipped workers; cash wage; earnings (search for similar items in EconPapers)
JEL-codes: J30 J31 J38 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-12
New Economics Papers: this item is included in nep-lma
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Citations: View citations in EconPapers (1)

Published - revised version published as "The Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant Industry" in: Southern Economic Journal, 2014, 80 (3), 633-655

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