The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare
AbstractMillions 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.
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Bibliographic InfoArticle provided by Elsevier in its journal Labour Economics.
Volume (Year): 19 (2012)
Issue (Month): 5 ()
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Web page: http://www.elsevier.com/locate/labeco
Minimum wage; Tipping; The restaurant industry; Business strategy; Tipped workers;
Find related papers by JEL classification:
- J30 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - General
- J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
- K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law
- M52 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
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