The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare
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.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Azar Ofer H, 2008. "Strategic Behavior and Social Norms in Tipped Service Industries," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-18, March.
- Mincer, Jacob, 1976.
"Unemployment Effects of Minimum Wages,"
Journal of Political Economy,
University of Chicago Press, vol. 84(4), pages 87-104, August.
- Jacob Mincer, 1974. "Unemployment Effects of Minimum Wages," NBER Working Papers 0039, National Bureau of Economic Research, Inc.
- Azar, Ofer H., 2004. "What sustains social norms and how they evolve?: The case of tipping," Journal of Economic Behavior & Organization, Elsevier, vol. 54(1), pages 49-64, May.
- Ofer H. Azar, 2003. "What sustains social norms and how they evolve? The case of tipping," Others 0309001, EconWPA.
- Brown, Charles & Gilroy, Curtis & Kohen, Andrew, 1982. "The Effect of the Minimum Wage on Employment and Unemployment," Journal of Economic Literature, American Economic Association, vol. 20(2), pages 487-528, June.
- Strobl, Eric & Walsh, Frank, 2011. "The ambiguous effect of minimum wages on hours," Labour Economics, Elsevier, vol. 18(2), pages 218-228, April.
- Eric Strobl & Frank Walsh, 2011. "The ambiguous effect of minimum wages on hours," Open Access publications 10197/8051, School of Economics, University College Dublin.
- Danziger, Leif, 2010. "Endogenous monopsony and the perverse effect of the minimum wage in small firms," Labour Economics, Elsevier, vol. 17(1), pages 224-229, January.
- Danziger, Leif, 2009. "Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms," IZA Discussion Papers 4320, Institute for the Study of Labor (IZA).
- Leif Danziger, 2009. "Endogenous Monopsony and the Perverse Effect of the Minimum Wage in Small Firms," CESifo Working Paper Series 2740, CESifo Group Munich.
- Matt Parrett, 2006. "An Analysis of the Determinants of Tipping Behavior: A Laboratory Experiment and Evidence from Restaurant Tipping," Southern Economic Journal, Southern Economic Association, vol. 73(2), pages 489-514, October.
- Lynn, Michael & Grassman, Andrea, 1990. "Restaurant tipping: an examination of three 'rational' explanations," Journal of Economic Psychology, Elsevier, vol. 11(2), pages 169-181, June.
- Azar, Ofer H., 2009. "Tipping motivations and behavior in the US and Israel," MPRA Paper 20304, University Library of Munich, Germany.
- Lynn, Michael & Zinkhan, George M & Harris, Judy, 1993. " Consumer Tipping: A Cross-Country Study," Journal of Consumer Research, Oxford University Press, vol. 20(3), pages 478-488, December.
- Azar, Ofer H., 2004. "The history of tipping--from sixteenth-century England to United States in the 1910s," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 33(6), pages 745-764, December.
- Ofer H. Azar, 2003. "The History of Tipping - From Sixteenth-Century England to United States in the 1910s," Economic History 0309001, EconWPA.
- John Anderson & Orn Bodvarsson, 2005. "Do higher tipped minimum wages boost server pay?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(7), pages 391-393.
- Ofer H. Azar, 2007. "Do people tip strategically, to improve future service? Theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 40(2), pages 515-527, May. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:eee:labeco:v:19:y:2012:i:5:p:748-755. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.