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The Effect of the Tipped Minimum Wage on Employees in the U.S. Restaurant Industry

Listed author(s):
  • William E. Even


    (?Raymond E. Glos Professor of Economics, Department of Economics, Miami University, Oxford, OH 45046, USA;)

  • David A. Macpherson


    (E.M. Stevens Professor of Economics, Department of Economics, Trinity University, One Trinity Place, San Antonio, TX 78212, USA; corresponding author.)

According to federal law in 2013, employers can take a credit of up to $5.12 for tips received by workers in satisfying the minimum-wage requirement of $7.25. This article uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment, hours, 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-service 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.

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Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 80 (2014)
Issue (Month): 3 (January)
Pages: 633-655

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Handle: RePEc:sej:ancoec:v:80:3:y:2014:p:633-655
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