The Lowest Minimum: Why We Still Have a $2 Tipped Minimum Wage

July 24, 2015

Nicolas Buffie

Yesterday, CEPR released a short study asking how high the minimum wage would be if it had risen in line with productivity since 1968. Between January and February of that year, the minimum wage increased 14 percent from $1.40 to $1.60; instead of shedding jobs, the labor market seemed to improve. Between 1967 and 1968, the prime-age employment rate increased half a percentage point, and the unemployment rate fell to 3.6 percent.

Such an experience would ordinarily give policymakers little reason to fear minimum wage hikes. However, since 1968, the minimum wage has failed to rise in line with either productivity or inflation. Had it risen in line with productivity, it would have been $18.42 in 2014; had it risen in line with inflation, it would have been $9.54.

That same year, the tipped minimum wage also rose 14 percent, from $0.70 an hour to $0.80. And over the subsequent years, the tipped minimum wage maintained a normal relationship to the minimum wage, staying at 50 to 60 percent of the latter’s value. Over the 23 years from 1968 to 1991, the tipped minimum wage was increased nine times, peaking in nominal dollars at $2.13 in 1991.

But in the 24 years since, it hasn’t been raised even once. While the normal minimum wage has risen in line with inflation since 1991, the tipped minimum wage has seen its real value erode over forty percent. Since 1968, the tipped minimum wage has declined in real terms both because it has fallen as a percentage of the minimum wage and also because the real value of the minimum wage has fallen.

So, it’s worth asking: what would the tipped minimum wage be if it had maintained a value of 50 to 60 percent of the normal minimum wage, as opposed to today’s value of 29 percent? And how high would it be if the minimum wage itself had risen in line with inflation ($9.54) or productivity ($18.42) since 1968? The table below presents the results.

Federal Tipped Minimum Wage

At $2.13, today’s tipped minimum wage is the lowest of the nine prospective values. It’s hard to see how it could be much lower.

Historical data on the tipped minimum wage was provided by the Economic Policy Institute’s Dave Cooper. Cooper has used this same data in a report on the tipped minimum wage that can be read here.

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