Minimum wage vs. Making tips for Food/Bar attendants Essay Example

A tipped wage refers to the base wage which is paid to an employee that receives a substantial proportion of their own compensation from tips.

According to the Fair Labor Standards Act (FLSA), the tipped supplemental minimum tipped wage has been set at $2.13 per hour for employees who earn a significant amount of tip income. According to the tip credit law, tip waged employees must earn at least the federal minimum wage of $7.25 when the tipped amount is included. If the tipped amount does not correspond with the federal minimum wage, employers are required by law to make up the difference. According to the country’s labour laws, an employee who in most cases earn at least $30 per month as tip income, is qualified to be paid a tipped wage supplement. This law most applies to waiters, waitresses, and bartenders. For a long period of time now, there has been contradicting report on the actual amount that tipped employees actually earns with many advocacy groups providing misleading reports which suggest that tipped workers earn less than the minimum wage which contravenes the labor law concerning minimum wage payment. For instance, this seems not to be the case as statistics indicates that tipped employees are always guaranteed to earn much more.

As indicated by the Census Bureau, the regular hourly wage for restaurant employees who earns a tip income is approximated to be $13.08 with the highest income tip employees in the same sector earning approximately $24 an hour or even more. On the national perspective, tipped workers are said to have a median wage, including tips, of $10.22, and this is according to the analysis

conducted by the Bureau of Labor Statistics survey. This rate have however dropped to $9.80 an hour in the 19 different states where the $2.13 tipped minimum rate is allowed. Other states which are known to have a higher tipped minimum wage are said to prefer the use of a regular minimum wage mostly. Many individuals have in the past added their concerns towards the need for the government to increase the minimum wage so as to help low income earners such as waiters and bartenders earn considerable higher income. However, many economists are opposed to such move suggesting that replacing the tipped minimum wage with the regular legal minimum wage would impact negatively on the economy.

It is correct to state that the cost of living in the country is increasing annually as the prices of goods and other essential services keep on growing thus leaving many Americans to be unable to fulfill their basic needs adequately. Due to low income and constant increase in prices of goods and services in the country, many people always work for long hours just to get extra cash to help meet the demands of their families. The aspect of working overtime and for long hours, however, comes with much health effects which reduce the wellbeing of the employees. Many people, therefore, proposes that the increase in the country's minimum wage is the only solution to the above problem and the only way that poor income earners can efficiently meet their basic needs without necessarily working for long hours. On the economic perspective, however, the increase in legal minimum wage has serious undesirable economic effects which significantly affects the

economy thus making many economists to oppose such policy (Neumark et al 608). This paper tries to analyze the issue of minimum wage increase in the country and its corresponding effects so as to come up with a convincing decision whether the federal government and the state governments should always implement the proposal to increase the country's minimum wage.

Labour is one of the factors of productions apart from capital, land, and entrepreneurship. Individuals always offer their human labor resources in exchange for salaries and wages. With the presence of the three other factors of production, employers use the human labor skills provided by workers so as to transform raw materials into finished products that can satisfy the customer needs (Giuliano 155). The cost of labour is considered the most important cost to consider since it influences the price that the producer will charge on his/her produced products and even the profit revenue for the producers. With every producer being motivated with the objective of maximizing profit subject to cost minimization, many producers would be tempted to exploit their workers by paying them fewer wages which do not reflect their value and productivity in the firm. To eradicate issues of worker's exploitation and wage inequality by their employees, the federal government, and the state governments are always tasked with the responsibility of determining the minimum hourly wage that each worker should be paid (Lee 977).

As of July this year, the federal government had enacted the minimum wage law setting the country's federal minimum wage at $7.25 per hour. However, other state governments have increased their state minimum wage above the minimum limit set by the federal

government through automatic adjustment, referendum or legislative action in which some states are currently using $11 or $12 as their minimum wage per hour.

It is essential to note that with an increase in minimum wage, there are always some negative economic implications which are associated with such policy. One of the impacts of an increase in minimum wage is that it enhances the cost of production which in return forces the employer to adjust so as to achieve the previous amount of profit before the minimum wage was increased. With an increase in minimum wage, producers will be forced to sack some employees so as to diminish the cost of production and to enhance the chances of the firm surviving in the future. The laying off of workers due to wage increases will automatically affect the economy as the number of unemployed citizens will increase. A research study conducted to investigate the effect of an increase in minimum wage in the country suggested that with a one-dollar increase in the minimum wage in the country, there will be an automatic increase in the rate of unemployment by 10%. The increase in minimum wage also leads into inflation, a term which refers to the persistent increase in the price of essential goods (Lee 980).

With the government increases the legal minimum wage, employers will be forced to pay higher wages to their workers which in return reduces the profits that will accrue to the business. The producers will be therefore compelled to increase the prices of their products so as to meet the higher cost of labor. With the growth in the price of essential goods, many

people, especially the low-income earners, will be unable to meet their daily living wages leading to a reduction in the welfare of the employees. The replacement of the tipped wage with the minimum wage by the federal government is considered by economists to result in the cost of production which will result in more than 500,000 job opportunities in the country.

The issue that stands is whether employees should depend on the tipped minimum wage, the actual minimum wage or depend on both. The lowest compensation an employer is legally required to give his or her employees is what is perceived as a minimum wage. It is also a price floor that no worker can offer his or her labour. The minimum wage tends to reduce poverty, boost morale of the employee, increase the standard of their living and finally reduces inequality. On the other hand, there is a tip. It is the appreciation given to a worker after offering services. The aim of this paper is to examine whether the employer is to increase the minimum wage or if the employee to wholly depend on the tips given to him or her by the customers.

The tipped minimum wage has been constant since 1991 at $2.31 per hour. As for the employees, an increase on the actual minimum wage will be of benefit to them. For instance, in December, the city council of Washington voted for a raise on the minimum wage from $8.50 to $11.50. This did not raise the minimum wage for the tipped workers. In the U.S, The Minimum Wage Fairness Act, endorsed by Obama, would see a gradual increase for tipped employee

by 70 percent of their regular minimum wage. However much some employees fight for an increase on their minimum wage, there are those that do not think it is necessary. A push by activists of labour will see a typical bartender pay rise by 61 percent which will create a $15 minimum wage.

In New York in the month of February, $4.90 which was the tipped minimum wage was raised to $5.65 then to $7.50 an hour. In America, the low rate of the minimum wage has seen workers work for the tipped minimum wage which is the best option. This is because not all workplaces allow tipping of bartenders or food waiters and waitresses. In some instances, tipping motivates the employee in that it makes him or her work extra hard in order to get a reward from the customer. Bartenders often work extra hard for their minimum wage. Some of them pay the bar for that one privilege of letting them work there. The tips, therefore, come in handy at this point; the bartender also has to pay the busboys and the dishwasher. With the minimum wage; it helps remove financial stress, increases incentives to a job, finally it impacts positively to the job, encourages automation and work efficiency and ultimately increases the work ethic of the bartenders.

On the other hand, there are the managers who are advocating for the removal of the tipping of workers or employers depending on the tips they receive from their customers. If the minimum wage is to be scrapped off by the managers; it will result to long-term unemployment and slow growth in the creation of low-skilled jobs.

The issue of doing away with the minimum wage for bartenders is because the manager believes that the tips received are way higher than the minimum wage. Given that tipped workers get a median wage of $10.22, according to an analysis by Bureau of Labour Statistics. If the workers are also to depend on tips without the minimum wage, then the government will have to step in and help them meet their daily needs.

It has been argued that workers who mostly rely on tips are more vulnerable to economic inequality and will, therefore, likely to need government assistance to help them meet their basic needs and that of their families. The research study conducted to investigate the degree of vulnerability that may prompt a worker to need government assistance; the study found out that while 46 percent of tipped workers are at the risk of needing government support and public benefits to enhance their welfare, only 35.5 percent of non-tipped workers are in such a risk. This study definitely shows that non-tipped workers who are paid on the basis of minimum legal wage are better off than the tipped workers who are paid on the basis of tipped minimum wage. In America, the waiters and waitress working in Food Company and restaurants forms the highest percentage of employees working for tips. They are then followed by hairdressers, bartenders respectively.

Conclusion

It is correct to appreciate the fact that an increase in minimum wage will enable low-income earners to enjoy higher wages and salary from their employees. However, it is even much important to acknowledge the undesirable adverse effects of minimum wage increase and how negatively it impacts

the overall performance of the country's economy. While employers are of the view that the tipped minimum wage should be used instead of the lowest pay permitted by law set by the administration, the workers are of the different opinion as they suggest that both of these wages should be used. It is clear that it is the motive of every manager to desire to make maximum profit subject to minimizing cost, these managers will, therefore, prefer to reduce the cost of labour by using the tip minimum wage rather than the minimum legal wage step up the government. It is, therefore, important that the government intervene to ensure that workers are compensated fairly according to their value and productivity and that both the tip minimum wage and the legal minimum wage.

Work Cited

• Even, William E., and David A. Macpherson. "The effect of the tipped minimum wage on employees in the US restaurant industry." Southern Economic Journal 80.3 (2014): 633-655. Print.
• Giuliano, Laura. "Minimum wage effects on employment, substitution, and the teenage labor supply: Evidence from personnel data." Journal of Labor Economics 31.1 (2013): 155-194. Print.
• Lee, David S. "Wage inequality in the United States during the 1980s: Rising dispersion or falling minimum wage?" Quarterly Journal of Economics (1999): 977-1023. Print.
• Meer, Jonathan, and Jeremy West. "Effects of the minimum wage on employment dynamics." Journal of Human Resources (2015). Print.
• Neumark, David, JM Ian Salas, and William Wascher. "Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?" Industrial & Labor Relations Review 67.3 suppl (2014): 608-648. Print.