Planet Money - The Even More Minimum Wage

Episode Date: March 17, 2021

The tipped minimum wage hasn't changed for decades. Is now finally the time? | Subscribe to our weekly newsletter here.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

This is Planet Money from NPR. Back when she was in high school, Carolyn Anzaldúa was working at a McDonald's in Houston, Texas, trying to save money for college. But all of her friends were working at other restaurants where they got tips. They got to leave every night with cash and they would say, oh my gosh, I went in and I made $100 on one night and I was like, wow. So she starts applying for server positions and she gets hired at Olive Garden. I did go in with some sort of blind optimism. I was like, oh, this is so cool because they're so busy all the time. It'll be great.

But it was a lot harder there than I had anticipated it to be. Part of why it was so much harder is because of what Olive Garden is known for. Like, if you know one thing about Olive Garden, it's the breadsticks. Unlimited breadsticks. Breadsticks forever. Carb overload. And unlimited soup and unlimited salad. I think a lot of people don't realize that the servers at Olive Garden make the salad and

soup themselves, which when you have a party and, you know, people want different things, they want extra this and this on the side. It makes it very complicated, you know. But the money could be good on busy days like the weekends. She could make like $25 an hour. But then there were the slow days. If you're standing there and you're not getting any work, you're not getting any tables, you just know that you're absolutely wasting your time. It's like, oh man, it's very frustrating for sure. The worst part was the customers who would leave next to nothing in tips or actually nothing. When someone just disregards you by not leaving you anything, it's hurtful.

Like, you know, for sure. Yeah, after having like looked you in the eye for like an hour. Exactly, exactly yes and smiled with you and talked with you and kind of joked with you and then it's just like well i don't care about you but she says it wasn't just the feeling of disrespect that bummed her out it was also the fact that her entire financial well-being was completely dependent on these strangers that's because Olive Garden was paying her the federal minimum wage for tipped workers. $2.13, like that measly little like handful of change. $2.13. Hello and welcome to Planet Money. I'm Greg Rosalski. And I'm Mary Childs. Carolyn's measly little handful of change is the reality for tipped workers across the country every time they pick up their paycheck.

That's because tipped workers get a special minimum wage that is much lower than the standard one. And it's been the same rate, $2.13 an hour, for decades. The last time it was raised was 1991. And the parent company of Olive Garden and some of its big restaurant friends are fighting really hard to keep it that way. Today on the show, why is the special minimum wage for tipped workers been frozen for so long? And what would it mean to raise it all the way up to $15 an hour? The restaurant industry is among the most devastated in our economy right now, which makes it either the perfect time or the worst time to totally overhaul it. For a long time, the federal government did not guarantee a minimum wage for a huge number of Americans. Workers in agriculture, domestic work, most tipped jobs weren't guaranteed a minimum wage.

And historians believe a large reason for this was race. Those industries had a higher proportion of Black workers. In 1966, in the midst of the Civil Rights Movement and the War on Poverty, President Lyndon Baines Johnson, LBJ, the fightin' LBJ-ster, signed a bill that expanded the minimum wage to workers who previously didn't get it. It was a big deal. We have included more than 9 million new workers under a higher minimum wage. This new law created a new special minimum wage for tipped workers. It was lower than

the standard one. The idea was tips would make up the difference. And if workers didn't make enough tips, then employers were legally obligated to pony up and make sure that they did make the standard minimum wage per hour. So no one is actually supposed to make that measly little handful of change, the tipped minimum wage. This is just the minimum amount employers have to pay workers. If they don't make enough tips, then workers are supposed to get compensated. The employer has to pay. So that's how the tipped minimum wage is supposed to work. And for decades after 1966, every time Congress would raise the standard minimum wage, it would increase the t tip minimum wage at the same time.

That is until the mid-90s and this guy. And for those of you who may not be familiar with me, I am Herman Cain. That is the late Herman Cain in 1995 testifying before Congress about the minimum wage. You might know him from his presidential run, but before that he was the successful CEO of Godfather's Pizza and the president of the National Restaurant Association, the NRA. Not the gun NRA. Right, the food NRA. No guns. Just to be clear. The other NRA. The National Restaurant Association, which is the leading trade group for the over 740,000 restaurant and food service entities in this country.

In other words, it's the restaurant industry lobby. It represents restaurant owners and operators. And Kaine was making the same arguments to Congress then that you'll still hear conservative economists make today. Raising the minimum wage, it's bad for business and it will kill jobs. When you make it more expensive to hire people who lack basic work skills and experience, you risk shutting them out of the workforce. So they struck a deal. The NRA ended up budging on raising that standard minimum wage, but they said, keep your hands off

the tipped minimum wage. We don't want you raising the tipped minimum wage like ever again. And apparently it worked. The federal government froze the minimum wage for tipped workers at $2.13. That was the rate that was set in 1991. So decades ago, 30 years ago. The standard minimum wage has gone up five times since then. But the tipped one? We are still at $2.13. So that's how we got here. It's why Carolyn, when she was at the Olive Garden, you know, she was getting that measly little handful of change. And now the question that Washington is debating is, should we change that? Should Olive Garden servers and IHOP busboys and everyone else who makes tips for a living,

should they get a higher minimum wage? Right now, the standard minimum wage set by the federal government is $7.25 an hour. Democrats in the Senate have proposed the Raise the Wage Act, which would create one minimum wage for everybody in every industry. $15 an hour for all workers, including tipped ones. In other words, goodbye special tip minimum wage. Now, this wouldn't happen overnight. The tipped wage would get to $15 an hour over seven years. And just to be clear, restaurant workers would still get tips. It's just that their base pay, their paycheck would be much higher. So this is a big, charged, important issue. People have strong opinions. We're going to lay out two of the main arguments here. So first up, Sean Kennedy.

He is the public affairs guy at the National Restaurant Association, the food NRA, not the gun one. Is it like West Side Story, the NRA versus the NRA? We aren't in the same meetings and we don't represent the same folks. We hope that everybody enjoys going to a restaurant, but our policy priorities are very different. I feel like if it was a West Side Story sort of situation, they would probably win because they have more guns. Possibly. So Sean makes a lot of those Herman Cain arguments from the 90s, but he has even more urgency now because the restaurant industry is a disaster zone. Millions of restaurant workers aren't getting a wage at all. Since the coronavirus

pandemic has started, 110,000 restaurants around the country have shut down. Now is not the right time to be putting increased costs onto restaurants. The NRA just surveyed restaurants around the country, and they asked them, what would the Raise the Wage Act do to you? And 82% said it will make it harder for us to recover, harder for us to open our doors, harder for us to bring on more employees. Even if we're not all worried about, you know, contracting a deadly virus every time we go out,

he says the restaurant industry is hard, and this would only make it harder. Restaurants are barely profitable on a good day, about a profit margin of about 5% to 6%. So a proposal that would increase the tip wage in some instances by 600%, what's going to happen to restaurants and revenue as a result of this? We're talking about $2.13 to $15. He's like, that's huge. We've never done anything like this before. And he argues nobody's actually supposed to make $2.13 an hour. Federal law clearly states if workers' tips don't get them to that standard minimum wage,

$7.25 an hour or more, employers have to make up the difference. If they have a shift where no one walks into the door, by law, they're guaranteed the minimum wage. Their employer is going to pay them the minimum wage, period. End of story. But like, is it really the end of the story? Probably not because we have a whole other act. It's literally not the end. And we're going to hear from another side. Yeah, we're still going to tell the story. It's definitely not the end of the story. And we're asking all restaurants including the Olive Garden. Excuse me. Next up, we hear from her, the leading activist for change. Okay, we've heard from the people who absolutely do not want to increase the tipped minimum wage. They say it will squeeze an already struggling industry.

So now for the side that says we absolutely must change the system. Saru Jayaraman is the president of an organization called One Fair Wage. They're pushing for that Raise the Wage Act, the one we heard about earlier, that would kill the minimum wage for tipped workers. The restaurant industry, Saru says, is paying its workers way too little. This is the nation's second largest and number one fastest growing private sector employer, but it's been the absolute lowest paying employer for decades and decades. Okay, brace yourselves, get ready for some data. Here we go. Okay, according to the Bureau of Labor Statistics,

the median hourly wage for servers is $11 an hour, and that's including tips. Working full-time, that's only about $22,000 a year. And remember, this is the median, you know, the middle. So half of workers make even less than that. Saru says tipped workers are much more likely to be on food stamps and live in poverty than the rest of the U. So half of workers make even less than that. Saru says tipped workers are much more likely to be on food stamps and live in poverty than the rest of the U.S. workforce. And she says that whole idea that employers are supposed to make up the difference if workers' tips don't

get them to $7.25 an hour? Great in theory, not so great in practice. Remember Carolyn, the Olive Garden employee we spoke to earlier? she said while the Olive Garden was pretty good about following that rule, her previous employer, another restaurant, was totally not. When she didn't get enough tips, they did not make up the difference. I never saw anything like in a paycheck, so and that would be super frustrating. And it's a really tough position to be in. Like, what is Carolyn supposed to do at that point? The onus is on her to complain. And who knows how her boss is going to react. They may decide to assign her all the slow weekday afternoon shifts where there aren't any customers, take her off the lucrative weekend night shifts. not unique. Some years back, the Department of Labor investigated nearly 9,000 restaurants and found over a thousand violations where employers failed to make up that difference. So workers don't have that much power in their relationship with their employers, and they also don't have

much power in their relationship with their customers. Tipped employees are functionally employed by a bunch of random strangers every night, which creates all kinds of problems. One of those problems? Sexual harassment. If your wages are so reliant on tips, your customers can be just as terrible as they want, and you have to smile and laugh at their bad jokes and tolerate them if you need their tip money. Even when they're saying horrifying things. Even maybe when they're harassing you. One fair wages research shows that 90% of female restaurant workers report experiencing sexual

harassment on the job. Another study found that the restaurant industry has the highest rate of workers reporting sexual harassment of any industry. Carolyn says she experienced this at Olive Garden. Carolyn says she experienced this at Olive Garden. Okay, thank you so much. I'll go get those breadsticks. Yeah, that's exactly how it is. And Saru says this system that enables sexual harassment has lasting consequences. This is the first job for almost one in two Americans. This is how young women get exposed to the world of work. This is how they learn what's normal, legal, ethical, acceptable in the workplace. And that actually increases their tolerance for harassment later in life.

Saru says a higher minimum wage would mean that workers would be less extremely reliant on the good graces of whatever dirtbag sits at their table. They wouldn't have to just grin and bear it. In Saru's world, they would have a $15 an hour paycheck coming their way no matter what. So they could more easily stand up for themselves or at least get taken off that table. And again, this system where employees are functionally employed by a bunch of random strangers, it leads to other problems, like racism. In a study led by Michael Lynn at Cornell University,

white servers got significantly higher tips than black servers. For instance, for tables of three or more, they found that black servers on average made 25% less in tips per table. There is now irrefutable evidence that workers of color get tipped less than white workers, both because of customer bias and because of employer bias. They are segregated into more casual restaurants where they earn a lot less in tips. Last September, One Fair Wage filed a federal complaint against Olive Garden, actually Olive Garden's parent company, Darden Restaurants, saying that this system forcing workers to rely on tips results in racial inequality and that this violates equal protection of the law.

racial inequality and that this violates equal protection of the law. One fair wage is targeting Olive Garden's owner, Darden Restaurants, because it's one of the largest employers of tipped workers in the country. But also because they've been the primary driving force within the National Restaurant Association against minimum wage increases. Oh, it's the National Restaurant Association, the other NRA again. Since the 90s, they've spent over $50 million on federal lobbying and millions and millions more in campaign contributions. They're using a lot of that money to fight against minimum wage increases. They say the existing system is fine.

Sean, the NRA public affairs executive, says sexual harassment should not be tolerated, but raising the minimum wage won't do anything to prevent it. And here's what he said when I asked him about the study from Michael Lynn and colleagues about racial disparities in tips. It sounds like what he's suggesting that there's nationwide systemic racism against African-American employees. I don't know if you find that you do that. I certainly don't. And I don't know many people that do. So Sean doesn't think that raising the minimum wage is going to fix all these problems. And again, he argues it will be a disaster for both restaurants and all those tipped workers. But to the main point the NRA makes, that this will be a massive job killer, that isn't really supported by the evidence we have. There's actually been a natural experiment going on for decades.

There are seven states that have long had no subminimum wage for tipped workers, including Montana, Alaska, and California. They have the same minimum wage for everyone. Sylvia Allegretto is a labor economist at UC Berkeley. She's compared the restaurant industries in the states with a low subminimum wage for tipped workers and those without. And she says the evidence just does not support the National Restaurant Association's argument that, you know, eliminating the subminimum wage for tipped workers is going to destroy the restaurant industry. What we show is actually that the restaurant

industry from 2011 through 2019 in the states that do not have sub-minimum wages for tipped workers grew at a much higher rate than those that did. So she's saying all those concerns that the NRA, the Food NRA, has raised for decades about minimum wage hikes inevitably leading to job losses and restaurant closures, in the data we have so far, just the opposite seemed to be happening. Restaurants were thriving in those states. The evidence does suggest that higher minimum wages result in slightly higher menu prices, but workers also earn more and they spend more. Worker turnover goes down. Productivity increases.

So there are economic benefits, too. Though, to be fair, all of this data, it's pre-pandemic. Right. COVID has really messed up the restaurant industry. And the bill that Democrats are pushing in Congress, it would increase the minimum wage in ways we haven't seen before. I mean, $2.13 to $15 an hour, that's a huge leap. There is a lot of research that shows that modest increases in the minimum wage won't kill a significant amount of jobs or substantially increase menu prices. But something of this magnitude, there's less research on that.

And as for Carolyn, she said to the restaurant industry, so long and thanks for all the tips. Even if they were often crummy and I had to make endless salads for dirtbag customers. She's now in training to be an elementary school teacher. It's actually a non-paid internship. You have to complete this to be certified and it's not, you don't get, you don't get paid for it. Her husband has a job which does pay him money, so they are living on his income right now. I am definitely looking forward to finishing and being able to, to have a teacher salary and getting, you know, getting to do what I love and getting paid for it fully and not, you know, depending on, Oh, well, what am I going to make today? I don't know.

Going, going in the uncertainty of it all. So we have a newsletter that I write most weeks and you should totally subscribe to it. It's kind of like unlimited breadsticks, like delivered to your like email inbox, but less carbs. And you should totally subscribe to it. It's npr.org slash planet money newsletter. This episode was produced by Dave Blanchard and edited by Maureen McMurray. It was mastered by Gilly Moon.

Alex Goldmark is our supervising producer and Brian Erstadt edits the show. I'm Mary Childs. And I'm Greg Wazowski. Thanks for listening. Hearing loss is a fact of life for many humans, but not for fish, reptiles, or birds. People noticed in chickens that they could take them to, say, heavy metal concert, blast the ears really to oblivion. And then within days, new hair cells would begin to sprout. The science of sound. That's next time on the TED Radio Hour from NPR. And a special thanks to our funder, the Alfred P. Sloan Foundation, for helping to support this podcast.