by Madeline Armstrong
A new report put out by the Arizona Common Sense Institute has found that allowing employers to pay tipped workers 25% less than the state minimum wage could actually help secure jobs for employees in the restaurant and service industries.
The report is an analysis of Proposition 138, an amendment that would allow for tipped workers to be paid 25% less per hour than the minimum wage if any tips received by the employee were not less than the minimum wage plus $2 for all hours worked. Arizona voters will decide the measure’s fate in the upcoming general election.
Current law states that tipped workers can make $3 less than the state minimum wage if the totals including tips amount to at least the minimum wage. Minimum wage in Arizona is $14.35 per hour, meaning that employers are able to pay their employees $11.35 per hour. If Proposition 138 is voted into law by Arizonans, tipped workers would get about $11.08 per hour from their employers.
Earlier this year, a measure to increase the state’s minimum wage to $18 an hour failed to qualify for the ballot.
However, the CSI report indicates that minimum wages or wage floors can negatively impact businesses and workers.
“Wage floors can be especially harmful to younger workers and students – who often work in the food service industry and for tips,” reads the CSI report. “A tipped worker credit can mitigate that.”
The report states that making a minimum wage credit part of the state constitution would protect it, to an extent, from being repealed, because there would be serious repercussions in repealing the amendment. The report notes that Washington, D.C. had a credit for tipped workers that was repealed, resulting in restaurants and bars reportedly slashing employment levels by 12%.
“CSI estimates that nearly 30% of food service workers may participate in Arizona’s minimum wage credit for tipped workers,” the report states. “Despite having a legal wage floor of less than the state’s minimum wage, they have average annual earnings of over $22 per hour. Arizona’s current credit for tipped workers protects between 6,200 and 13,500 jobs in the state; reduces prices at restaurants and bars by about 1%; and increases state GDP by up to $1 billion annually.”
The report concludes that getting the minimum wage credit may not only not increase earnings could hurt employment prospects for those who rely on low-paying jobs in the restaurant and service industries.
“The initial response in Arizona to the removal of its tipped workers credit is the loss of 6,200 jobs – including nearly 1,500 jobs in the food service industry specifically,” the report states. “While a minimum wage may be seen as an effective means of improving the standard of living for lower income households, the reality of wage floors is more complicated: the costs for workers and consumers can easily exceed any improvements in earnings for impacted workers.”
While groups like the nonprofit One Fair Wage claim that Proposition 138 would be harmful to workers in those sectors and that employers should be responsible for paying their workers a fair wage and shouldn’t put that cost burden on the consumer, CSI argues that a minimum wage credit is exactly what is needed to protect those workers.
“Arizona’s credit for tipped workers likely increases statewide employment by between 6,200 and 13,500 jobs, reduces restaurant and bar prices by over 1%, and increases state GDP by up to ~$1 billion per year,” the report notes.
Proposition 138 is one of 13 measures that will be on Arizona’s Nov. 5 ballot.
– – –
Madeline Armstrong is a contributor to The Center Square.
