In most states, tipped workers are not subject to the minimum wage. Why? Because it’s legal to pay tipped workers a subminimum wage as low as the federal minimum of $2.13 per hour. As long as any worker in the country can be paid less than the minimum wage, the minimum wage is meaningless. Saru Jayaraman, a leader in the national fight for one fair wage, lays out the path forward.
Saru Jayaraman is the President of One Fair Wage, an organization that fights to raise wages and working conditions for all tipped and service workers She is also the Director of the UC Berkeley Food Labor Research Center and the author of One Fair Wage: Ending Subminimum Pay in America.
Twitter: @SaruJayaraman
New Year to bring higher minimum wages in record number of states and cities: https://www.cbsnews.com/news/higher-minimum-wages-2022-in-record-number-of-states/?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiospm&stream=top
Arkansas waitress fired after $4,400 tip shows why tipping at restaurants has to stop: https://www.nbcnews.com/think/opinion/arkansas-waitress-fired-after-4-400-tip-shows-why-tipping-ncna1286076
When the minimum wage isn’t enough: https://commonwealthmagazine.org/economy/when-the-minimum-wage-isnt-enough/
Seven facts about tipped workers and the tipped minimum wage: https://www.epi.org/blog/seven-facts-about-tipped-workers-and-the-tipped-minimum-wage/
Website: https://pitchforkeconomics.com/
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Nick’s twitter: @NickHanauer
Nick Hanauer:
We allow businesses in most states to pay tipped workers a tiny fraction of what the actual minimum wage is.
Saru Jayaraman:
It is an abomination that in 2022, the United States of America has a federal minimum wage of $2.13 for the nation’s largest and fastest growing industry, and that in four out of five states, that wage is under $5 an hour.
David Goldstein:
It’s really a giant scam.
Speaker 4:
From the home offices of Civic Ventures in Downtown Seattle, this is Pitchfork Economics with Nick Hanauer. The best place to get the truth about who gets what and why.
Nick Hanauer:
I’m Nick Hanauer, founder of Civic Ventures.
David Goldstein:
I’m David Goldstein, senior fellow at Civic Ventures. Nick, it’s a new year and that means that there’s a number of minimum wage increases taking effect across the country. In fact, in 35 cities and counties in 21 states, minimum wage rose on January 1st, many hitting or surpassing $15 an hour.
Nick Hanauer:
Yeah. It’s-
David Goldstein:
I bet you didn’t see that coming seven/eight years ago.
Nick Hanauer:
No. I did not. No. We’ve come far, and yet we continue to fight over this incredibly stupid thing, which is that we allow businesses in most places, I think in most states, to pay tipped workers a tiny fraction of what the actual minimum wage is. That policy pivots off the federal policy, which requires businesses to pay tipped workers only $2.13 an hour plus tips. It’s an abomination. It’s an idiotic policy and definitely something that should be eliminated.
In full disclosure, when I first started working on minimum wage issues, I was sympathetic to this and I initially was a defender of this practice, but I think that the more I thought about it, certainly the more data I’ve seen, it makes it super clear that this is just … It’s unnecessary for the business model and it is simply just a way for industry to exploit workers, in particular, the most vulnerable workers, women and people of color.
David Goldstein:
From a consumer perspective, it’s pretty outrageous too. A lot of people don’t know that when you’re tipping in most states, in most jurisdictions, a few bucks of your tip is not going to the worker. It’s actually going to their employer.
You go to Starbucks and you decide to throw a buck in the jar, and a lot of people don’t tip at a Starbucks or certainly at fast food restaurants. Sometimes you’ll see a jar there and you’re in one of these states, chances are all of your tip is going to the shareholders at Starbucks or McDonald’s or whatever, rather than to the workers, because they never make over the minimum wage.
The difference between the tipped minimum wage and the regular minimum wage, it’s really a giant scam.
Nick Hanauer:
That’s right. Perhaps the person in America who has fought more and harder against this nefarious practice will be with us today. Our old friend, Saru Jayaraman, who has been fighting this fight, I mean for practically her entire adult life and is president of One Fair Wage, an org that fights to raise wages for tipped workers. It’ll be fascinating to get an update from her on what’s happening in this fight.
Saru Jayaraman:
My name is Saru Jayaraman, co-founder/president of One Fair Wage and director of the Food Labor Research Center at the University of California, Berkeley and author of the new book, One Fair Wage: Ending Subminimum Pay in America.
Nick Hanauer:
Love it. Saru, we go way back on all this-
Saru Jayaraman:
I know.
Nick Hanauer:
… minimum wage stuff and we’ve been working together for a long time on all of it. You have been at the forefront of this one fight for so long, which is to eliminate the tip penalty, right? This tipped minimum wage. For our listeners, explain both what it is and what the dollar amount is and anything else just to give us context.
Saru Jayaraman:
Sure. First we should say that prior to the pandemic, the restaurant industry was the largest and fastest growing private sector employer in the U.S., but it was always the lowest paying for generations really dating back to emancipation of slavery when the restaurant lobby first demanded the right to hire newly-freed slaves, not pay them anything at all, and have them live entirely on this newfangled concept that had come from Europe at the time called tipping.
Tipping originated in feudal Europe as an extra or bonus on top of a wage for serfs and vassals in feudal Europe. When it came to the States, the restaurant lobby and hospitality sector more broadly mutated the notion of tipping from being an extra bonus on top of a wage to becoming a replacement for wages specifically in order to hire black people for free and basically continue a version of slavery, essentially free labor.
That is the origin of the subminimum wage for tipped workers that became institutionalized into law as part of the new deal in 1938 when everybody got the right to the federal minimum wage for the first time, except for large groups of black workers, including tipped restaurant workers who were mostly black women at the time.
We went from $0 in 1938 for tipped workers all the way up to $2.13 an hour, the current federal minimum wage for tipped workers in the United States of America. 43 states in the U.S. persist with this legacy of slavery, persist with a subminimum wage for tipped workers and four out of five states in the U.S. have a subminimum wage for tipped workers that is $5 an hour or less.
It is an abomination that in 2022, the United States of America has a federal minimum wage of $2.13 for the nation’s largest and fastest growing industry and that in four out of five states, that wage is under $5 an hour.
Nick Hanauer:
$2.13 an hour is very close to slavery.
Saru Jayaraman:
Yeah. Yeah.
Nick Hanauer:
Isn’t it?
Saru Jayaraman:
Right. Yeah. I mean-
Nick Hanauer:
It’s not that far away. I mean-
Saru Jayaraman:
That’s right. The truth is that these workers, they don’t see it at all. It goes entirely to taxes and so they live entirely on their tips. Most of these workers, it is zero. It is free labor.
Nick Hanauer:
Yeah. If you don’t mind, I’d love to start this conversation off by admitting that I was on the wrong side of this issue when we first started working together. You may recall that-
Saru Jayaraman:
Nick, I was too. I mean, before you, but I was on the wrong side of this issue myself. I mean, we all were.
Nick Hanauer:
Yeah. I started off, probably like you, with this sort of vague sympathy for this business model that I had become accustomed to, right? Which is the restaurant business. I was like, “Well, I mean, it seems to work. I always leave a tip and I eat in fancy restaurants and often leave a big tip and what’s the harm in it? Blah, blah, blah.”
Over time, you, and of course my direct experience with workers and with the economy has just completely changed my mind about this. The truth is that this holdover from slavery, if that’s what it is, or just the exploitive business model that it has become is completely flipping arbitrary. It’s totally unnecessary and it is not the way restaurants operate in any other developed society on planet earth. It just doesn’t.
I just came from a three-month trip to Europe where I visited a billion different places. Not one of those places requires you to tip the workers. They’re all doing better and the service is better. Like it’s just a ridiculous idea that you have to hold this over people to get them to work hard enough to give you good service. It’s just nonsense.
Saru Jayaraman:
It’s nonsense. You don’t even have to go as far as Europe, as you know, because you live in Washington State and I live in California, there are seven states that got rid of this legacy of slavery decades ago and have required a full minimum wage with tips on top for decades. What we’re asking for is that the rest of the country follow the seven states that have done it so successfully where actually wages are higher, tips are higher, business is growing.
Even the Denny CFO has admitted that paying 15 in one fair wage in California means Denny’s has grown faster in California than any state in the U.S.. You don’t have to go that far. Just look at the seven states that are already doing it.
David Goldstein:
Right. Seattle, Nick, we’re over $17 an hour plus tips.
Nick Hanauer:
Plus tips.
Saru Jayaraman:
Right.
David Goldstein:
Yeah. Starting January one. There’s no shortage of restaurants here. You know what there is a shortage of?
Saru Jayaraman:
Workers.
David Goldstein:
Restaurant workers.
Nick Hanauer:
Workers.
Saru Jayaraman:
That’s right. That’s right. Well, I was going to say, to your point, Nick, of absolute ridiculousness that it couldn’t be another way. I mean, frankly right now is the proof that it always could have been another way because a million workers have left the industry during the pandemic. We have tracked 3 or 4,000 restaurants in the 43 states that pay as little as $2 now paying 15, 20, 25.
We’re even seeing some restaurants paying 50 bucks an hour plus tips in order to get workers to come back. These are restaurants, some of which said, “Can never be done. Impossible. Can’t pay more than $2.” Now paying 15 and $20.
Nick Hanauer:
Right. Absolutely. It is just one of these institutions. It’s just a canonical example of the public getting conned by an industry and just sort of buffaloed that none of us would be able to ever eat at a restaurant again if the industry couldn’t continue to exploit workers in this way. It was just always a straight up lie. It’s a straight up lie today.
The quicker we can move as a country away from this idiotic … I don’t know even what you call it, a policy, the better off, both the industry and the workers will be. I just want to make a huge plug here for consumers too, because creating for every single customer of a restaurant, this mini moral crisis at the end of every single meal where you decide in your great wisdom, what the person deserves, is just freaking stupid.
It’s just not necessary and isn’t good for anyone except for the restaurants. It turns out it’s not even good for them.
Saru Jayaraman:
Well, and there’s a pernicious evil that’s even deeper. That bias that we all have inside of us has resulted in the fact that we get to decide how much these workers take home, people of color and women, all tipped workers always earn at least $5 an hour less than white male tipped workers, because of it’s just at this point irrefutable the data because of the biases we all carry as customers. That got even worse during the pandemic.
With the pandemic, we saw so many women tell us, “I am consistently asked, ‘Take off your mask so I can see how cute you are before I decide how much to tip you.'” Which to me was just such a-
Nick Hanauer:
Wait, that’s a classy thing to say.
Saru Jayaraman:
Well, and it wasn’t once or twice.
Nick Hanauer:
Jesus Christ.
Saru Jayaraman:
It was so pervasive. We heard it from thousands of workers so pervasively that we ended up coining a term for it. We call it maskual harassment. It just to me proved the point we’ve been making for years, that as much as we want to believe that we’re all unbiased and that tipping is solely based on the quality of the service.
If you have to tell a woman to take off her mask so you can judge her looks before you decide how much you want to tip her, clearly your tips are not based on just the quality of her service. They’re based on your biased assessment of how much she pleases you. That is the fundamental problem with letting these workers’ livelihoods depend on how much they please us.
David Goldstein:
I want to be clear here, because we have two separate issues going on, related issues to going on simultaneously. I want to separate them out. One is the tipped minimum wage. Why there should be one minimum wage for all workers, regardless of tips. The other is tipping.
Whether we should have tipping at all, and that seems to be the harder one because the first one, Saru, obviously here in Washington, we don’t have a tipped minimum wage. Congress could, if it ever raised the minimum wage again, eliminate the tipped minimum wage. I know the Biden administration has come out in support of that. But the tipping culture, how do you address that?
Saru Jayaraman:
Well, first I do want to say, I wish it were so easy on the first question. I wish it were so universally understood. You’re right that President Biden has come out very strongly for ending the subminimum wage for tipped workers. Frankly, America has come out for this. I mean, you pull in any state and you ask people, “Should everybody get the minimum wage?” They say, “Wait a second, I thought they already were getting the full minimum wage.”
Everybody agrees except for, unfortunately, our politicians, and it’s not just Republicans. There are eight Democrats that voted against the [crosstalk 00:14:27] Wage Act. There are Democrats in New York, I mean, blue states that have stopped to this from moving.
Nick Hanauer:
No. That mayor of Washington D.C.. What’s her name?
Saru Jayaraman:
Exactly. Thank you.
Nick Hanauer:
What’s her name?
Saru Jayaraman:
Mayor Bowser, yes. Mayor Bowser, Yes.
Nick Hanauer:
Yeah. Just to be clear, Mayor Bower, after D.C., passed by initiative an increase in the minimum wage, she repealed it as mayor earning for herself my permanent enmity.
Saru Jayaraman:
It’s a shame. Too many Democrats have pushed back against this because they are being lobbied by restaurant owners telling them, “No, there’s no way I can pay more than 2, 3, 4, $5 an hour.” I wish it were that easy. From your mouth to whatever policymakers’ ears, let it happen. Let it be so easy. On the second point on the tipping point, listen, I think one step at a time.
Let us establish a full minimum wage in this country for all workers and then I think you’re going to see all kinds of innovation happen at that point. In the states that have one fair wage, we’re seeing lot of move to service charges, which are sort of a half-step towards something different. Service charges eliminate implicit biases because it’s not like you, the customer get to decide, “Oh, I like this person, I’ll give them 15. Or I don’t like this person, I’ll give them 12.”
There’s a set amount everybody has to pay in terms of gratuities and it gets shared between front and back of house. Service charges are a path in this direction. I think there’s a lot of innovation. I am so positive and hopeful for 2022 because you are seeing workers rise up across the country and say, “I refuse to work for 2 and 3 and $4 anymore.”
You are seeing restaurants respond with all kinds of innovative models, whether it’s just paying one fair wage or service charges, or going all the way to a gratuity-free model. I think this is the future of the industry. But one step at a time. Let’s at least establish a livable minimum wage for everybody in this country with gratuities on top.
David Goldstein:
I assume you’re with us on this, Saru, that the great resignation, the so-called great resignation, that’s a good thing, right?
Saru Jayaraman:
We’re actually calling it the great rebellion because resignation makes it sound like people are sighing and they’re resigned or something. No. No. I mean, I’m telling you, we surveyed 3000 workers, 54% say they’re leaving the industry. These are workers who remain in the industry and a million have already left. Of those who remain, 54% say they’re leaving.
78%, nearly eight and 10, say the only thing that would make them stay or come back is a full livable wage with tips on top. They are not having it. They’re not putting up with it anymore. Like I said, we’ve documented 3 or 4,000 restaurants, and that’s just what we’ve documented, now paying livable wages with tips on top because they have to.
Amazingly, those restaurants have joined forces with us to say, “I can’t do it alone. I need a level playing field. I need policy to signal to millions of workers, ‘Come back. These are going to be permanent wage increases. It’s worth coming back to work in restaurants.'”
David Goldstein:
Would this great rebellion, would it have happened without COVID?
Saru Jayaraman:
No. No. No. I mean, I believe there are some silver linings of this horrific pandemic, and this is certainly one of them. We are seeing workers across so many sectors and especially in the restaurant industry where the wages are lowest of any industry say, “Enough is enough.” Listen, what happened at the start of the pandemic? At the start of the pandemic, all these workers got laid off.
One in four people who lost their jobs last year was in the restaurant industry. 6 million workers lost their jobs. They all went to apply for unemployment insurance, two-thirds of tipped workers in America were told, “Your wages are too low to qualify for benefits.” That was the first lightning bulb moment.
This lightning bulb went off above heads of millions of workers across going, “Wait a second, if the state is telling me I earn too little to get the same benefits everybody else is getting, I earn too little and I should never have put up with this subminimum wage to begin with.” A lot of people left right at that moment.
Some people went back to work last summer and they found tips were way down, because sales were down and health risks and customer hostility and harassment were way up. I’m sure you heard all the news stories about workers getting punched and beaten and even shot for trying to enforce COVID protocols or ask people for COVID vaccination cards. Workers reached their breaking point last year itself.
They said, “You’re asking me to enforce COVID protocols on the same customers from whom I have to get tips to make up my base wage? Forget it. Honestly, take this job and shove it. I’m done. I cannot afford to work in restaurants anymore.” Yeah. The great rebellion started last year, or I keep saying last year, 2020.
It started in 2020, continued into 2021 and lo and behold when restaurants were finally able to reopen in 2021, although many are closed again, when they were finally able to reopen in 2021, they found what we had been saying all along. Workers are not willing to work for these wages anymore.
Nick Hanauer:
We always ask the benevolent dictator question towards the end of these. What would you do? If you were in charge, what would the policy be?
Saru Jayaraman:
I mean, listen, $15 and a full minimum wage with tips on top for all workers, by the way, not just tipped workers. My new book talks about subminimum wages across many sectors. It’s all different kinds of tipped workers, restaurant, nail salon, car wash, parking attendants, but also incarcerated workers get paid pennies on the dollar because of the exception to the 13th Amendment that allows for slavery in the case of incarceration. Youth get a subminimum wage in many states.
We need to end all subminimum wages in the U.S.. I really want to ask everybody who’s listening, what is the point of having a minimum wage? We understand what the word minimum means. What is the point of having a minimum wage if one in 10 people can earn less than it legally? There’s got to be nothing but a minimum wage if we believe in the concept of a minimum wage and it’s got to be a livable wage. 15 is the least anywhere in this country.
In California now, we have ballot measure for November ’22 for $18 an hour. We are frankly past 15 at this point. That is the bare minimum anybody in this country can live on. Benevolent dictator, I would raise that instantly. I would ensure all workers get that regardless of what context they work or who they are.
I would couple that with all kinds of assurances around paid family leave and benefits for these workers who, by the way, like you said at the beginning, when we treat them well, it pays off for the employers. I think it’s pretty clear and it’s pretty simple and very straightforward as you said at the beginning. There’s nothing complicated or radical about this. What’s radical is how ridiculously low these wages are right now.
David Goldstein:
Assuming you’re not benevolent dictator and we have to do it the old-fashioned way, what’s necessary to pass one fair wage at the federal level?
Saru Jayaraman:
We need everybody to call on their senators. There are eight in particular we need to target in the Senate, eight Democrats who voted against this. That’s Shaheen and Hassan in New Hampshire, Tester in Montana, the two in Delaware, unfortunately, King in Maine and of course, Manchin and Sinema. We need to get them to agree to 15 for everybody across the board with tips on top. Call your senators, for sure.
Then we’re also moving this at the state level in a number of states. Governor Hochul could make this happen overnight through executive action in New York. We need everybody to push on her in New York. It is on the ballot in D.C.. It’s going to pass in D.C. this year, which is going to be really exciting. The chair of the city council, Nick, has actually already said they will not overturn it this time. It’s going to pass. Michigan it’s on the ballot for ’22.
It’s going to be on the ballot in a number of other states, Maine, a lot of other states coming up. You can check out our website, onefairwage.org, that allows you to actually click on sending a message to your legislator saying, “Let’s get this done.”
David Goldstein:
Right. Minimum wage ballot measures have a remarkable record of success over the past few years.
Saru Jayaraman:
I just would love to say to all of your folks who are worried about Democrats winning in the November ’22 elections, there is no better way to actually excite voters than encouraging them to go vote themselves a raise. There’s nothing that drives them to the polls like this.
As an example, in Michigan, where I think a lot of people are worried about the governor, who’s a Democrat and the AG who’s a Democrat losing their seats, because if they do, there could be really scary things that happened in the 2024 presidential election in Michigan. We all saw what happened in 2020 in Michigan. We need the governor and the AG to keep their seats, but there’s a real problem.
Democrats in Michigan are not excited to turn out and we’re putting this one fair wage, 15 and a full minimum wage for tipped workers on the ballot in November. We could use a lot of support from all over the country to get it on the ballot, because that is what is going to drive low wage workers to the polls, to not only vote themselves a raise, but both this governor and AG back into office.
David Goldstein:
Right. Run to it, not away from it because it’s overwhelmingly popular with voters, even in red states. Minimum wage measures just uniformly pass around the country. I guess also, is there a role for the industry? You mentioned that the Denny CEO acknowledges that higher minimum wage has been good for the company. What can and should restaurant owners do?
Saru Jayaraman:
We’ve got a program in which we are providing support, training, even financial grants and resources to restaurants that are open to transitioning to a livable wage with tips on top and increasing race and gender equity in their restaurants. We’ve got a whole support program with money and training and spreadsheets to show them how to do it profitably, a how-to manual to show them how to do it profitably.
They should go to highroadrestaurants.org, where they can sign up for that support. Consumers can also so go to that website to find restaurants that are doing the right thing in their geographic area. There’s no excuse. At this point, so many restaurants are doing it and there’s so much support to do it. There’s really no excuse not to do it.
Nick Hanauer:
Yeah. Saru, we’ve probably asked you this question before, but we want to ask it again. Why do you do this work?
Saru Jayaraman:
I just can’t frankly imagine working on anything else right now. To me, if we don’t resolve the issue of income inequality in the United States of America, I think every other issue is in peril.
The things that we all think of as existential for our country and our world, climate change, American democracy versus fascism, all of those things really rest upon whether we can actually somehow motivate and engage millions of disaffected people in the U.S., in our political system.
Because believe me, there will be not the political will to move on climate change or to push back on the likes of Trump, unless we engage low income people in this country who feel that neither party has delivered for them, who feel that the political system in general is stacked against them.
Unless we allow people, not just the ability to engage, because they are actually paid enough to take the time to go vote and engage in other ways beyond voting, but also the will and desire to engage because they see that something actually comes out of the political system that’s in their benefit.
Until we address those things, we cannot move on to address those other existential crises of climate change and democracy and frankly, anything else. To me, I cannot think of a more fundamental issue to work on than income inequality, lifting up the voices and needs of low wage workers and pushing back on the overinfluence and power of corporate America.
Nick Hanauer:
Here, here. It was fantastic catching up with you again.
Saru Jayaraman:
Yes. Likewise.
Nick Hanauer:
Best of luck on your endeavors and eventually we’re going to win this one.
Saru Jayaraman:
We are going to win. Thank you both so much. Thank you all for having me. Appreciate it.
Nick Hanauer:
Yeah.
David Goldstein:
Thank you.
Nick Hanauer:
Super great to see you, Saru. Take care.
Saru Jayaraman:
You too. Take care.
David Goldstein:
Nick, two separate issues here, the tipped minimum wage and tipping itself. Obviously we’re opposed to a tipped minimum wage. There should be, we agree with Saru, one wage. If there’s a minimum wage, it’s a minimum one fair wage, one dignified wage for everybody, but tipping, that’s a problem in and of itself, isn’t it?
Nick Hanauer:
Yeah. The thing is, is that, I mean, we have to shift the culture. I think that there’s nothing inherently wrong with the desire on the part of folks to want to tip people who help them and help them in an intimate way, which is what a lot of restaurant experiences are. But for the industry to depend on those acts of kindnesses to support their wages, that has to go. That just has to go.
David Goldstein:
I can tell you as a consumer, Nick, what I want in addition to one fair wage, is one fair price. I hate restaurant menus. I think it is so dishonest to look at a menu and to see a price and it to not be the price. That it’s that price plus a 10% sales tax, plus 20% tip. You don’t automatically do the math in your head.
If restaurants move to a one fair price menu where kind of like in Europe where the value added tax, the VAT that is added into the price, it’s not added on after, like we do with sales tax here, or at a gas station where all of the taxes are included in the price. It’s not 3.99 a gallon or 3.999 as we do it here, plus all these taxes.
I think that consumers could get used to that pretty damn quick to know exactly what they’re paying when they look at the menu instead of having to add it all up at the end.
Nick Hanauer:
Yeah. No. For sure. For sure. In any case, I do feel like in this particular case, we have the bad guys mostly on the run. I think that over time we are going to win this fight.
David Goldstein:
I hope so.
Nick Hanauer:
In the next episode of Pitchfork Economics, we get to talk about the privatization of everything with our good friend, Donald Cohen, who’s the executive director of In the Public Interest.
Speaker 4:
Pitchfork Economics is produced by Civic Ventures. If you like the show, make sure to subscribe, rate and review us wherever you get your podcasts. Find us on Twitter and Facebook @civicaction and Nick Hanauer. Follow writing on Medium at Civic Skunk Works and peek behind the podcast scenes on Instagram @pitchforkeconomics. As always, from our team at Civic Ventures, thanks for listening. See you next week.