The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare

Ofer H. Azar

doi:10.1016/j.labeco.2012.07.002

The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare

Ofer H. Azar

Department of Business Administration

Research output: Contribution to journal › Article › peer-review

9 Scopus citations

Abstract

Millions of workers derive much of their income from tips and are subject to the "tipped minimum wage" that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service charge in lieu of tipping to extract the economic rent enjoyed by waiters under tipping. Because servers are better off with tipping, this implies that increasing the tipped minimum wage in an attempt to increase servers' income may achieve the opposite result. Moreover, increasing the tipped minimum wage may reduce social welfare.

Original language	English
Pages (from-to)	748-755
Number of pages	8
Journal	Labour Economics
Volume	19
Issue number	5
DOIs	https://doi.org/10.1016/j.labeco.2012.07.002
State	Published - 1 Oct 2012

Keywords

Business strategy
Minimum wage
The restaurant industry
Tipped workers
Tipping

ASJC Scopus subject areas

Economics and Econometrics
Organizational Behavior and Human Resource Management

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1016/j.labeco.2012.07.002

Cite this

@article{55c767e63e1946abb31794f86c55d4b8,

title = "The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare",

abstract = "Millions of workers derive much of their income from tips and are subject to the {"}tipped minimum wage{"} that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service charge in lieu of tipping to extract the economic rent enjoyed by waiters under tipping. Because servers are better off with tipping, this implies that increasing the tipped minimum wage in an attempt to increase servers' income may achieve the opposite result. Moreover, increasing the tipped minimum wage may reduce social welfare.",

keywords = "Business strategy, Minimum wage, The restaurant industry, Tipped workers, Tipping",

author = "Azar, {Ofer H.}",

year = "2012",

month = oct,

day = "1",

doi = "10.1016/j.labeco.2012.07.002",

language = "English",

volume = "19",

pages = "748--755",

journal = "Labour Economics",

issn = "0927-5371",

publisher = "Elsevier",

number = "5",

}

TY - JOUR

T1 - The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare

AU - Azar, Ofer H.

PY - 2012/10/1

Y1 - 2012/10/1

N2 - Millions of workers derive much of their income from tips and are subject to the "tipped minimum wage" that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service charge in lieu of tipping to extract the economic rent enjoyed by waiters under tipping. Because servers are better off with tipping, this implies that increasing the tipped minimum wage in an attempt to increase servers' income may achieve the opposite result. Moreover, increasing the tipped minimum wage may reduce social welfare.

AB - Millions of workers derive much of their income from tips and are subject to the "tipped minimum wage" that differs from the regular minimum wage. This article examines the implications of the tipped minimum wage and shows that increasing it may lead restaurants to adopt a compulsory service charge in lieu of tipping to extract the economic rent enjoyed by waiters under tipping. Because servers are better off with tipping, this implies that increasing the tipped minimum wage in an attempt to increase servers' income may achieve the opposite result. Moreover, increasing the tipped minimum wage may reduce social welfare.

KW - Business strategy

KW - Minimum wage

KW - The restaurant industry

KW - Tipped workers

KW - Tipping

UR - http://www.scopus.com/inward/record.url?scp=84865962446&partnerID=8YFLogxK

U2 - 10.1016/j.labeco.2012.07.002

DO - 10.1016/j.labeco.2012.07.002

M3 - Article

AN - SCOPUS:84865962446

SN - 0927-5371

VL - 19

SP - 748

EP - 755

JO - Labour Economics

JF - Labour Economics

IS - 5

ER -

The effect of the minimum wage for tipped workers on firm strategy, employees and social welfare

Abstract

Keywords

ASJC Scopus subject areas

UN SDGs

Access to Document

Other files and links

Fingerprint

Cite this