A waitress carries a tray at a Red Lobster restaurant in Yonkers, N.Y.
Aug. 8, 2014
The American system of tipping holds the promise of great rewards for waiters and waitresses, but for most servers, the numbers don't bear that out.
Nearly 15% of the nation's 2.4 million waiters and waitresses live in poverty, compared with about 7% of all workers. They are more likely to need public assistance and less likely to receive paid sick leave or health benefits—and their ranks are increasing. From the start of the recovery in 2009 until June of this year, restaurant jobs have increased by 13%, while all other jobs are up 5.5%.
"Close to one in 10 workers is employed in the restaurant industry, more than manufacturing at this point," said Sylvia A. Allegretto, an economist at the University of California, Berkeley, who co-authored a new study advocating raising the tipped minimum wage. "It's one of the fastest-growing industries in the country."
According to "Tipping: An American Social History of Gratuities" by Kerry Segrave , the origins of tipping are vague, though the practice probably began in Europe with members of the aristocracy leaving tips for servants, whom they regarded as socially inferior. Americans who traveled abroad after the Civil War imported the custom, and initially, the practice rankled U.S. citizens, who believed it was un-American.
Despite the protests, tipping stuck, eventually annoying Europeans, who found visiting Americans' gratuities irritatingly generous, Mr. Segrave writes.
Recently, a number of upscale restaurants have eliminated tipping—in New York City, Sushi Yasuda and Restaurant Riki are among the latest—fueling debate about the subject. But the issue is complex, and there are pluses and minuses to the custom:
Restaurants may pay tipped workers a very low sub-minimum wage, which helps lower menu prices. Diners don't pay sales tax on gratuities. And tips significantly boost the income of servers; however, diners may tip generously, poorly or not at all, and many things besides quality of service affect tips, leaving servers vulnerable to the habits of capricious diners.
"Income flows on a weekly basis are extremely erratic," said David Cooper, an analyst at the Economic Policy Institute, a liberal think tank in Washington, D.C., and co-author with Ms. Allegretto of the tipping report. "Weather impacts the number of customers. Appearance, age, and gender significantly influence how much people tip."
As a result, said Michael Lynn, a professor of consumer behavior and marketing at Cornell University School of Hotel Administration, servers may have difficulty qualifying for a car loan or mortgage.
The Numbers
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From the government's perspective, tips have long been a concern. According to the Internal Revenue Service, tips contribute to an estimated $10 billion in unreported income annually. That creates a headache for restaurants, which may be audited to detect discrepancies, although Mr. Lynn notes that restaurants may benefit from unrecorded tips, because the taxes they pay on reported tipped income would be artificially low.
Further weighing on workers is the fact that the federal tipped minimum wage has been frozen for more than two decades at $2.13 an hour. The two-tiered minimum-wage system was established in 1966 on the premise that tips would elevate hourly earnings to at least the regular minimum wage, and restaurants often argue that servers are their best-paid employees.
"No one is making $2.13 an hour," Scott DeFife, executive vice president of policy and government affairs for the National Restaurant Association, a trade organization that opposes raising the minimum wages, said in a statement. "Every tipped worker is guaranteed at least the minimum wage of their state, more than half of which have increased both the tipped wage and minimum wage to above federal levels."
Seven states, including California and Alaska, require employers to pay tipped workers the state minimum wage. Twenty-four require employers to pay above the federal tipped minimum wage, and 19, including New Jersey and Utah, allow employers to pay the federal tipped minimum.
Mr. Cooper's and Ms. Allegretto's research shows the poverty rate for servers and other tipped workers falls as the tipped minimum wage increases, and a handful of restaurants across the country have attempted to address the income issue, including some that have banned tipping in favor of other payment systems.
In 1989, Chez Panisse, chef Alice Water's restaurant in Berkeley, Calif., replaced tipping with a service charge used to pay higher wages and benefits to all staff. Black Star Co-op, which opened in 2010 in Austin, Texas, prohibits tipping and instead starts all employees at $12 an hour, increasing to $16 an hour after one year. And Packhouse in Newport, Ky., which opened in January, pays servers $10 an hour or 20% of individual food sales during a shift—whichever is higher—with the restaurant's 11 servers averaging $17 per hour.
In comparison, the Bureau of Labor Statistics reports the median wage for waiters and waitresses is $8.94, including tips, although the National Restaurant Association, based on its own surveys, says that number is low. The median for all other workers is $15.84.
Servers in some upscale restaurants most certainly earn a handsome income and would be upset to lose the benefit, but they are the exception. In his history of tipping, Mr. Segrave writes that in centuries past: "One method to demonize and stigmatize tip receivers was to present them as making a lot of money or extracting some type of revenge on nontippers. By infusing tip receivers—who were almost all in the low-income bracket—with mythical power and earnings, one didn't have to deal with the realities of an underpaid, exploited group of employees."
Write to Jo Craven McGinty at Jo.McGinty@wsj.com
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