The Effect of Tip Credits on Earnings and Employment in the U.S. Restaurant Industry
William E. Even
Miami University; Institute for the Study of Labor (IZA)
David A. MacPherson
Trinity University; Institute for the Study of Labor (IZA)
IZA Discussion Paper No. 7092
According to federal law in 2012, employers can take a credit of up to $5.13 for tips received by workers in satisfying the minimum wage requirement of $7.25. This study uses interstate variation in laws regarding tip credits and minimum wages to identify the effects of reducing or eliminating the tip credit on employment and earnings in the U.S. restaurant industry. Using data from the Quarterly Census of Employment and Wages and the Current Population Survey, we find that a reduction in the tip credit increases weekly earnings but reduces employment in the full services restaurant industry and for tipped workers. The results are robust to controls for spatial heterogeneity in employment trends and are supported by a series of falsification tests.
Number of Pages in PDF File: 33
Keywords: tip credit, minimum wage, tipped workers, cash wage, earnings, employment
JEL Classification: J30, J31, J38
Date posted: January 5, 2013
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