Abstract

http://ssrn.com/abstract=2196757
 


 



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

Abstract:     
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

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Date posted: January 5, 2013  

Suggested Citation

Even, William E. and MacPherson, David A., The Effect of Tip Credits on Earnings and Employment in the U.S. Restaurant Industry. IZA Discussion Paper No. 7092. Available at SSRN: http://ssrn.com/abstract=2196757

Contact Information

William E. Even (Contact Author)
Miami University ( email )
208 Laws Hall
Oxford, OH 45056
United States
513-529-2865 (Phone)
513-529-6992 (Fax)
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
David A. MacPherson
Trinity University ( email )
San Antonio, TX 78212
United States
210-999-8112 (Phone)
210-999-7255 (Fax)
HOME PAGE: http://www.davemacpherson.com
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
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