This month marks 14 years since the last increase to the federal minimum wage. Since that time, there have been considerable changes to the U.S. economy, including a pandemic and its associated recession, a decadeslong affordability crisis, and, more recently, inflationary pressures. Despite the changing economic landscape, federal lawmakers have not adjusted the federal minimum wage, and it still stands at $7.25. In real terms, since 2009, the federal minimum wage has lost almost 30 percent of its value, putting financial pressure onto the lowest-paid workers.
This column builds upon a prior Center for American Progress analysis to show that, on average, the 30 states, plus Washington, D.C., with minimum wages that are higher than the federal minimum have experienced a faster jobs recovery in their leisure and hospitality industry since January 2021 compared with states maintaining the federal level. Additionally, states that have eliminated the tipped minimum wage and pay workers in leisure and hospitality one fair wage, regardless of tips, experienced faster employment recoveries in the leisure and hospitality industry compared with states with the $2.13 federal tipped minimum wage. This updated analysis adds to existing evidence indicating that raising wages can offer wide-ranging economic benefits beyond boosting wages for directly affected workers; higher minimum wages do not damage job growth and instead can help employers attract and retain workers. In addition, they provide households more purchasing power that can then help local businesses and communities thrive, boosting economic growth.
Minimum-wage workers primarily work in the leisure and hospitality industry
Across industries, the leisure and hospitality industry employs the highest percentage of workers earning hourly wages at or below the federal minimum wage. In 2021, nearly two-thirds of all such workers were employed by the leisure and hospitality industry, such as those working in bars or restaurants.
Hispanic or Latino workers are overrepresented in the leisure and hospitality industry. While Hispanic or Latino workers make up 18.5 percent of employed people in the United States, they account for almost 25 percent of those working in the leisure and hospitality industry. A history and persistence of occupational segregation has contributed to Hispanic or Latino workers being overrepresented in these low-wage positions.
The leisure and hospitality industry saw enormous employment disruptions in spring 2020
During the economic turmoil of the early COVID-19 pandemic, major sectors of the economy, particularly those employing the lowest-wage earners, suffered large job losses. For example, the leisure and hospitality industry was particularly affected by the pandemic, as many hotels and restaurants temporarily or permanently closed, leading to job losses. Meanwhile, workers in these in-person occupations were particularly vulnerable to contracting COVID-19, contributing to hiring challenges for those businesses that remained open. From February to April 2020, the industry’s employment level was almost halved—the most significant employment loss of any industry during the early months of the pandemic.
From January 2021 to May 2023, states with minimum wages higher than $7.25 per hour experienced 38 percent industrywide growth—almost double that of states using the federal minimum wage, which was only 19 percent.
States with higher minimum wages saw faster employment growth in the leisure and hospitality industry
Beginning in early 2021, COVID-19 vaccines became increasingly available, changing the trajectory of employment within the industry, with almost 30 percent growth in industry employment from January 2021 to June 2023. Most notably, across states, leisure and hospitality saw a wide variance in recoveries. On average, states with minimum wages higher than the federal level saw much faster recoveries than those using the federal minimum wage. (see Figure 1) In fact, from January 2021 to May 2023, states with minimum wages higher than $7.25 per hour experienced 38 percent industrywide growth—almost double that of states using the federal minimum wage, which was only 19 percent.
While variation in job recovery occurs from state to state, overall, states with minimum wages higher than the federal minimum wage saw more job growth. A wide range of factors likely affects job growth in any given state, including vaccination rates and public health measures, as well as the overall economic recovery in a state and its region. States categorized as having a high minimum wage or high tipped minimum wage were not necessarily the states with the most significant public health interventions: As in previous analysis, some correlation exists between states with higher minimum wages and higher vaccination rates, but not between higher tipped minimum wages and higher vaccination rates.*
States without a tipped minimum wage have seen faster recoveries in the leisure and hospitality industry
Tipped positions, common in the leisure and hospitality industry, are often subject to the federal tipped minimum wage of just $2.13 per hour. Legally, the federal Fair Labor Standards Act requires that these workers’ wages are supplemented by their employers if tips do not make up the difference between $2.13 and $7.25. In fact, seven states have eliminated the tipped minimum wage entirely, choosing instead to pay tipped workers the full state minimum wage. In addition, 27 states and Washington, D.C., pay tipped workers a minimum wage that is above the federal tipped minimum wage but still below their state minimum wage.
From January 2021 to May 2023, states that have eliminated the tipped minimum wage saw 53 percent job growth in the leisure and hospitality industry, while those that did not saw around 19 percent. (see Figure 2) This makes clear that industry growth will not significantly suffer due to eliminating the tipped minimum wage but in fact increase as employers are better able to attract and retain workers.
The tipped minimum wage is a consequence of—and exacerbates—inequities
The post-emancipation rise of tipping was rooted in racism and sexism, suppressing the wages of service workers; these workers were often Black men and women who worked for customer-paid tips instead of employer-paid wages. As Black workers faced discrimination in obtaining traditional employment in which employers pay wages directly, they became disproportionately employed in the service industry, and by 1880, 43 percent of all restaurant and hotel workers were Black. Today, women, Latinas, and Black workers are overrepresented in tipped work. Workers relying on tips are consistently at the greatest risk of economic instability, particularly during times of economic fallout.
A subminimum wage also exacerbates existing economic insecurities and creates an unhealthy reliance and power imbalance between workers, patrons, and employers. This system is nearly impossible to reliably enforce, and anecdotal evidence suggests that significantly decreased tipping during the pandemic exacerbated an already unreliable system of payment. Tipped workers experience sexual harassment significantly more often than nontipped workers, from both patrons and management. With women making up more than two-thirds of tipped workers, they are often the most likely to experience harassment. The pandemic heightened these problems, often forcing women to endure regular harassment in their work environment.
Guaranteeing workers a higher minimum wage and eliminating the tipped minimum wage are important to achieving an equitable and growing economy. Raising the minimum wage increases spending power for employees and decreases employer costs by reducing worker turnover and improving the ability to hire and retain staff. Federal action is 14 years overdue, but in the meantime, states must take steps to raise the minimum wage and eliminate the tipped minimum wage to benefit their workers, employers, and the economy.
* Note: The R-squared value—the measure of the percentage of variance of a dependent variable in relation to an independent variable—in this case, between the 2023 minimum wage and the percentage of the population ages 18 and older with a completed primary vaccination series as of May 10, 2023, was about 0.6, meaning the strength of states’ minimum wages accounted for slightly more than half of the variation in vaccine takeup. Similarly, the R-squared value between leisure and hospitality job growth from January 2021 to May 2023 and the percentage of the population ages 18 and older with a completed primary vaccination series was about 0.35. However, the R-squared value between the percentage of the population ages 18 and older with a completed primary vaccination series and the tipped minimum as a percentage of the regular minimum wage was basically nonexistent, at 0.05.
The author would like to thank Lily Roberts, Rose Khattar, and Kyle Ross for their assistance and helpful feedback.