What America Gets Wrong About Tipping

• In the U.S., the customary gratuity for service workers is now said to be about 20 percent.
• Many service workers depend on tips to make a decent living under the sub-minimum or tipped wage, which has been $2.13 an hour on a federal level since 1991.
• Both minimum and tipped wage have failed to keep up with the rising cost of living, experts told Newsweek, and should be reformed—though the issue has proven politically unappealing.
• Industry group the National Restaurant Association said higher labor costs would reduce employment and raise prices for customers.

Here's the thing with America: if you go to a restaurant, a cafe, or a diner, you're expected to tip the people serving you. It's not a matter of courtesy—it's simply what customers have to do.

It's a concept that's hard to grasp for Europeans visiting the country, especially those coming from countries where tipping doesn't exist, and service charges are automatically included in the bills.

"Europeans are definitely less generous and sometimes don't give anything," Dounya, a French national who used to work as a waitress at a California restaurant until 2018, told Newsweek. "Americans are overly generous and really open to talk—quite approachable—whereas Europeans are in general more distant and less talkative. Americans always tip, whereas Europeans tip when they feel like you've done a good job."

Getting a generous tip makes a huge difference for many working in the service industry. For Dounya, who preferred not to share her last name, tips made up about 10 to 20 percent of her salary, she said.

While tipping is often considered one of these cultural shocks Europeans have to deal with when visiting the U.S., in America there's much more to tipping than a centuries-old tradition. "It's just not as simple as people tend to think it is. People think it's just norms—and it's not just norms in the United States. Tipping is intricately tied to policy," Sylvia Allegretto, labor economist and co-chair of the Center on Wage and Employment Dynamics at the University of California, Berkeley, told Newsweek.

More Than Just A Habit

"You can never understand tipping in the United States without understanding that it's part of the wage policy," Allegretto said.

"We have a two-tiered wage system in the U.S.: the federal minimum wage and the sub-minimum wage for tipped workers," Allegretto said. "The individual states do a lot of independent stuff, but there's a federal minimum wage, which is $7.25 an hour, and it has been so since 2009. The federal sub-minimum wage for tipped workers is $2.13 an hour and has been so since 1991," she added.

The sub-minimum or tipped wage, introduced in 1966, means that employers can pay their staff less than the federal minimum wage if they receive gratuities. It varies by state and city too.

Eight states—Alaska, California, Hawaii, Montana, Minnesota, Nevada, Oregon, and Washington—have eliminated the tipped wage entirely, while 16 use the federal tipped minimum wage of $2.13 per hour, and another 26 states and the District of Columbia have set the tipped minimum wage higher than $2.13 but below the standard minimum wage.

It means that while in some states workers receive tips on top of their wages, others rely on gratuities to go home with a decent paycheck.

"Depending on where you live in the U.S., a tip is not necessarily gratuity," Allegretto said. "The employer has to make sure at the federal level that the worker—even a tipped worker like a wait staff or a bartender—gets $7.25 an hour. But the difference between $7.25 and $2.13 is $5.12, right? So that $5.12 is what the employer can use as credit towards the wage. It's a tip credit, meaning the employer can use the workers' tips, in this case, $5.12 in tips per hour as credit towards the wage."

If you've never heard of the sub-minimum wage, you're never going to get it, Allegretto said—a reason why Europeans have such a hard time wrapping their heads around tipping in the U.S. The way tipped work is entrenched in American work culture is a complex and deeply political issue, she explained.

"From 1966, tips in the U.S. were institutionalized as part of the wages that workers get. And so then the employer can pay less wages anyway," Allegretto said. "It created a culture here that is much different than you'd experience in Europe, even though the tip culture came from Europe. Europe kind of abolished it, and we accepted it. It has a long, long history, rooted in racism and discrimination."

Tipping became popular in the U.S. in the aftermath of emancipation, with white employers giving tips to the newly freed slaves instead of paying them proper wages.

A 'Teenager' Wage

"You don't have a sub-minimum wage in Europe, and you have a lot higher wages to begin with," Allegretto said, explaining why tipping has lost importance in Europe while becoming custom in the U.S.

Workers who rely on tipping are "low-wage workers, most of whom don't have any benefits," she added. "They don't have paid time off. They don't have sick leave—things that in Europe are mostly covered by universal policies. When you go to Europe, you don't see a bunch of kids waiting on you, because in Europe these are jobs that you can live off of. And that's not the case in the United States."

As of 2020, the U.S. was 17th in a list of the top 20 countries in the world with the highest minimum wage, after Australia, Luxembourg, New Zealand, Monaco, Ireland, France, U.K., Netherlands, Belgium, Germany, San Marino, Canada, South Korea, Israel, Japan, and Spain.

The highest minimum wage in the world, in Australia, is $14.54, according to website World Population Review.

Amy Glasmeier, professor of economic geography and regional planning at MIT, told Newsweek that tips have gone up in recent years because customers realize how little people working in the service industry are earning.

"When I was a waitress, it was 10 percent," she said. "I think it's moving upward because people realize that the tipped wage is so low that they're trying to actually make amends for that by offering 20 percent. But it still doesn't get anywhere near what is necessary for a living wage."

For Glasmeier, the problem with the tipped wage is the same as with minimum wage in the U.S.: neither can properly keep up with the rising cost of living.

"The minimum wage should not be thought of as a teenager wage, it shouldn't be thought of as a starting wage," she said. "It should be thought of as a wage that is the minimum to allow people to cover their basic costs."

On top of that, the tipped wage "is problematic" because it perpetuates inequality between different professions and because that inequity is built into the system, Glasmeier said. "Sometimes people put the tip on a credit card as they're paying the bill, and then the question is: how does the worker get the tipped portion of the wage bill?" she added.

"Many employers withhold that and don't pass it on to their workers, even though it's justified because it is actually under the line and indicated as a tip. So there's enormous inequities that are built into it." According to a 2014 report, more than 83 percent of restaurants investigated by the U.S. Department of Labor's Wage and Hour Division had engaged in wage theft or some other kind of wage violation from 2010 to 2012.

While the minimum wage was last raised by Barack Obama in 2009, the tipped wage hasn't been raised or updated since 1991.

"The reason that we don't see this evolving in relation to either inflation or productivity is because the decision is ultimately lodged in a political process," Glasmeier said. "Whereas the President has the authority to raise the minimum wage—and that's what Obama did—the story goes that no president really wants to be the one stuck raising the minimum wage because it is viewed as increasing inflation."

In 2021, President Joe Biden signed an executive order to raise the minimum wage to $15 an hour for federal employees, giving a bump to hundreds of thousands of workers who "are critical to the functioning of the federal government and of our nation," he said in a statement in January 2022.

Following Biden's executive order, Saru Jayaraman, the president of One Fair Wage—a non-profit advocating on behalf of tipped workers—called for Congress "to follow President Biden's courageous leadership and make sure all workers—not just federally contracted workers—are given the same opportunity to thrive by passing the Raise the Wage Act."

The Raise the Wage Act, a proposed legislation which would, over a five-year period, increase the federal minimum wage to $15 an hour for all workers, has been stalling for years. First introduced by Democrats Bernie Sanders and Bobby Scott in 2017, the bill has so far been through three consecutive Congresses without being passed.

The bill, which Biden inserted in its 2021 American Rescue Plan, would also raise the minimum wage to $4.95 an hour for tipped employees and their employers.

Should We Do Away With the Tipped Wage?

Some have argued that American service workers' reliance on tipping could be resolved by increasing minimum wage and eliminating the sub-minimum wage altogether.

"I would say that we should get rid of the tipped wage and we should have a systematic mechanism that increments wage change over time as the cost of living changes," Glasmeier said.

"The tipped wage is anachronistic and idiosyncratic, and it has very negative consequences because the employer has control over it. There is nothing that says, at the tipped wage level, that it needs to change. It gets stuck at this very low level and people rarely talk about changing the tipped wage because they often don't realize that that's what's happening to people in these specific occupations, low-wage occupations. So not only are these people in a low-wage occupation, but it's the lowest wage."

There are already states that, after increasing the minimum wage above federal level, have done away with the sub-minimum wage. "In a place like California, where we have a $15 minimum wage—so much higher than the federal rate—and we have no sub-minimum wage, workers make tips which are actually gratuity. They're not part of the wage bill," Allegretto said.

According to a 2021 analysis from the Center for American Progress, workers and businesses in tipped industries in the eight states which have eliminated the tipped wage "have done as well as or better than their counterparts in other states over the years since abolishing the sub-minimum wage."

The same analysis found that eliminating the tipped wage didn't hurt employment in tipping industries—the opposite result obtained by a 2013 study by economists William E. Evan at Miami University in Ohio and David A. MacPherson at Trinity University, which found that while earning went up for tipped workers, employment in the industry went down.

But there are others who argue against eliminating the tipped wage—and increasing minimum wage. The National Restaurant Association (NRA), which represents more than 380,000 restaurant locations in the U.S., opposes the Raise the Wage Act, saying that wage increases would hurt businesses still recovering from the crisis suffered by the industry during the COVID pandemic.

"The average restaurant spends more than a third of its budget on workforce. As a result, it cannot absorb a dramatic cost increase and higher wages without cutting back on worker hours and/or eliminating positions," wrote Sean Kennedy, NRA's executive vice president of public affairs, in an opinion piece published on Restaurant Dive.

"And, when labor costs climb, employers in labor-intensive industries like restaurants are forced to raise menu prices, pushing up consumer costs."

According to Kennedy: "The Raise the Wage Act would eliminate the tip credit in the 42 states where it is used. If this happened, many restaurants would end their wage-plus-tips system altogether and move to a straight hourly wage model. Tipped employees would likely earn far less than they currently do, and restaurants would be forced to reduce employee hours or operate with fewer employees."

In 2016, NRA economists found that the earning potential from tips is a top reason cited by employees when they choose the food industry, Kennedy wrote. Newsweek has contacted the NRA for comment by email but has not received a timely response.

While the impact of eliminating the tipped wage remains an object of heated debate in the U.S., Glasmeier said that, together with policies, Americans' attitude about tipping—and about low-wage professions—should change if we want to see any reform to the current system.

"I suppose you could say it's political because the legislature typically sets the wage. But it's really attitudinal. It's about what you think people deserve," Glasmeier said.