Measuring the Effects of the Tipped Minimum Wage Using W-2 Data
June 2016
Working Paper Number:
carra-2016-03
Abstract
While an extensive literature exists on the effects of federal and state minimum wages, the minimum wage received by tipped workers has received less attention. Researchers have found it difficult to capture the hourly wages of tipped workers and thus assess the economic effects of the tipped minimum wage. In this paper, I present a new measure of hourly wages for tipped servers (wait staff and bartenders) using linked W-2 and survey data. I estimate the effect of tipped minimum wages on the wages and hourly tips of servers, as well as server employment and hours worked. I find that higher mandatory tipped minimum wages increase that portion of wages paid by employers, but decrease tip income by a similar percentage. I also find evidence that employment increases over lower values of the tipped minimum wage and then decreases at higher values. These results are consistent with a monopsony model of server employment. The wide variance of tipped minimum wages compared to non-tipped minimums provide insight into monopsony effects that may not be discernible over a smaller range of minimum wage values.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
econometric,
payroll,
employed,
employ,
employee,
job,
spillover,
workforce,
hiring,
worker,
employing,
wages employment,
salary,
effect wages,
employment wages,
restaurant,
wage data,
earner,
wage effects
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Internal Revenue Service,
Supreme Court,
Current Population Survey,
Bureau of Labor,
Census of Retail Trade,
Journal of Economic Literature,
Social Security,
Social Security Number,
Federal Insurance Contributions Act,
W-2,
Occupational Employment Statistics,
Quarterly Census of Employment and Wages,
Current Population Survey Annual Social and Economic Supplement
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'Measuring the Effects of the Tipped Minimum Wage Using W-2 Data' are listed below in order of similarity.
-
Working PaperTip of the Iceberg: Tip Reporting at U.S. Restaurants, 2005-2018
November 2024
Working Paper Number:
CES-24-68
Tipping is a significant form of compensation for many restaurant jobs, but it is poorly measured and therefore not well understood. We combine several large administrative and survey datasets and document patterns in tip reporting that are consistent with systematic under-reporting of tip income. Our analysis indicates that although the vast majority of tipped workers do report earning some tips, the dollar value of tips is under-reported and is sensitive to reporting incentives. In total, we estimate that about eight billion in tips paid at full-service, single-location, restaurants were not captured in tax data annually over the period 2005-2018. Due to changes in payment methods and reporting incentives, tip reporting has increased over time. Our findings have implications for downstream measures dependent on accurate measures of compensation including poverty measurement among tipped restaurant workers.View Full Paper PDF
-
Working PaperThe EITC over the business cycle: Who benefits?
December 2014
Working Paper Number:
carra-2014-15
In this paper, I examine the impact of the Great Recession on Earned Income Tax Credit (EITC) eligibility. Because the EITC is structurally tied to earnings, the direction of this impact is not immediately obvious. Families who experience complete job loss for an entire tax year lose eligibility, while those experiencing underemployment (part-year employment, a reduction in hours, or spousal unemployment in married households) may become eligible. Determining the direction and magnitude of the impact is important for a number of reasons. The EITC has become the largest cash-transfer program in the U.S., and many low-earning families rely on it as a means of support in tough times. The program has largely been viewed as a replacement for welfare, enticing former welfare recipients into the labor force. However, the effectiveness of the EITC during a period of very high unemployment has not been assessed. To answer these questions, I first use the Current Population Survey (CPS) matched to Internal Revenue Service data from tax years 2005 to 2010 to assess patterns of employment and eligibility over the Great Recession for different labor-force groups. Results indicate that overall, EITC eligibility increased over the recession, but only among groups that were cushioned from total household earnings loss by marriage. I also use the 2006 CPS matched to tax data from 2005 through 2011 to examine changes in eligibility experienced by individuals over time. In assessing three competing causes of eligibility loss, I find that less-educated, unmarried women experienced a greater hazard of eligibility loss due a yearlong lack of earnings compared with other labor-market groups. I discuss the implications of these findings on the view of the EITC as a safety-net program.View Full Paper PDF
-
Working PaperA Loan by any Other Name: How State Policies Changed Advanced Tax Refund Payments
June 2016
Working Paper Number:
carra-2016-04
In this work, I examine the impact of state-level regulation of Refund Anticipation Loans (RALs) on the increase in the use of Refund Anticipation Checks (RACs) and on taxpayer outcomes. Both RALs and RACs are products offered by tax-preparers that provide taxpayers with an earlier refund (in the case of a RAL) or a temporary bank account from which tax preparation fees can be deducted (in the case of a RAC). Each product is costly compared with the value of the refund, and they are often marketed to low-income taxpayers who may be liquidity constrained or unbanked. States have responded to the potentially predatory nature of RALs through regulation, leading to a switch to RACs. Using zip-code-level tax data, I examine the effects of various state-level policies on RAL activity and the transition of tax-preparers to RACs. I then specifically analyze New Jersey's interest rate cap on RALs, a regulation that was accompanied by greater enforcement of existing tax-preparer regulations. Employing an empirical strategy that uses variation in taxpayer location, which should be uninfluenced by tax preparers' decisions to provide these products and a state's decision to regulate them, I find increases in RAL and RAC use for taxpayers living near New Jersey's border with another state. Furthermore, I find that these same border taxpayers reported more social program use and more persons per household - a finding that is in line with the results of similar research into the effects of short-term borrowing on family finances.View Full Paper PDF
-
Working PaperThe Distributional Effects of Minimum Wages: Evidence from Linked Survey and Administrative Data
March 2018
Working Paper Number:
carra-2018-02
States and localities are increasingly experimenting with higher minimum wages in response to rising income inequality and stagnant economic mobility, but commonly used public datasets offer limited opportunities to evaluate the extent to which such changes affect earnings growth. We use administrative earnings data from the Social Security Administration linked to the Current Population Survey to overcome important limitations of public data and estimate effects of the minimum wage on growth incidence curves and income mobility profiles, providing insight into how cross-sectional effects of the minimum wage on earnings persist over time. Under both approaches, we find that raising the minimum wage increases earnings growth at the bottom of the distribution, and those effects persist and indeed grow in magnitude over several years. This finding is robust to a variety of specifications, including alternatives commonly used in the literature on employment effects of the minimum wage. Instrumental variables and subsample analyses indicate that geographic mobility likely contributes to the effects we identify. Extrapolating from our estimates suggests that a minimum wage increase comparable in magnitude to the increase experienced in Seattle between 2013 and 2016 would have blunted some, but not nearly all, of the worst income losses suffered at the bottom of the income distribution during the Great Recession.View Full Paper PDF
-
Working PaperFood and Agricultural Industries: Opportunities for Improving Measurement and Reporting
January 2016
Working Paper Number:
CES-16-58
We measure one component of off-farm food and agricultural industries using establishment level microdata in the federal statistical system. We focus on services for crop production, and compare measures of firm and employment dynamics in this sector during the period 1992-2012 with county-level publicly available data for the same measures. Based on differences across data sources, we establish new facts regarding the evolution of food and agricultural industries, and demonstrate the value of working with confidential microdata. In addition to the data and results we present, we highlight possibilities for collaboration across universities and federal agencies to improve reporting in other segments of food and agricultural industries.View Full Paper PDF
-
Working PaperComparing Measures of Earnings Instability Based on Survey and Adminstrative Reports
August 2010
Working Paper Number:
CES-10-15
In Celik, Juhn, McCue, and Thompson (2009), we found that estimated levels of earnings instability based on data from the Current Population Survey (CPS) and the Survey of Income and Program Participation (SIPP) were reasonably close to each other and to others' estimates from the Panel Study of Income Dynamics (PSID), but estimates from unemployment insurance (UI) earnings were much larger. Given that the UI data are from administrative records which are often posited to be more accurate than survey reports, this raises concerns that measures based on survey data understate true earnings instability. To address this, we use links between survey samples from the SIPP and UI earnings records in the LEHD database to identify sources of differences in work history and earnings information. Substantial work has been done comparing earnings levels from administrative records to those collected in the SIPP and CPS, but our understanding of earnings instability would benefit from further examination of differences across sources in the properties of changes in earnings. We first compare characteristics of the overall and matched samples to address issues of selection in the matching process. We then compare earnings levels and jobs in the SIPP and LEHD data to identify differences between them. Finally we begin to examine how such differences affect estimates of earnings instability. Our preliminary findings suggest that differences in earnings changes for those in the lower tail of the earnings distribution account for much of the difference in instability estimates.View Full Paper PDF
-
Working PaperThe Effect of Wage Insurance on Labor Supply: A Test for Income Effects
October 2009
Working Paper Number:
CES-09-37
Studies of moral hazard in wage insurance programs such as Unemployment Insurance (UI) or Workers Compensation (WC) have demonstrated that higher benefits discourage work, emphasizing the price distortion inherent in benefit provision. Utilizing administrative data linking WC claim records to wage records from a UI payroll tax database, I find that the effect of WC benefits on the duration of benefit receipt cannot fully account for the effect of these benefits on post-injury unemployment. This indicates that a significant fraction of the effect of WC benefits on employment is due to an income effect rather than a price distortion.View Full Paper PDF
-
Working PaperEstimating Measurement Error in SIPP Annual Job Earnings: A Comparison of Census Survey and SSA Administrative Data
September 2002
Working Paper Number:
tp-2002-24
The third chapter investigates measurement error in SIPP annual job earnings data linked to SSA administrative earnings data. The multiple earnings measures provided by the survey and administrative data enable the identification of components of true variation and variation due to measurement error. We find that 18% of the variation in SIPP annual job earnings can be attributed to measurement error. We also find that in both the SIPP and the DER, measurement error is persistent over time. A lower level of auto-correlation in the SIPP measurement error than in the economic error component leads to a lower reliability ratio of .62 for first-differenced earnings.View Full Paper PDF
-
Working PaperLabor Market Segmentation and the Distribution of Income: New Evidence from Internal Census Bureau Data
August 2023
Working Paper Number:
CES-23-41
In this paper, we present new findings that validate earlier literature on the apparent segmentation of the US earnings distribution. Previous contributions posited that the observed distribution of earnings combined two or three distinct signals and was thus appropriately modeled as a finite mixture of distributions. Furthermore, each component in the mixture appeared to have distinct distributional features hinting at qualitatively distinct generating mechanisms behind each component, providing strong evidence for some form of labor market segmentation. This paper presents new findings that support these earlier conclusions using internal CPS ASEC data spanning a much longer study period from 1974 to 2016. The restricted-access internal data is not subject to the same level of top-coding as the public-use data that earlier contributions to the literature were based on. The evolution of the mixture components provides new insights about changes in the earnings distribution including earnings inequality. In addition, we correlate component membership with worker type to provide a tacit link to various theoretical explanations for labor market segmentation, while solving the problem of assigning observations to labor market segments a priori.View Full Paper PDF
-
Working PaperChanges in EITC Eligibility and Participation, 2005'2009
July 2014
Working Paper Number:
carra-2014-04
The rate of participation in the Earned Income Tax Credit (EITC) has been widely studied, but changes over time in eligibility for the credit have received less attention. One question of importance to policy-makers is whether (or by how much) eligibility might increase during economic downturns. The EITC is fundamentally tied to work. During periods of high unemployment, eligibility may decrease due to a lower number of workers - especially low-skilled workers - filing for a given tax year. On the other hand, family structure and underemployment may lead to increases in eligibility. For example, earners may become eligible when a two-earner family loses one job or when an earner works part of the year or fewer hours. Using IRS tax data linked with the Current Population Survey Annual Social and Economic Supplement (CPS ASEC), I examine changes in EITC eligibility and take-up between tax years 2005 and 2009, during which time the Great Recession began and ended. Employing fixed-effects models, I assess patterns of eligibility among demographic groups based on characteristics that also predict labor market outcomes. Results indicate that, in a period when overall EITC eligibility rates increased, the state unemployment rate had a significant positive effect on eligibility and a significant negative effect on take-up. Meanwhile, although joint filers, those with more children, and men experienced increasing rates of eligibility, those with less education experienced decreasing rates. Results point to the possibility that labor market groups who experienced the highest rates of unemployment in the recession may have become ineligible due to full-year job loss.View Full Paper PDF
