Investor Statement in Support of Ending the Subminimum Wage

We, as investors representing more than $538 billion in assets, issue this statement in support of publicly traded companies ending payment of the subminimum wage to all employees. 

BACKGROUND

A “subminimum wage” is a wage paid that is less than the federal or state mandated minimum wage. Federal law allows companies to pay less than the legally mandated minimum wage to certain groups of workers.1 Tipped workers are the largest group paid a subminimum wage and represent approximately six million people in the United States.2 The restaurant industry by far employs the largest number of tipped workers, representing 13.6 million people.2

Frozen at $2.13 per hour, a tipped subminimum wage worker can be paid as little as $4,430 per year for full-time work.3 As a result, in the 42 states that allow payment of a subminimum wage, tipped workers are more than twice as likely to live in poverty, and the rates are even higher for women and people of color.4 The subminimum wage for tipped workers has risen little since it was enacted following the emancipation of slavery, a time when employer trade associations pushed to recoup the costs of free, exploited labor.5

SUBMINIMUM WAGE BUSINESS RISKS

Investors in publicly traded companies have an interest in reducing material risks to their portfolio companies. However, paying a subminimum wage results both in social harm and significant business risk. As investors in publicly traded companies, we urge these companies to end the practice of paying subminimum wages for the following reasons:

  • It upholds systemic racism by disproportionately paying people of color less than white employees.6
    Tipping is a legacy of slavery that emerged during the era following Emancipation to exploit recently freed people, particularly Black women. As such, racial inequities continue to be rampant throughout the tipped service sector, particularly in restaurants, which claim the largest share of tipped workers paid the subminimum wage. Today, 41% of all tipped workers are people of color. Despite people of color being overrepresented in tipped front-of-house restaurant positions, Black tipped workers receive less in tips than their white counterparts7,8 with Black women earning just 60% of what white men earn who work in the same positions.9 Given these disparities, paying a submininmum wage may be a direct contradiction to a corporation’s anti-discrimination policies and increase the risk of employee discrimination claims.
  • It disproportionately negatively impacts women and increases their exposure to sexual harassment.
    Women are overrepresented in the tipped worker sector, where over 66% of tipped workers are women and 37% are mothers.10 The largest share of tipped workers comes from the restaurant industry, which is also the single largest source of sexual harassment charges filed by women with a rate five times higher than any other industry. However, tipped workers who earn a guaranteed wage report half the rate of sexual harassment as tipped workers in states with a subminimum wage.11 This demonstrable increased risk of sexual harassment increases the risk of employee sexual harassment claims and may lead to other costly outcomes as well, such as high worker turnover and a workforce with low morale.12
  • Many subminimum wage workers are “essential workers” during the COVID-19 pandemic, putting them at greater risk of infection while further exacerbating existing income, racial, and gender inequities.
    Women and people of color disproportionately comprise both essential workers13 and the tipped service sector. As COVID-19 forced the nationwide closure of thousands of restaurants and service-oriented businesses, this workforce plummeted even deeper into poverty and financial insecurity. As the economy reopens, many essential workers earning subminimum wages are being forced to return to work to keep their jobs. Applications to a program providing emergency cash relief and resources for service workers across the United States revealed that, since the emergence of COVID-19, many essential workers who are also subminimum wage earning workers reported that their tips are down at least 50%.14 Within this group, a staggering 95% of Black tipped service workers reported being unable or unsure whether they could afford their rent or mortgage, and 84% of Black workers reported only being able to afford groceries for two weeks or less.15

BENEFITS TO ENDING THE SUBMINIMUM WAGE

As investors we urge companies to pay at least the minimum wage not only because it mitigates risk, but it also provides short-term and long-term economic benefits for publicly traded companies, including the following:

  • Ending the payment of subminimum wages may inspire brand loyalty from a generation of socially savvy, values-motivated consumers, which is critical for long-term business success.
    We are entering the age of corporate social justice.16 The public is paying attention to the treatment of essential workers and it is already impacting consumer shopping decisions.17 In fact, 60% of consumers recently stated they would boycott a brand based on racial justice.18 We believe that treatment of all workers, and particularly essential workers, many of whom are paid subminimum wages, will receive increasing scrutiny from investors and consumers over time as a marker of corporate social responsibility.Public perception, and therefore brand reputation, is a critical contributor to the intangible asset value of publicly traded companies.19 However, companies put their brand reputation at risk by continuing to pay a subminimum wage that impoverishes workers from already vulnerable communities. As investors in publicly traded companies, and given increased public awareness of racial, gender, and economic justice issues, we believe public goodwill, brand reputation, and therefore company share value are put at significant risk for public corporations that continue to pay a subminimum wage that results in poverty for many already vulnerable populations.
  • Paying a full minimum wage has financial benefits for businesses and employees.20,21
    States that have ended payment of the subminimum wage have seen tangible benefits in impacted industries, such as:
    • Higher average profits
    • Higher average employment growth for tipped workers
    • Higher average organizational growth
    • Lower poverty rate among tipped servers

Paying higher wages can also lead to increased worker morale, worker health, and lower turnover rates, all contributing to better business for employers.

Every person who works in America should be paid at least a full, fair minimum wage from their employer. Although the payment of subminimum wages is legal according to federal law, companies that continue this unethical practice contribute to the poverty of their workers and may ultimately fail to be competitive in an age of increasing public awareness of how businesses treat their workers. As investors in publicly traded companies, we believe it is in the employee, management, and shareholder best interest to end payment of the subminimum wage.

Signed,

ENDNOTES

  1. Department of Justice, Wage and Hour Division, “Questions and Answers About the Minimum Wage,” Department of Justice (2020).
  2. One Fair Wage, It’s Time to End the Subminimum Wage,” One Fair Wage (2019). 
  3. One Fair Wage, “Worker Misclassification and One Fair Wage: A White Paper on the Perils of Replicating AB 5 in Two-Tiered Wage States,” University of California, Berkeley Food Labor Research Center, One Fair Wage (March 5, 2020). 
  4. Ibid.
  5. Saru Jayaraman, “Forked: A New Standard for American Dining,” Oxford University Press (2016). 
  6. Michael Lynn et al., “Consumer Racial Discrimination in Tipping: A Replication and Extension,” Journal of Applied Social Psychology, 38(4), pp.1045–1060 (2008).
  7. Ibid.
  8. Kari Paul, “Do Americans tip people of color less money?,” MarketWatch (October 31, 2017).
  9. Ibid.
  10. American Community Survey (ACS), 2012-2015, “Calculations by the Restaurant Opportunities Centers United (ROC-United) of civilian employed tipped and general population demographics based on Ruggles et al., Integrated Public Use Microdata Series: Version 5.0 [Machine-readable database],” Minnesota Population Center (2010).
  11. Restaurant Opportunities Centers United, “The Glass Floor: Sexual Harassment in the Restaurant Industry,” Restaurant Opportunities Centers United (October 2014).
  12. National Sexual Violence Resource Center, “Ending Sexual Assault and Harassment in the Workplace,” National Sexual Violence Resource Center (2020).
  13. Associated Press, “People of color, women shoulder front-line work during pandemic,” NBC News Website (May 4, 2020).
  14. One Fair Wage, “A Persistent Legacy of Slavery: Ending the Subminimum Wage for Tipped Workers as a Racial Equity Measure,” University of California, Berkeley Food Labor Research Center, One Fair Wage (August 2020).
  15. Ibid.
  16. Lily Zeng, “We’re Entering the Age of Corporate Social Justice”, Harvard Business Review (June 15, 2020).
  17. First Insight, “First Insight: Treatment of Essential Workers Is Impacting Consumer Shopping Decisions,” Business Wire (April 14, 2020).
  18. Edelman, Trust Barometer Special Report: Brand Trust in 2020, Edelman Website (June 25, 2020).
  19. Brand Finance, “Global Tangible Finance Tracker,” Brand Finance (November 2019).
  20. One Fair Wage, “Better Wages, Better Tips: Restaurants Flourish with One Fair Wage,” Restaurant Opportunities Centers United (2018).