The employment effects of social security tax changes and minimum wage regulations: A case study of the American restaurant industry

Several recent changes in public policy in the US have significantly affected labor market conditions in the restaurant industry. At the close of 1987, Congress passed legislation requiring employers to pay, for the first time, Social Security taxes on the tip incomes of restaurant employees. After...

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Bibliographic Details
Published in:Journal of labor research 1993-07, Vol.14 (3), p.367-374
Main Authors: Gallaway, Lowell, Vedder, Richard
Format: Article
Language:English
Subjects:
Economic models
Employment
FICA
Impacts
Industry profiles
Labor market
Labor policy
Minimum wage
Public policy
Restaurants
Social security taxes
Studies
Tax aspects
Tipping
Tips & tipping
United States
Wage-price policy
Wages and salaries
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Summary:Several recent changes in public policy in the US have significantly affected labor market conditions in the restaurant industry. At the close of 1987, Congress passed legislation requiring employers to pay, for the first time, Social Security taxes on the tip incomes of restaurant employees. After a long hiatus, there were 2 successive increases in the federal minimum wage law - one on April 1, 1990, and the 2nd exactly one year later. A study attempts to measure the employment effects of these policy changes and, in the process, to illuminate how seemingly minor changes in public policy may have very substantial effects on markets. A model is postulated which implies that employment will vary positively with increases in product prices and negatively with rising money wage costs. The analysis indicates that substantial losses in employment can result from public policy changes that increase the cost of labor for employers.
ISSN:0195-3613
1936-4768
DOI:10.1007/BF02685691