I think I'm out of the loop. It seems there are 3 options being discussed:
1) Minimum wage (or flat rate if you will)
2) Minimum wage + tips (a few states)
3) Lower-than-minimum wage + tips (many states)
We keep comparing 2 of them, and I'm not sure any of us are talking about the same two...
Well, technically, there are just two. The difference is that many (most?) states have a different minimum wage for jobs which receive over a set amount of money in tips. The thinking is pretty logical. The total amount someone is willing to pay for a given service (let's say a meal at a restaurant) is somewhat set and includes the tip. So if you're willing to pay $30 a plate at a given restaurant, if the wait staff didn't take tips, the restaurant owner could charge that much directly on the menu. If he charges that much and the customers have to pay tips, he'll lose business (whole supply/demand curve thing). For many restaurants (mostly lower end ones), paying their employees the full minimum wage *and* expecting tips would push the cost of the meals higher than the quality of the meals (ie: what people are willing to pay for their grand slam breakfast for example).
Obviously, the easiest solution is to just do away with tips. Then you can charge a straight price on the menu, and pay your employees a straight pay scale. But people tend to like the option of tipping. It gives them some ability to provide feedback for the quality of their service. Also, and I know some people disagree with this, but most wait staff tend to make far far more money with a lower minimum wage plus tips than if they were just paid a straight hourly wage. Obviously, this depends on where you work, but even at a mid level restaurant (say $20/plate total cost), a waiter serving say 4 tables an hour, averaging 3 customers per table, over a 3 hour work period, can easily pull in an extra $12/hour in tips alone. The potential for incredibly good pay is available, where it isn't in most jobs in that nominal pay/skill range. Also, pay tends to scale based on how busy things are. So a guy working the grill at a fast food place during a busy rush time doesn't make a cent more than if he's working a slow day but is busting his ****. The same person working at a restaurant where tipping is expected will make significantly more money.
There's good and bad to tip based jobs IMO.