[Senate Hearing 113-802]
[From the U.S. Government Publishing Office]




                                                        S. Hrg. 113-802

BUILDING A FOUNDATION OF FAIRNESS: 75 YEARS OF THE FEDERAL MINIMUM WAGE

=======================================================================

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

             EXAMINING 75 YEARS OF THE FEDERAL MINIMUM WAGE

                               __________

                             JUNE 25, 2013

                               __________

 Printed for the use of the Committee on Health, Education, Labor, and 
                                Pensions



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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland         LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington              MICHAEL B. ENZI, Wyoming
BERNARD SANDERS (I), Vermont          RICHARD BURR, North Carolina
ROBERT P. CASEY, JR., Pennsylvania    JOHNNY ISAKSON, Georgia
KAY R. HAGAN, North Carolina          RAND PAUL, Kentucky
AL FRANKEN, Minnesota                 ORRIN G. HATCH, Utah
MICHAEL F. BENNET, Colorado           PAT ROBERTS, Kansas
SHELDON WHITEHOUSE, Rhode Island      LISA MURKOWSKI, Alaska
TAMMY BALDWIN, Wisconsin              MARK KIRK, Illinois
CHRISTOPHER S. MURPHY, Connecticut    TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts

                    Pamela J. Smith, Staff Director
        Lauren McFerran, Deputy Staff Director and Chief Counsel
               David P. Cleary, Republican Staff Director

                                  (ii)

  




                                CONTENTS

                               __________

                               STATEMENTS

                         TUESDAY, JUNE 25, 2013

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
Alexander, Hon. Lamar, a U.S. Senator from the State of 
  Tennessee, opening statement...................................     9
Warren, Hon. Elizabeth, a U.S. Senator from the State of 
  Massachusetts..................................................    11
Murray, Hon. Patty, a U.S. Senator from the State of Washington..    13
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of 
  Pennsylvania...................................................    50
Murphy, Hon. Christopher S., a U.S. Senator from the State of 
  Connecticut....................................................    54
Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont..    56

                            Witness--Panel I

Harris, Hon. Seth D., Acting Secretary, Department of Labor, 
  Washington, DC.................................................     3
    Prepared statement...........................................     5

                          Witnesses--Panel II

Reich, Michael, Ph.D., Professor of Economics and Director, 
  Institute for Research on Labor and Employment, University of 
  California at Berkeley, Berkeley, CA...........................    17
    Prepared statement...........................................    19
Blaire, The Most Reverend Stephen E., Bishop of Stockton, 
  Chairman, Committee on Domestic Justice and Human Development, 
  U.S. Conference of Catholic Bishops, Stockton, CA..............    24
    Prepared statement...........................................    26
Shelton, Hilary O., Washington Bureau Director and Senior Vice 
  President for Advocacy and Policy, NAACP, Washington, DC.......    30
    Prepared statement...........................................    32
Sherk, James, Senior Policy Analyst in Labor Economics, Heritage 
  Foundation, Washington, DC.....................................    34
    Prepared statement...........................................    36

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Studies That Show the Negative Economic Effects of Increasing 
      the Minimum Wage...........................................    63
    Response by Hon. Seth Harris to questions of:
        Senator Harkin...........................................    63
        Senator Alexander........................................    64
        Senator Isakson..........................................    73
        Senator Scott............................................    74
    Response by James Sherk to questions of:
        Senator Harkin...........................................    75
        Senator Alexander........................................    77
        Senator Murray...........................................    81
    .............................................................

                                 (iii)
 
                  BUILDING A FOUNDATION OF FAIRNESS: 
                  75 YEARS OF THE FEDERAL MINIMUM WAGE

                              ----------                              


                         TUESDAY, JUNE 25, 2013

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 2:58 p.m., in 
room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Murray, Sanders, Casey, Murphy, 
Warren, and Alexander.

                  Opening Statement of Senator Harkin

    The Chairman. The Senate Committee on Health, Education, 
Labor, and Pensions will please come to order.
    Today marks the 75th anniversary of the signing of the Fair 
Labor Standards Act by President Franklin Roosevelt on June 25, 
1938. The FLSA, as it's known, was a landmark achievement. 
After years of struggle, this national law set a floor on 
wages, limited working hours by requiring overtime pay, and set 
out to eliminate child labor.
    It was born out of the Great Depression, a time of falling 
wages, falling consumption, widespread unemployment, and 
pervasive poverty and hunger. President Roosevelt and minimum 
wage proponents of the time knew that a fair minimum wage was a 
critical way to reverse these trends, to end the exploitation 
of workers, to reduce dependence on charity and public 
assistance, and to raise wages and consumption to help the 
economy.
    Upon signing the Fair Labor Standards Act, President 
Roosevelt said,

          ``Except perhaps for the Social Security Act, it is 
        the most far-reaching and most far-sighted program for 
        the benefit of workers ever adopted here or in any 
        other country.''

    The arguments against a minimum wage then were the same 
that we hear today, that it would harm the economy, that it 
would hurt people it was meant to help, that it was 
antithetical to liberty and freedom.
    One opponent from the National Publishers Association 
declared that the impacts of a minimum wage would be akin to 
the fall of Rome, and that the inevitable result would be 
distress, misery, and despair. A House member, Representative 
Dewey Short of Missouri, similarly predicted economic 
catastrophe saying,

          ``This bill will squeeze the little businessman out 
        of existence, encourage and foster monopoly, increase 
        the cost of living to the consumer, and make it 
        impossible for the farmers to employ labor while 
        destroying much of the domestic market for his 
        products.''

    President Roosevelt had a strong response to these critics. 
He said,

          ``Do not let any calamity-howling executive with an 
        income of $1,000 a day, who has been turning his 
        employees over to the government relief rolls in order 
        to preserve his company's undistributed reserves, tell 
        you that a wage of $11 a week is going to have a 
        disastrous effect on all of American industry.''

    We know that President Roosevelt was right, and the 
economic catastrophes predicted did not come to pass. Indeed, 
for decades after its passage, the minimum wage was an accepted 
and lauded national policy. President Eisenhower proposed a 
raise himself. Every president since FDR, except for two, 
President Ford, who just had a short term, and President 
Reagan--every president has signed an increase to the minimum 
wage. Until recently, the debate has always been about how much 
to raise the minimum wage, not whether to raise it at all.
    The protections of the minimum wage have also been expanded 
over the years, covering more and more occupations. Today, the 
FLSA covers 90 percent of the workforce. Interestingly, while 
the law originally exempted occupations that were 
disproportionately held by women and people of color, today, 
these very workers disproportionately benefit from raises in 
the minimum wage.
    History shows us the important role that the minimum wage 
plays as a national standard in our economy. For decades, it 
was strong, setting a fair foundation for our economy. It 
lifted families out of poverty, reduced inequality, and kept 
low-wage workers' wages in line with average wages.
    But as we celebrate the minimum wage today, we must also 
recognize that it is no longer achieving its potential benefits 
for many workers or our economy. Unfortunately, over the past 
several decades, the minimum wage has not kept up as the rest 
of the economy has moved forward. Today, the minimum wage has 
one-third less buying power than it did in 1968, one-third 
less.
    Workers today cannot afford to live on the minimum wage, 
let alone support a family. The wage today is $7.25 an hour. 
That means about $15,000 a year for full-time, year-round work. 
Families with full-time minimum wage breadwinners fall nearly 
20 percent below the poverty line. I've said many times that in 
a nation as rich as ours, no one who works for a living and 
puts in a full day's work should have to live in poverty, be 
unable to put food on the table, pay their bills, keep up with 
the rent.
    We understood this fundamental, moral truth in the past, 
but somehow we seem to have forgotten it. That's why I've 
introduced the Fair Minimum Wage Act of 2013 to raise the 
minimum wage to $10.10 per hour in three steps and then to 
index the minimum wage to inflation. This modest increase, 
which is well-aligned with the previous increases throughout 
history, will give 30 million Americans a higher paycheck, 
including the parents of 18 million children.
    Again, we're fortunate today to have with us in the 
audience, I am told, a group of workers who will directly 
benefit from a minimum wage increase. I understand that many 
were at the White House this morning, celebrating the FLSA and 
discussing the need to raise the minimum wage. I'm pleased that 
you could all be with us this afternoon, and I thank you for 
coming.
    Of course, we're also pleased to have a distinguished panel 
of witnesses, including our Acting Secretary of Labor, Seth 
Harris. Today's panelists will discuss the past, present, and 
future of the minimum wage and the role that it plays for 
workers and businesses and in our economy. I look forward to 
this discussion.
    I will hold the record open for an opening statement by 
Senator Alexander. We were supposed to have a vote at 2:30. It 
didn't happen until a quarter to three, that's why a lot of 
people are late getting here.
    We have two panels. On the first panel, we welcome Seth 
Harris, Acting Secretary of the Department of Labor. Prior to 
his nomination as Deputy Secretary in 2009, Mr. Harris served 
as a professor of law at New York Law School, where he was 
director of the school's Labor and Employment Law programs.
    Mr. Harris served for 7 years at the Department of Labor 
during the Clinton administration, as counselor to the 
Secretary of Labor, and as Acting Assistant Secretary of Labor 
for Policy, among other positions. Mr. Harris is a graduate of 
Cornell University and the New York University Law School, 
where he was editor-in-chief of the Review of Law and Social 
Change.
    Mr. Harris, welcome again, and as with all the panelists, 
your statement will be made a part of the record. Please 
proceed as you so desire.

STATEMENT OF HON. SETH D. HARRIS, ACTING SECRETARY, DEPARTMENT 
                    OF LABOR, WASHINGTON, DC

    Secretary Harris. Thank you so much, Mr. Chairman, Senator 
Warren, and other members of the committee. Thank you for the 
opportunity to testify about the urgency of raising the Federal 
minimum wage. And let me say, Mr. Chairman, thank you so much 
for your outstanding leadership over the many years on this 
very important issue.
    As you said, Mr. Chairman, just a few hours ago, I was at 
the White House with Vice President Biden for celebration of 
the 75th anniversary of the Fair Labor Standards Act. The FLSA 
established the first national minimum wage when it was signed 
into law by President Franklin Roosevelt on this day in 1938.
    As you said, joining us at the White House were the men and 
women you see sitting behind me, over my left shoulder, workers 
from around the country who are struggling to get by on the 
minimum wage or just a little more. They work hard. They take 
responsibility for themselves and their families. They are not 
asking for a handout. They merely ask for an honest day's pay 
in return for an honest day's work.
    Since February, I've traveled to 14 cities, to Baltimore 
and Charlotte, to Philadelphia and Atlanta, to Milwaukee and 
Boston, to Phoenix and Las Vegas, meeting with many of these 
workers and hundreds more like them, workers like Kizzie 
Simmons, a college-educated, State-tested nursing assistant 
from Cleveland with three children. Her oldest daughter has 
been accepted to the University of Cincinnati, but Kizzie 
doesn't know if she can afford to give her child this 
opportunity.
    She asked me, ``How am I supposed to tell my daughter, 
`Honey, I may not be able to make your tuition payment.' ?'' 
And on top of that stress, when I met her in Cleveland, 
Kizzie's landlord had just raised her rent by $300.
    The Chairman. Say that name again, Seth. Kizzie?
    Secretary Harris. Kizzie Simmons.
    The Chairman. Where is Kizzie?
    Secretary Harris. Right here.
    The Chairman. Welcome.
    Secretary Harris. Now, sitting right next to Kizzie is 
Pattie Federico, who lives in Boston, Senator Warren, and she 
earns barely above the minimum wage at a local movie theater. 
When I met her, she was living in a freezing home because she 
had to wait for the next week's paycheck before she could fix a 
broken nozzle on her furnace.
    When I met Pattie, I made the mistake of characterizing her 
as living paycheck to paycheck, and she told me I was wrong. 
Living paycheck to paycheck would be an improvement, she 
explained. She's doing everything possible not to fall further 
behind.
    This morning at the White House, Pattie talked about living 
in constant fear of losing her family home, about the new tires 
for her car that she needs but can't afford, about feeling like 
the walls are closing in, about how even an unforeseen $10 
expense can be crippling.
    These powerful and poignant stories are the most compelling 
argument for a minimum wage increase. As President Obama said 
in his State of the Union address, quoting him, ``In the 
wealthiest nation on earth, no one who works full-time should 
have to live in poverty.'' The President has proposed 
increasing the Federal minimum wage from $7.25 to $9 an hour. 
For these workers and some 15 million others, that would mean 
higher earnings, the ability to buy basic necessities, and 
greater peace of mind.
    The President's plan, like the bill introduced by you, 
Senator Harkin, and Representative Miller, would also index the 
Federal minimum wage to inflation for the first time ever. 
Inflation has steadily eroded the value of the minimum wage, as 
you said, Senator, by 30 percent since 1968. By linking wages 
to the cost of living, Congress can make sure workers' wages 
keep pace as prices go up at the grocery store, the gas pump, 
and everywhere else.
    Raising the minimum wage won't merely help Kizzie and 
Pattie and millions more like them. It will strengthen our 
economic recovery. When working families have more money in 
their pockets, they pump it right back into their local 
economies. The small business owners I've met support a higher 
minimum wage because they know it means more people have more 
to spend on goods and services, and that, of course, helps 
their businesses to grow.
    There is a persistent myth out there that a higher minimum 
wage will trigger mass layoffs and have a devastating impact on 
our economy. Senator Harkin, as you said, quoting President 
Roosevelt, the purveyors of that myth are calamity-howlers. The 
jobless rate was a staggering 19 percent in 1938. Congress 
passed the Fair Labor Standards Act, President Roosevelt signed 
it, and employment went up. It increased.
    Since then, Congress has acted on nine occasions, generally 
with bipartisan support, to raise the minimum wage 22 times, 
and the calamity-howlers' doomsday scenarios never came to 
pass. In fact, study after study from independent economists 
has found that a higher minimum wage has little to no negative 
effect on employment. And, over time, real GDP per capita has 
steadily increased, even when the minimum wage has been raised.
    So let's do more than commemorate the past. Let's assure a 
better future for Kizzie Simmons' daughter, who wants a college 
education; for Pattie Federico, who deserves a chance at the 
American dream. Let's smooth the path to the middle class by 
renewing the promise of the FLSA and raising the minimum wage.
    Again, Mr. Chairman, I want to congratulate you and applaud 
you and Congressman Miller in the House for getting this debate 
started. The President stands ready to work with you and with 
all the members of this committee and the Members of Congress 
to get this important work done.
    Thank you again. I look forward to answering your 
questions.
    [The prepared statement of Secretary Harris follows:]

               Prepared Statement of Hon. Seth D. Harris

    Good afternoon Chairman Harkin, Ranking Member Alexander, and 
members of the committee. Thank you for the invitation to testify at 
this hearing on the importance of raising the minimum wage to 
strengthen the middle class and grow our economy. On behalf of the 
Obama administration, I thank you for getting this important 
conversation started in Congress.
    The timing of this hearing could not be more appropriate. Today 
marks the 75th Anniversary of the Fair Labor Standards Act (FLSA), 
legislation enacted to ensure ``the most minimum standard of living 
necessary for the health, efficiency, and general well-being of 
workers.'' Although the FLSA includes a number of basic wage and hour 
standards affecting employees in the private and public sectors, the 
national minimum wage may be its best known contribution to economic 
fairness. As the agency charged by Congress to administer and enforce 
the FLSA, the Labor Department is uniquely equipped to attest to the 
public benefit of raising the minimum wage and the urgency of working 
together to ensure that it provides a basic level of economic security 
for our Nation's workers.
    The FLSA was enacted in 1938--in the midst of the Great Depression, 
and with unemployment at a staggering 19 percent. Even in these 
challenging economic conditions, Congress recognized the critical need 
to establish minimum wage and overtime compensation for America's 
workers and to level the competitive playing field for their employers. 
As the President said in the State of the Union, no one working full-
time in the richest country on the planet should have to live their 
life in poverty. It does violence to our values and harms our economy 
as a whole. Raising the minimum wage will help to meet this fundamental 
American promise.
    In addition to being necessary for the well-being of workers and 
their families, the minimum wage is also essential to a healthy 
economy. Nearly 70 percent of the American economy is built on consumer 
spending. And when you hear consumer, you should think of working 
families. A higher minimum wage will give low-wage workers the 
additional purchasing power to buy goods and services in their 
communities thereby stimulating local economies and helping small 
businesses to grow and expand. A 2011 study by economists at the 
Federal Reserve Bank of Chicago found that a $1 minimum wage hike 
increases household spending by approximately $2,800 in the year 
following the increase--with families purchasing necessary durable 
goods like automobiles that provide their communities with a real 
economic stimulus.
    Last week, I had the opportunity to speak with a group of small 
business owners from the Washington region, each of whom pays their 
employees more than the current minimum wage. Their anecdotes confirmed 
that many small business owners favor increasing the minimum wage. 
Small business owners understand that raising the minimum wage is good 
for the economy and good for their businesses, as well as being the 
right thing to do.
    With the passage of FLSA, the first minimum wage was set at 25 
cents per hour. Since that time, the minimum wage has been raised 22 
times. Most recently, the 2007 amendments to the FLSA called for an 
increase phased in over 3 years, bringing it in 2009 to its current 
$7.25 per hour. Unfortunately, for workers who earn most of their wages 
through tips the wage their employers are required to pay them has not 
been raised since 1991--that is 22 long years ago. Needless to say, it 
is time to raise the minimum wage again.
    Over the past 30 years, modest minimum wage increases have not kept 
pace with the higher costs of basic necessities for working families--
everything from a gallon of milk to a gallon of gas. This trend isn't 
new--the real value of the minimum wage has steadily decreased since 
the early 1980s. In fact, the minimum wage has fallen 30 percent in 
value since 1968. While the wealthiest Americans have seen their 
incomes rise dramatically in the last three decades, middle class and 
minimum wages have stagnated, leaving too many families struggling to 
stay, or get into, the middle class. In the words of President Franklin 
Roosevelt:

          ``The test of our progress is not whether we add more to the 
        abundance of those who have much; it is whether we provide 
        enough for those that have too little.''

    There are two myths about the minimum wage that I would like to 
dispel. Many of these arguments have been heard time and again over the 
decades as proposals were offered to raise the minimum wage. The first 
is that raising the minimum wage will suppress employment or lead to 
layoffs. But study after study from independent economists has shown 
that raising the minimum wage has a small or no effect on employment. A 
second myth holds that the typical minimum wage worker is a middle-
class teenager earning weekend spending money. In fact, only around 19 
percent of those earning between $7.25 and $9.00 per hour are 
teenagers. Sixty percent are working women, many of whom are raising 
children.
    Contrary to popular belief, many minimum wage workers are adults 
supporting families and heading households. In 2011, minimum wage 
workers brought home 46 percent of their household's income. Their 
wages pay for utility bills, car maintenance, and rent. They are 
parents struggling as hard as they can to provide a better life for 
their children. They are under enormous stress, often facing wrenching 
choices about which bills to skip each month, or whether to fix the 
heat in the dead of winter, or fix the car they need to get to work. 
They know what it's like to clip coupons and say ``no'' to their 
children, to be late with the bills and hope that their electricity 
won't be shut off. They know what it's like to live just one small 
setback away from personal disaster.
    For the past 4 months, I've been traveling around the country 
talking with workers who have an important stake in President Obama's 
proposal to raise the Federal minimum wage from $7.25 per hour to $9 
per hour. I've been to 14 cities, from Philadelphia to Phoenix, from 
Akron to Atlanta. At every stop, I heard stories of extraordinary 
struggle and sacrifice.

     In Boston I met Pattie, a woman who earns just above the 
minimum wage working at a local movie theater. And she needs every 
penny. Like many Americans, she struggles to make ends meet, but Pattie 
constantly feels like she is falling even further behind. When I spoke 
with her, I made the mistake of classifying her as someone who lives 
paycheck-to-paycheck. She corrected me, pointing out that living 
paycheck-to-paycheck would mark a significant improvement in her life. 
Every day she wonders, do I have enough money to fill my car with gas 
to get to work? If my car breaks down, do I skip this month's heating 
bill to pay for the necessary repairs?
     I met Tanvanel in Orlando. He is 35 years old and has a 
wife and four children. Tanvanel reports that it's simply impossible to 
support his family on his full-time minimum wage salary working at 
Wendy's. ``It's very difficult to pay for health insurance for my 
family,'' he said. ``I can't afford a car, and even if I could, I 
couldn't pay for the gas or the necessary insurance.''
     While in Tampa, I met Grace. She is a single mother whose 
husband died several years ago. She has a young daughter with a 
disability, and is often forced to choose between going to her 
daughter's school to meet with her teachers and ensure she has an 
effective education plan and keeping hours at work. ``Sometimes,'' says 
Grace, ``for dinner, I can only afford a hamburger from McDonald's and 
some water. I give my daughter the meat and the water, and I just eat 
the bun.''

     During my trip to Cleveland I met Kizzie, a State-tested 
nursing assistant. She's a mother of three. Her daughter has been 
accepted to the University of Cincinnati, but Kizzie worries about 
whether she can afford it. ``How am I supposed to tell my daughter that 
I'm not going to make the tuition payment,'' she asked. On top of it 
all, Kizzie's landlord raised her rent $300 per month this year. ``I 
come to work sometimes broken, but you would never know,'' she said. 
``I don't show it.''

    I heard stories like these in every city I've visited. These 
workers have enormous pride and dignity. They don't want hand-outs. 
They simply want an honest day's pay for an honest day's work.
    More take-home pay for these workers will provide a boost to our 
entire economy. The President has called for a raise in the minimum 
wage to $9.00 per hour, which would boost the earnings of about 15 
million low-wage workers across the country and restore the minimum 
wage to its early-1980s real value. The President has also proposed 
indexing the minimum wage to inflation, so future workers do not see 
their earnings eroded by cost-of-living increases. Increasing the 
minimum wage and the purchasing power of low-wage families will help 
bolster the middle class and strengthen our economic recovery.
    The minimum wage is as important today as it was in 1938. Yet the 
wage floor it creates is in danger of falling so low that it no longer 
provides a basic level of economic security for our Nation's working 
families. Laws like the FLSA recognize the value and dignity of all 
work, providing working people the means to support and nurture strong 
families. It is an affirmation of these American values that the FLSA 
and its minimum wage requirement have stood the test of time, despite 
all of the changes that have taken place over the past 75 years. 
Evidence of our shared commitment to this responsibility is the fact 
that minimum wage increases have historically garnered bipartisan 
support in Congress and been signed by Democratic and Republican 
presidents alike. It is our responsibility to strengthen the FLSA and 
sustain its promise over the next 75 years.
    In a nation as wealthy as ours, far too many full-time workers are 
living below the poverty line. Minimum wage workers drive our kids to 
school; serve our food; provide care to our parents, young children and 
people with disabilities. The President believes they should earn 
enough to support their families and live a decent life. Raising the 
minimum wage is good for workers, their families, and for our economy. 
It would give hard-working people the raise they need and deserve. He 
applauds Senator Harkin, as well as Representative Miller, for getting 
this debate started in Congress. He stands ready to work with Congress 
to pass legislation to increase the minimum wage as soon as possible.
    Thank you again for the opportunity to testify today. I am happy to 
answer your questions.

    The Chairman. Thank you very much, Mr. Secretary. And, 
again, I thank you for your great leadership of the department 
now and in the past and for your commitment to the kind of 
economic and social justice that we've fallen behind on in this 
country. I really appreciate your leadership.
    We'll begin a round of questions, 5 minutes each. Here's 
one. I was just thinking about this the other day. In looking 
at the history of the passage, my staff found a lot of business 
opposition to the bill, but they found a lot of business 
support. In the last year or so, we've seen several business 
firms come out in favor of raising the minimum wage--Costco, 
Starbucks, several associations of thousands of small 
businesses, business publications like The Economist, Crain's 
New York Business, Bloomberg News.
    Why are an increasing number of business voices now coming 
out wanting to raise the minimum wage? Do you think that would 
not be in their best interest? I don't know.
    Secretary Harris. I'll venture a guess, and tell you what 
I've heard from small business owners, in particular, two 
reasons. One is more money in consumers' pockets means more 
money for business. Seventy percent of the American economy is 
built on consumer demand. Consumers, these folks sitting behind 
me--those are consumers. More money in their pockets means more 
money for businesses to grow, and it's also good for our 
economy overall.
    The second thing is responsible businesses, the businesses 
that are paying a fair wage, a responsible wage, are kind of 
sick and tired of being undercut by employers who are trying to 
squeeze every last penny out of every worker who comes through 
the door. They want everyone to be held to a basic minimum, not 
something lavish or something that will put workers on Easy 
Street, but some basic minimum so that competition is fair.
    The logic of the original Fair Labor Standards Act was fair 
competition among businesses, as much as it was about helping 
workers. So my sense is that those are the two reasons.
    The Chairman. Mr. Harris, could you also address yourself 
to this aspect of tipped wages, tipped workers? We haven't 
raised that since, I think, 1991.
    Secretary Harris. That's right.
    The Chairman. And I don't have it in front of me, but I 
think it's around $2 and----
    Secretary Harris. Thirteen cents.
    The Chairman. It's $2.13 an hour right now. And when I tell 
people that, it's incredible. They say, ``No, no, no, that's 
not right.'' And I say, ``Yes, it is.'' So part of our bill is 
to raise that tipped wage up and then to index it, also. Could 
you address yourself to the necessity of increasing the tipped 
wages?
    Secretary Harris. Yes. I'm in strong agreement with you 
that the cash wage for tipped workers needs to be increased. 
The way the law works right now, employers are required to pay 
a minimum of $2.13 to waiters and waitresses and other people 
who get tips, as long as their tips bring them up to the 
Federal minimum wage.
    In essence, what's happening is those of us who go out to 
restaurants and get wonderful service from a waiter or 
waitress, and we leave money on the table as a way of saying, 
``Thank you. We really appreciate the terrific service that you 
gave us,'' we're actually subsidizing the employer's wage to 
that worker.
    For waiters and waitresses, that cash wage, that $2.13 
wage, has declined in value by 40 percent since the last time 
it was increased in 1991. I think it's really very difficult to 
justify doing that. So the President agrees with you and 
Congressman Miller. We'd like to see the tipped minimum 
increased so that those folks get rewarded. They're assured of 
being rewarded with a higher wage.
    The Chairman. Very good. I just have one more quick 
statement, and then I'll recognize Senator Alexander.
    Entry level--a lot of times we hear that minimum wage jobs 
are just entry level. No one really stays there. It's a 
training ground for teenagers. They get raises and move on to 
higher paying jobs. So it's an entry kind of level, but no one 
ever stays there very long. I guess Kizzie and Pattie might 
disagree with that, but we hear this all the time.
    What have workers been telling you about this? Do they stay 
there just a short time and move on, or are there a lot of 
people in our society that kind of get in those minimum wage 
jobs and they just are there for a long time?
    Secretary Harris. It's the latter, Senator. The workers 
I've met around the country--first of all, they're not 
overwhelmingly teenagers. In fact, only one in five of the 
people who would benefit from this increase are teenagers. Most 
are adults. Sixty percent are working women. A large number of 
them have children that they're supporting.
    But I've met workers who have been in their jobs sometimes 
3 or 4 years, and perhaps they've gotten a raise, but if they 
started at the minimum wage, they've maybe gone from $7.25 to 
$7.75 or $8 an hour. And I've met some workers who are still 
earning $8 an hour after 15 or 20 years at their job.
    It's a consequence of what their employer is willing to 
pay. They're not being rewarded for their loyalty to the 
employer. They're not being rewarded for what they've learned 
from being in the job or their higher productivity. So this 
raise would actually assure those workers that they're able to 
lift themselves out of poverty, their families out of poverty, 
and that they get the reward they deserve.
    The Chairman. Thank you very much, Secretary Harris.
    Now I'll recognize Senator Alexander.

                 Opening Statement of Senator Alexander

    Senator Alexander. Thanks, Mr. Chairman. Excuse me for 
being a little late. I was voting for one of the President's 
cabinet nominees, which I thought you would want me to do.
    The Chairman. Did she get through?
    Senator Alexander. I'm sure she did, since we always try to 
support most of the President's nominees.
    Welcome, Mr. Secretary. I'm glad you're here.
    Mr. Chairman, I thank you for calling this hearing. This is 
the second hearing on minimum wage. My problem with the hearing 
is that it's a hearing on how to pay fewer people more money 
instead of how to get more new jobs, which is what we need in 
this country with such a high rate of unemployment. I would 
rather see hearings, although I don't have the prerogative as 
the chairman does of setting the agenda--I'd rather see 
hearings on creating an environment in which we can grow the 
largest number of good new jobs and make those more accessible.
    We always seem to have economists--and we'll probably have 
some more today--who contend with each other about the effect 
of the so-called minimum wage. One example is a study, Minimum 
Wages and Employment: A Review of Evidence From the New Minimum 
Wage Research 2006, authored by a professor at the University 
of California-Irvine and an economist at the Board of Governors 
of the Federal Reserve System. And I'll ask consent to put 
others in the record, also.
    [The information referred to can be found in additional 
material.]
    Senator Alexander. This study compared 100 minimum wage 
studies published since the 1990s. Nearly two-thirds of the 
studies found negative employment effects of minimum wage 
increases while only eight studies found positive effects. In 
other words, negative employment effects mean fewer jobs. 
Positive effects mean more jobs.
    Eighty-five percent of the, ``most credible'' studies 
showed negative employment effects, which were most pronounced 
in studies of less skilled employee groups. Studies showing 
positive employment effects generally relied on an economic 
model which is based on the dubious economic assumption of an 
upward sloping labor supply curve.
    That's one review of a number of prestigious studies that 
have tried to prove what the effect of minimum wage is. From my 
point of view--and I think the point of view of many on our 
side of the aisle--what the minimum wage is is a good-sounding 
attempt to fix the price of labor. And in a market system, what 
that usually does is create a shortage. It creates less.
    We had testimony at the first of the minimum wage hearings. 
We had one economist, and then we had two individuals who 
actually ran businesses. The economist was talking about his 
academic research about how to run a business, and one guy that 
runs the business was actually talking about running a 
business, and he said, unquestionably, that if the cost of 
labor is more, that will permit him to hire fewer people. 
That's what he said.
    And there are a number of other costs that small businesses 
have, one being the proposed cost of healthcare that is going 
into effect October 1. When you add to that an increase in the 
minimum wage, all those costs add up to a level of costs that 
has to be subtracted from the revenue, and if there's less 
money there to pay employees, there are fewer employees. That 
was the testimony we received.
    I've had a little experience in trying to create jobs in 
the private sector, in helping to build a company that 
eventually ended up on NASDAQ and became the world's largest 
provider of worksite daycare. As a Governor, when I came to a 
State that had the third lowest family incomes in America, I 
looked around for ways to help our State, which is a poor 
State, improve those incomes. And the last thing from my mind 
was to try to say, ``What I ought to do is just pass a law in 
Tennessee that says everybody ought to be paid more.''
    I knew from my own experience that companies had to make 
the money to pay higher wages, and companies wouldn't come and 
couldn't grow in Tennessee if that were the requirement. So we 
set about in another direction, and that was to create an 
environment in which they could succeed.
    That meant, for example, getting rid of the usury limit, 
which we had in the State at the time, which kept capital from 
coming in. It meant maintaining and defending a right-to-work 
law, which gave employees freedom to choose and created an 
opportunity for the American automobile industry to come to 
Tennessee and compete in this marketplace.
    Suddenly, we went from a situation where we had no auto 
jobs to one where a third of our manufacturing jobs are auto 
jobs. And the whole center of the American automobile industry 
has moved to the South, where you have the Saturn plant, which 
is 16 miles away, and that's a UAW partnership; or the Nissan 
plant, which does not have a union. But you have that choice.
    Creating an environment in which we could grow the largest 
number of good new jobs had to do with creating a banking 
system that would be responsive to the needs of the State. And 
more than anything else, it had to do with education. We became 
the first State to pay teachers more for teaching well and had 
10,000 master teachers who voluntarily went up a career ladder.
    Now, I don't know whether all those kinds of things that we 
did in the 1980s made a difference. It's hard to measure that. 
But I do know that over the 1980s and into the 1990s, we had 
the fastest growing family incomes of any State. And I do know 
that our current Governor and legislature are continuing to 
create an environment where companies can come and, without 
excessive mandates, create jobs to make a profit.
    So my attitude toward the so-called minimum wage is that it 
basically cuts the bottom rung off of the economic ladder onto 
which we hope Tennesseans and Americans will step so they can 
then climb up the ladder, and that our focus ought not to be on 
cutting that rung off so fewer people can get on the ladder. 
Our focus ought to be on helping people move up the ladder, and 
that means giving a choice of whether or not to join a union, 
giving them a choice of going to a good school instead of a bad 
school if they're poor, giving them a choice of paying teachers 
more for teaching well--as many of these attitudes as we can 
think of.
    I would throw into that, Mr. Chairman, that we built the 
best four-lane highway system in the country in order to 
attract business. So I think the hearing is on the wrong 
subject. I think it's on the question of fewer jobs. I'd like 
to see the hearing be on more jobs. When my time for questions 
comes, I'll have some questions to ask on that subject.
    I thank the chairman.
    The Chairman. Senator Warren.

                      Statement of Senator Warren

    Senator Warren. Thank you very much, Mr. Chairman. I 
appreciate your holding this hearing. I think it's an important 
hearing.
    Thank you, Secretary Harris, thank you for being here. I 
really appreciate it. I'm glad you're here.
    Pattie from Boston and Kizzie, I'm glad you're here, too, 
and everyone who came for this important hearing.
    I also want to say thank you to the chairman again for all 
of your leadership on minimum wage. You've made something a 
national issue again that needs to be a national issue.
    We're here today, I think, to focus on tipped workers, the 
waiters and waitresses who serve our meals, staff our hotels, 
wash our cars. Over 3 million Americans work such jobs that 
rely on tips. About 45 percent of those who rely on tips are 
over the age of 30, and over 70 percent are women, many with 
children.
    It's been more than 20 years since we increased the minimum 
wage for tipped workers, as you said. In fact, the minimum wage 
for tipped workers now sits at an absurdly low $2.13, which 
means that inflation has eaten it away, as you said, Secretary 
Harris. The minimum wage for tipped workers covered 50 percent 
of the minimum wage for other workers when it was enacted. It 
now covers only 29 percent. We can do better than that.
    Here's what I want to start with. What does the Department 
of Labor data tell us happened the last time we increased wages 
for tipped workers back in 1991? We hear the argument, ``Oh, 
it's going to destroy jobs.'' What happened when we increased 
the minimum wage for tipped workers back in 1991?
    Secretary Harris. I'm not sure we have data specifically 
about tipped workers. But the overwhelming weight of the 
evidence now, as I understand it--I'm not an economist, but my 
understanding is that the overwhelming weight of the evidence 
is if you institute a moderate minimum wage increase, we don't 
see the kind of negative employment effects that Senator 
Alexander is talking about. And Professor Reich will have a lot 
more to say about this than I, because he is in the field.
    But there's been study after study after study comparing 
jurisdictions where the minimum wage has gone up and 
jurisdictions where the minimum wage has not gone up, and you 
don't see differential employment effects in those two 
jurisdictions. Professor Reich co-authored one of those 
studies. Earlier today, Dr. Alan Krueger, who's the chair of 
the President's Council of Economic Advisors, talked about the 
evolution in the economics field and how the conclusion that he 
found back in 1995 has been validated time and time again, that 
we don't see a negative employment effect from increasing the 
wage.
    Senator Warren. So let me ask, then, about the current law 
on minimum wage for tipped workers. As I understand the current 
law, someone goes out, they've got their $2.13 on their 
paycheck, and if the tips don't bring them up to minimum wage, 
then it is the responsibility under Federal law of the employer 
to fill in the difference, to make sure, in other words, that 
everyone reaches the Federal minimum wage.
    The question I want to ask you is how successful have you 
been at enforcing that?
    Secretary Harris. We have a great deal of difficulty 
enforcing that for the obvious reasons, and that is counting 
the value of tips that are collected in a particular workplace 
on a particular night is an extremely difficult activity. And 
what tips are distributed--because they're often distributed in 
cash--is an extremely difficult activity.
    The Wage and Hour Division, which has 1,000 inspectors to 
protect 140 million workers in more than 7 million workplaces, 
including the waiters and waitresses you're talking about, has 
a gravely difficult time trying to figure out who's gotten what 
and how much, and whether it's from the right tip pool, and 
who's been included in that. It's actually quite complicated. 
It's very, very difficult to enforce.
    Senator Warren. In other words, we don't have a lot of 
confidence that the Federal law as it currently exists is 
enforced. I think what we've got right now is this: when you 
look at the poverty data, it turns out that workers who are 
employed as waiters and waitresses are nearly three times more 
likely to be below the poverty line than other workers, which 
suggests something isn't working here.
    It sounds to me like the only option we have that works is 
that we have to raise the floor on the minimum wage for tipped 
workers. Otherwise, these are people who have no recourse.
    Secretary Harris. I agree that that's true. The only way to 
assure that these workers are going to get more money is to 
raise the cash wage the employer has to pay that goes on a pay 
stub that my investigators can check.
    Senator Warren. All right. Good. Thank you very much, Mr. 
Secretary.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren.
    Senator Murray.

                      Statement of Senator Murray

    Senator Murray. Mr. Acting Secretary Harris, it's great to 
see you here.
    Mr. Chairman, thank you so much for this.
    In your testimony, I love the stories of workers who are 
struggling to make ends meet. I understand several of them are 
with you today, and I really appreciate you sharing your 
stories and how increasing the minimum wage increases the 
quality of life that you have.
    We heard here, and I've heard it before, that we're just 
talking about a few workers. How many people are on minimum 
wage in this country?
    Secretary Harris. This increase, the President's proposed 
increase, would benefit about 15 million workers.
    Senator Murray. Fifteen million people?
    Secretary Harris. The higher proposal that Senator Harkin 
and Congressman Miller have made, I understand, would benefit 
about 27 million.
    Senator Murray. Twenty-seven million?
    Secretary Harris. Either 27 million or 30 million, 
depending upon how you count it.
    Senator Murray. Between 15 million and 27 million, 
depending on the proposal.
    Secretary Harris. Yes.
    Senator Murray. Talk to me a little bit about how that 
increase in their minimum wage not only helps them as an 
individual, but helps the economy around them as well.
    Secretary Harris. It'll put billions of dollars into the 
pockets of the people in our society who are most likely to 
spend those dollars. Economists talk about propensity to 
consume. What that means is when you get your money, do you 
spend it?
    As I've traveled around the country, what these workers 
here have told me is every dollar, every single dollar they get 
from this increase they're going to spend in the local grocery 
store, in the local gas station. They're going to use it to pay 
their rent or their bills or their utilities, simply because 
they don't have any savings.
    I jokingly asked everybody, ``How many of you have offshore 
bank accounts in the Cayman Islands and you're going to put 
your money in that?'' Nobody ever raises their hands, because 
it's going to go right back into low-wage communities, where 
these folks live.
    Senator Murray. The pizza parlor, the grocery store, buying 
diapers for their kids, the things that they stretch every 
single day. So it helps local businesses as well, I'm assuming.
    Secretary Harris. Absolutely.
    Senator Murray. We're actually seeing the exact opposite of 
this today with sequestration, where in communities that I know 
of, civilian and military employees are getting cut back on 
furloughs. The pizza factories, the little shops, the movie 
theaters are all seeing a huge loss of income right now, 
because it just has a huge impact on people like this. So I 
think this affects a lot more people than 15 million to 27 
million. It affects a lot of businesses, small businesses, 
communities, and their economy.
    I wanted to ask you--one key aspect of Senator Harkin's 
proposal and the President's proposal is indexing the minimum 
wage to inflation so the value doesn't erode over time. This is 
an important part of my home State, Washington State's minimum 
wage. I am proud to say we are 1 of 10 States that index our 
minimum wage. Can you talk a little bit about why tying the 
minimum wage to the cost of living is so important?
    Secretary Harris. I think it's critical, and the workers 
tell me it's critical. The price of gas, the price of milk, the 
price of rent and utilities keeps going up, and minimum wage 
workers, with all respect, have to wait for Congress to give 
them a raise before they get a higher minimum wage.
    It's been 4 years since the last increase. Before that, it 
had been 10 years since the last increase in the minimum wage, 
and the value declines because of inflation. Even with very low 
inflation, like we have now, you still see the real value of 
the minimum wage decline, so they're able to buy less. They're 
less able to support their families.
    Raising the minimum wage to a more reasonable level and 
then indexing it will allow them to keep up. It'll also, 
frankly, take it out of politics a little bit. It will make it 
more about the cost of living.
    Senator Murray. Right, and we certainly have found that in 
my State, for sure. Thank you very much.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Murray.
    Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman.
    Mr. Harris, on the subject of creating more jobs, on 
October 21, OSHA issued a letter of interpretation concluding 
that a union representative who is not an employee may 
accompany an OSHA inspector during a walk-around inspection of 
a work site and may even be designated as the employee 
representative in a non-union workplace. So you've got a non-
union workplace, and the OSHA inspector can bring in a union 
representative to walk around with him or her. Did you review 
and approve this letter of interpretation?
    Secretary Harris. I didn't. That came from OSHA after 
consultation with the solicitor's office.
    Senator Alexander. Well, how would you make sure that a 
rule like this doesn't involve OSHA in the employer's labor-
management relations? I mean, let's say you've got a company 
without a union in Tennessee, and OSHA comes in with a United 
Auto Workers representative and starts walking through the 
plant. How does that not affect labor-management relations?
    Secretary Harris. I can't assure that it doesn't affect it, 
Senator. But walk-around rights have been a part of the 
operation of the Occupational Safety and Health Act, I believe, 
since its inception back in the 1970s.
    Senator Alexander. Walk-around rights for whom?
    Secretary Harris. Walk-around rights for workers and their 
representatives. So workers have been able to choose 
representatives for some time now. The question was raised with 
us, as I understand it--again, I wasn't involved in this 
decisionmaking. This is not the kind of thing that would 
typically come to my level. OSHA was asked for an 
interpretation and whether or not this was an appropriate 
action for a worker to undertake, to select a union 
representative or somebody else who's not in the workplace to 
engage in the walk-around with them----
    Senator Alexander. But OSHA's own regulation says, 
``Representatives authorized by employees shall be an employee 
of the employer.'' That's OSHA's own regulation. How can you 
get the UAW organizer to walk around with you if he's not an 
employee of the employer?
    Secretary Harris. I'll have to get back to you on that, 
Senator, because I'm not familiar with that particular language 
that you're reading to me. That's not my recollection of the 
description that I got from OSHA.
    Senator Alexander. OSHA is in the Department of Labor. 
Right?
    Secretary Harris. Right.
    Senator Alexander. In December 2011 the Department of Labor 
proposed a new rule that would narrow the application of the 
companionship exemption under the Fair Labor Standards Act so 
that many in-home caregivers would have to be paid overtime. We 
had a pretty big discussion about that here with Secretary 
Solis.
    The effect of that, I and others were afraid, would have 
the effect of increasing the cost of in-home companionship, 
which is paid by Medicaid, and Medicaid includes a large 
component of State funds. That's about 40 percent.
    We were wanting to know whether this will mean that there 
are fewer people who can afford to have in-home companionship. 
Many older people need that. Will there be fewer jobs for home 
caregivers because of that? And what will the cost be to States 
under the Medicaid plan?
    Medicaid is the most rapidly growing part of State 
governments. It's now 26 percent of State governments. The new 
healthcare law is causing States to scramble in every direction 
to figure out how to pay for it.
    On March 14, I asked former Secretary Solis, in front of my 
Appropriations Subcommittee, if she had consulted with any 
State Medicaid directors about the impact of the proposed rule, 
and, if not, whether she was willing to meet with them. I never 
heard. So do you know if Secretary Solis met with any State 
Medicaid directors about this proposed rule?
    Secretary Harris. Can I speak to the department as a whole 
rather than Secretary Solis, personally?
    Senator Alexander. Sure.
    Secretary Harris. Because I didn't track her schedule that 
closely. But let me say we are very deeply engaged with the 
Centers for Medicare and Medicaid Services. We also worked with 
CMS on joint outreach to State Medicaid directors. We've had a 
number of calls, including one call where 26 States represented 
by 38 State Medicaid program representatives participated. Let 
me also say during the notice----
    Senator Alexander. Now, who had that call?
    Secretary Harris. That was jointly the CMS and the Wage and 
Hour Division, which is the division in the Labor Department 
that's responsible for the crafting of that rule.
    Let me also say during the Administrative Procedures Act 
open notice and comment process, we received comments from a 
number of State Medicaid directors, including the Tennessee 
State Medicaid director and those from Arkansas, California, 
Virginia, Oregon, and Washington State. And we have received 
comments from the National Association of Medicaid Directors 
and the California State Association of Counties. They all 
submitted written comments during the APA process.
    We have been as deeply engaged as we feel we can be with 
the Medicaid community both at the Federal level and at the 
State level. And their comments are being taken very, very 
seriously, I can assure you, in this regulatory drafting 
process.
    Senator Alexander. Thank you for your response. And you're 
still planning to finalize that rule?
    Secretary Harris. That's our hope. We're working on it.
    Senator Alexander. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Again, Secretary Harris, thank you very, very much for 
being here and for your excellent testimony and for your 
outstanding leadership of the Department of Labor. We 
appreciate it very much.
    Secretary Harris. Thank you so much, Mr. Chairman.
    The Chairman. Now we'll move to our second panel. Dr. 
Michael Reich is director of the Institute for Research on 
Labor and Employment and professor of economics at the 
University of California at Berkeley. He has authored over 100 
books and other publications on labor economics and political 
economy, including the economic effects of the minimum wage. 
Dr. Reich received his bachelor's in mathematics from 
Swarthmore College and his Ph.D. in economics from Harvard 
University.
    The Most Reverend Stephen E. Blaire is the Bishop of the 
Catholic Diocese of Stockton, CA, and chair of the Committee on 
Domestic Justice and Human Development of the U.S. Conference 
of Catholic Bishops. Bishop Blaire attended St. John's College 
and Seminary in Camarillo, CA, and was ordained to the 
priesthood in 1967. Pope John Paul II appointed Bishop Blaire 
as the Bishop of Stockton in 1999.
    Bishop Blaire, you and I met about a year ago, and it's 
very good to see you here again, and welcome.
    Hilary O. Shelton is director of the Washington Bureau and 
senior vice president for Advocacy and Policy of the NAACP, the 
National Association for the Advancement of Colored People. Mr. 
Shelton has spent his career advocating for civil rights 
protections in the United States. He previously worked with the 
United Negro College Fund and the General Board of Church and 
Society of the United Methodist Church. He is the recipient of 
numerous awards from civil rights and faith-based communities 
for his service. Mr. Shelton holds degrees from Howard 
University, the University of Missouri, and Northeastern 
University.
    James Sherk is the senior policy analyst in Labor Economics 
at the Heritage Foundation. Mr. Sherk received a master of arts 
degree in economics from the University of Rochester and a 
bachelor's degree from Hillsdale College in Hillsdale, MI.
    Thank you all for being here. Each of your testimonies will 
be made a part of the record in their entirety. We'd ask you to 
sum it up in 5 to 7 minutes, and then we'll open it for rounds 
of questions.
    Dr. Reich, welcome and please proceed.

 STATEMENT OF MICHAEL REICH, Ph.D., PROFESSOR OF ECONOMICS AND 
   DIRECTOR, INSTITUTE FOR RESEARCH ON LABOR AND EMPLOYMENT, 
       UNIVERSITY OF CALIFORNIA AT BERKELEY, BERKELEY, CA

    Mr. Reich. Thank you, Chairman Harkin and all the members 
of the committee, for the privilege of speaking to you today. 
My task is to provide an overview of the impact of minimum wage 
legislation enacted 75 years ago today and the Fair Labor 
Standards Act of 1938 and amended subsequently on many 
occasions.
    I do this as a labor economist. I've had over 40 years of 
experience studying low-wage labor markets, especially the role 
of employee turnover in low-wage labor markets. And I've been, 
in the last half dozen years or so, the author or co-author of 
quite a few studies of minimum wages and their effects from 
many different angles.
    In the longer prepared statement, I argue that the national 
minimum wage has had important positive effects upon living 
standards--that's what it's designed to do--without shooting 
ourselves in the foot, that is, without reducing employment. It 
has also had other positive effects, especially in previous 
decades.
    In the 1930s, money, wages, and prices were spiraling 
downward, prolonging and deepening the Great Depression. By 
creating a floor that would increase automatically, at least 
until 1945, the Fair Labor Standards Act helped stabilize the 
economy and helped to end the Great Depression. And since then, 
it's been much more difficult to cut wages in the United 
States, or employers have been reluctant to do it, and that 
situation seems to be changing more recently, however.
    After World War II, when we had several decades of shared 
prosperity, that is, we had rapid economic growth and wage 
growth that was roughly equal throughout the wage distribution, 
Congress increased the real minimum wage quite a few times to 
stay in the range of middle-class wages, 50 percent to 55 
percent of middle-class wages. So the minimum wage rose in real 
terms and was an important pillar of the shared prosperity 
economic model that we followed in those years. And we had much 
higher growth rates in those years than we've had subsequently.
    From the 1980s until the Great Recession that began in 
2006, the economic terrain is different, with wage stagnation 
now for the middle class--median wages have only gone up about 
5 percent in the last 35 years--and wage declines for low-wage 
workers and increases in pay inequality especially at the top. 
In this context, my studies have shown that minimum wage policy 
has, nonetheless, increased pay without adversely affecting 
employment and has also reduced poverty and wage inequality.
    In the course of my studies, I've also looked at the 
question of indexation that Senator Murray raised, as well as 
more recently looking at tip credits. Now, since the onset of 
the Great Recession and the weak economic recovery that has 
followed, tens of millions of middle-class workers have 
suffered deep declines in their annual earnings or lost their 
jobs altogether. This is a context of increasing middle-class 
insecurity, if not destruction of middle class.
    In this context, the value of the minimum wage forms an 
ever more important reference point for insecure workers, a 
reference point. My own research shows that minimum wages of 
$10 or more today--those are the levels now in two of the most 
prosperous cities in the United States, San Francisco and San 
Jose, CA--do not have negative employment effects. That's based 
on the full range of States.
    Vice President Biden mentioned this morning my study, which 
compared employment effects across State borders, where one 
county had a minimum wage that was higher than the other. And 
there, we looked at hundreds and hundreds of counties over a 
period of 20 years, and we found no minimum wage effect using 
what is a very intuitive control, namely, the wage and 
employment level in the county across the State border.
    The reason that minimum wages don't reduce employment, in 
my view, with over 40 years of research, is that they reduce 
employee turnover. Employers who are low-wage employers have 
very high turnover, over 100 percent. That doesn't mean 
everyone leaves in a year, because there are multiple 
departures, short-term tenure. And raising the wage has a very 
demonstrated effect on reducing turnover. That makes it easier 
for employers to recruit and to retain workers, recruit and 
retain workers. Those policies then reduce turnover costs.
    The way I think of this is not that minimum wage has killed 
jobs, but it kills job vacancies to make it easier for 
employers to fill their vacancies and they have shorter 
vacancies or fewer vacancies. George Stigler, a Chicago 
economist, noted this in 1946 in an article, ``The Economics of 
Minimum Wage Legislation,'' where he emphasized mainly that in 
a competitive labor market, a purely competitive labor market--
that's one of our Econ 101 models we teach--that the demand 
curve slopes downward and an increase in minimum wage is going 
to reduce employment.
    But he was a smart economist. He pointed out this other 
model, where if employers have trouble recruiting workers, if 
it cost them some--and I don't mean it cost them a lot per 
worker in a low-wage--McDonald's or a similar context--but 
rather that they multiply that by hundreds and hundreds of 
workers who turn over every year. In that context, an increase 
in the minimum wage, even in Stigler's theoretical models, can 
even increase employment a bit, and it certainly might not 
affect employment at all.
    That's another way of saying that the minimum wage makes it 
easier for employers to reduce their recruitment costs and 
workers stay on longer in the same job. That model is referred 
to as monopsony. It's in every undergraduate labor economics 
textbook. It's only in the last few decades that we've actually 
begun to study that model and its implications, and also that 
we've been able to get credible studies of how minimum wages 
affect employment.
    I talked about my border-controlled study. The reason 
that's important is that minimum wage States are not randomly 
selected. They are clustered geographically. If you don't have 
local controls, your study is a bad study. With that, you can 
show that minimum wages reduced employment 2 years before the 
minimum wage went into effect.
    Critics of minimum wage, Nuemark and Wascher, make this 
point and have criticized our study as saying the border 
controls aren't valid. We've just issued a 75-page paper saying 
the opposite. We've gone head to head at a recent conference 
sponsored by the Bank of Portugal. It's very clear who won. I 
won't leave you in suspense. It was us.
    Let me close because the time is up. The Great Recession 
and the subsequent weak job market recovery have eliminated and 
endangered millions of middle-class jobs. In this new era, 
young workers can no longer count so much on minimum wage jobs 
as stepping stones into middle-class careers as they used to be 
able to. And middle-class workers are increasingly looking at 
minimum wage rates, as I've said, as key reference points for 
their own level of economic security or insecurity. In this new 
context, the case for minimum wage increases is as compelling 
as ever.
    Thank you very much.
    [The prepared statement of Dr. Reich follows:]

               Prepared Statement of Michael Reich, Ph.D.

                            1. introduction
    Thank you Chairman Harkin, and all the members of the committee, 
for the privilege of speaking to you today. My task is to provide an 
overview of the impact of minimum wage legislation, enacted exactly 75 
years ago in the Fair Labor Standards Act of 1938 and as amended 
subsequently on numerous occasions. I do so as a labor economist with 
over 40 years of research on low-wage labor markets and as the author 
or co-author of numerous recent studies on minimum wage effects. My 
work has been published in the top refereed economics journals; in 
March 2013, the Economic Report of the President referred to my work in 
this area as ``particularly compelling.''
    Congress passed the FLSA only after a long and heated political 
campaign. Similarly to much other landmark legislation, the initial law 
represented a compromise with significant exemptions, many of which 
were closed only in subsequent decades. Nonetheless, in his Fireside 
Chat of June 24, 1938, President Roosevelt had no doubts about the 
importance of the FLSA. Roosevelt made three key points: (http://
millercenter.org/president/speeches/detail/3314).

          ``Except perhaps for the Social Security Act, it [the FLSA] 
        is the most far-reaching, far-sighted program for the benefit 
        of workers ever adopted here or in any other country. Without 
        question it starts us toward a better standard of living and 
        increases purchasing power to buy the products of farm and 
        factory.''

    Roosevelt then referred to whether businesses could afford a wage 
floor, a topic that still forms the core argument of the policy's 
critics:

          ``Do not let any calamity-howling executive with an income of 
        $1,000.00 a day, who has been turning his employees over to the 
        Government relief rolls in order to preserve his company's 
        undistributed reserves, tell you--using his stockholders' money 
        to pay the postage for his personal opinions--tell you that a 
        wage of $11.00 a week is going to have a disastrous effect on 
        all American industry.''

    Roosevelt closed his discussion of the bill with an argument that 
one does not hear as often today:

          ``Fortunately for business as a whole, and therefore for the 
        Nation, that type of executive is a rarity with whom most 
        business executives most heartily disagree.''

    Was President Roosevelt correct about the far-reaching effects of 
the minimum wage provisions of the FLSA? In my comments today I argue 
that the national minimum wage has had important positive effects, but 
it is important to distinguish those effects according to the changing 
times. The minimum wage had a major and positive transformative effect 
upon the national economy in the 1930s and 1940s. After World War II, 
the minimum wage became an important pillar of the Nation's shared 
prosperity, which characterized the national economy through the 1970s.
    Since the 1980s, the economic terrain shifted markedly: wage 
stagnation for the middle class, wage declines for low-wage workers and 
increases in pay inequality, especially at the top. In this context, 
minimum wage policies have nonetheless increased pay of low-wage 
workers without adversely affecting employment, and they have reduced 
both poverty and wage inequality.
    I will also review economists' recent research on minimum wage 
effects in the United States. My own research shows that minimum wages 
as high as $10.60 today do not have negative employment effects. These 
findings make sense if we take into account the very high levels of 
employee turnover, often in excess of 100 percent per year, and large 
numbers of job vacancies at any particular time, that characterize low-
wage industries. In this too-often ignored context, economic theory as 
well as empirical evidence shows that minimum wage policies reduce 
turnover costs and job vacancies, but not employment.
            2. the minimum wage from 1938 through the 1970s
    The 1938 Act replaced a patchwork of 25 State minimum wages (mostly 
limited to women) with a uniform national floor covering about half of 
the workforce (agriculture and retail were excluded). The creation of a 
wage floor of $.25, together with the anticipation of the scheduled 
further increases, to $0.30 in 1939 and to $0.40 in 1945, helped end 
the downward spiral of money wages in the 1930s.
    That downward spiral, as Keynes argued at the time, had prolonged 
and deepened the Great Depression. Stabilizing wages (and therefore 
also prices) had been a major concern among many business executives. 
And most American economists in that period were not opposed to 
establishing a national wage floor. Indeed, the then-current 
conventional wisdom, called the doctrine of high-wages, argued that 
higher worker purchasing power would create more economic growth.
    In the immediate postwar decades, increases in the floor brought 
its level to a peak that is the equivalent of about $10.60 in today's 
dollars, or 46 percent higher than today's minimum of $7.25. Moreover, 
amendments in the 1960s and 1970s expanded coverage to nearly 80 
percent of the nonagricultural private sector workforce by 1973 (Welch 
1973, Table 2).\1\
---------------------------------------------------------------------------
    \1\ Later extensions increased coverage much farther, to more 
retail and service workers, to public sector workers, to medium and 
large farms and to some domestic workers, although also adding a credit 
for tipped workers.
---------------------------------------------------------------------------
    In addition to helping reverse the downward national spiral of 
money wages, the national minimum wage helped transform many low-wage 
industries. These effects were most evident in the South, a region that 
was both much poorer than the rest of the United States and poorly 
integrated with the national economy. As the eminent Stanford economic 
historian Gavin Wright has shown, the FLSA-created floor was highly 
binding in Southern industry. But nonetheless, a more prosperous South, 
one with more employment growth and at higher wages, began to emerge 
after the passage of the Act. This transformation was not foreseen by 
the bill's opponents, many of whom represented Southern States and 
districts. An equally dramatic upsurge in the South's fortunes occurred 
in the 1960s, after the FLSA extensions and the Civil Rights revolution 
(Wright 1986, 2013).
    While the South gained relative to the national economy, the 
postwar era also was one of shared and rapid growth overall. Although 
it may seem surprising today, minimum wage increases then were designed 
not only to keep pace with inflation, but also to maintain equity with 
the growth of median wages--the wages received by the middle-class. 
Indeed, from 1939 through the 1970s, the Federal minimum wage increased 
almost every 5 years, not only leapfrogging inflation, but also keeping 
a ratio of 48 to 55 percent for the minimum wage as a percent of the 
median wage (Welch 1973, Table 1; Dube 2013, Figure 6).
    In the early postwar years, economists' thinking about the minimum 
wage changed significantly. In a 1946 theoretical paper, Chicago 
economist George Stigler noted that when the labor market is perfectly 
competitive a higher minimum wage had to reduce employment. Stigler 
also examined a very different labor market case: one in which 
recruiting workers incurs significant costs for employers. When 
``friction'' replaces the costless adjustment mechanism assumed by 
perfect competition, a wage floor can reduce employers' recruitment 
costs, and a higher minimum wage could then increase employment.\2\
---------------------------------------------------------------------------
    \2\ For example, according to Seltzer (2002), the establishment of 
the FLSA led directly to high wages and higher employment in the 
Virginia tobacco industry in the 1930s. Seltzer interprets these 
results using the monopsony model. In 1974, as Gordon (1981) finds, the 
extension of minimum wage coverage to housekeepers reduced the decline 
in employment in that occupation. The 1974 extension did not include 
home care workers. According to the BLS' Occupational Employment 
Survey, in May 2012 home care workers earned about $1 less than 
housekeepers.
---------------------------------------------------------------------------
    As a consequence, the actual effect of minimum wages could be known 
only by empirical research. Stigler's argument, referred to by 
economists as monopsony, became a feature of every undergraduate labor 
economics textbook. Most general economists, however, believing that 
the monopsony case was a quaint exception, were persuaded that minimum 
wages had to have negative employment effects.
    Actual empirical research with microeconomic data on minimum wage 
effects began in the 1970s. These early studies were hampered by 
statistical issues that made it difficult to distinguish correlations 
from causal effects. Nonetheless, they suggested disemployment effects 
that were surprisingly small and limited primarily to teens.\3\ Small 
effects could mean that the benefits to those receiving higher pay 
outweighed the costs to those displaced from jobs. And in a context of 
low overall unemployment, any displaced workers would get others 
relatively easily. More economists began to approve of minimum wage 
policy for these reasons.
---------------------------------------------------------------------------
    \3\ An exhaustive review article by Brown, et al. 1982 concluded 
that significant effects were limited to teens; for this group a 10 
percent increase in the wage floor was associated with a 1-2 percent 
decline in employment. Reviews of later research studies (for example, 
Brown 1999; Neumark and Wascher 2008) reached the same conclusion.
---------------------------------------------------------------------------
                3. minimum wage effects since the 1980s
    The economic terrain shifted radically in the 1980s, to one of 
lower overall economic growth, stagnating real median wages and 
increased higher wage inequality. In the past three decades, Federal 
minimum wage increases have not kept up with the real median wage. As a 
result, the ratio of the Federal minimum wage to the median wage fell 
substantially, to a low of 32 percent in 2006. The ratio stands at 39 
percent today, much lower than the 48-55 percent range of four decades 
ago. In response to the declining level and reach of the Federal 
minimum wage, States have acted increasingly on their own and proposals 
to raise the Federal floor and to close some of the remaining 
exemptions are again on the table.
    As has been the case for several decades, the primary question is 
whether minimum wages create disemployment effects. Economists today 
can provide more credible studies than in previous years. We have much-
improved statistical tools, better data and more elaborated 
understandings of frictional labor markets.
    Federal increases, which by definition are national in scope, do 
not afford economists sufficient variation to credibly identify the 
causal effects of minimum wage increases. But State policies since 1985 
and especially in the 2000s have generated increased variation in time 
and space in minimum wages. This increased variation gives economists 
greater ability to study the causal effects of minimum wages.
    However, it is import to use controls that reduce rather than 
reinforce the confounding effects of other economic variables. The 
question of proper statistical controls arises because States that are 
more likely to adopt minimum wages are not randomly distributed; they 
are geographically clustered and differ in other labor market respects 
from States that are less likely to adopt minimum wage policies. The 
clustering is shown in Figure 1.
    In a series of five papers using five different data sets and six 
different statistical approaches, my colleagues and I have used local 
controls, similar in spirit to those used in the famous David Card and 
Alan Krueger papers of the 1990s. To provide just one example: In 
Allegretto, Dube, Reich and Zipperer (2013) we compare all the pairs of 
counties that straddle a State border and that have had a minimum wage 
policy discontinuity in the past 20 years. (This study updates the 
Dube, Lester and Reich 2010 study that the Economic Report of the 
President and many economists have praised.) Figure 2 shows the 
counties that are included in such a study.
    We find that failing to include controls for local labor market 
conditions creates a bias toward finding disemployment effects that are 
not there. This problem plagues dozens of studies, including almost all 
of those of David Neumark and William Wascher. When we include such 
controls, we do find evidence that minimum wages increase actual wages, 
but no evidence that they reduce employment.
    In a followup paper (Dube, Lester and Reich 2012), my colleagues 
and I examine, for the first time with U.S. data, the effects of 
minimum wages on rates of employee hires and separations. This study 
thus looks at worker flows in and out of jobs. We find that minimum 
wages have large negative effects on both types of worker flows. In 
other words, employers now have an easier time recruiting and retaining 
their workforce. This makes sense, given the large frictions--costs of 
recruitment and retention--among high-turnover low wage employers.\4\
---------------------------------------------------------------------------
    \4\ Our emphasis on the importance of local controls has been 
recently criticized by Neumark, Salas and Wascher (2013). However, as 
our newest paper (Allegretto et al. 2013) thoroughly documents, our 
further examination of this question and even their own results show 
that local controls are indeed valid and that their proposed new 
methods are incorrect.
---------------------------------------------------------------------------
                       4. summary and conclusions
    This whirlwind review of minimum wage effects since 1938 confirms 
President Roosevelt's view that the FLSA was both far-reaching and far-
sighted. Minimum wage policy helped to eliminate the downward pattern 
of money wages in the 1930s, thereby removing one of the forces that 
had deepened and prolonged the Great Depression. In the immediate 
postwar decades, minimum wage increases were important in creating 
shared prosperity. In more recent decades, minimum wages have not kept 
up with inflation, but they nonetheless have increased low-wage 
workers' pay without creating negative employment effects.
    I do not have here the space to discuss studies that have examined 
its other major effects, such as on poverty and pay inequality. Suffice 
it to say that careful studies show that the minimum wage reduces both 
(Dube 2013; Autor, Manning and Smith 2010).
    A recent poll of high-ranking economists in all fields showed that 
a significant plurality now support minimum wage increases.\5\ Put 
together with other polling studies, it seems clear that economists as 
a group, who were once more likely to oppose minimum wages, are now 
much more likely to support minimum wage increases.
---------------------------------------------------------------------------
    \5\ http://www.igmchicago.org/igm-economic-experts-panel/poll-
results?SurveyID=SV_br0IEq
5a9E77NMV.
---------------------------------------------------------------------------
    The Great Recession and the subsequent weak job market recovery 
have eliminated and endangered millions of middle-class jobs. In this 
new era, young workers can no longer count so much on minimum wage jobs 
as stepping stones into middle-class careers. And middle-class workers 
are increasingly looking at minimum wage rates as key reference points 
for their own level of economic security. This new context makes the 
case for minimum wage increases as compelling as ever.

                               References

Allegretto, Sylvia, Arindrajit Dube, Michael Reich and Ben Zipperer. 
    ``Credible Research Designs for Minimum Wage Studies.'' Working 
    Paper 1480-13. University of California Berkeley. Institute for 
    Research on Labor and Employment. http://www.irle.berkeley.edu/
    workingpapers/148-13.pdf.
Autor, David, Alan Manning and Christopher Smith 2010. ``The 
    Contribution of the Minimum Wage to U.S. Wage Inequality over Three 
    Decades. A Reassessment.'' Working Paper 3279. Department of 
    Economics, MIT.
Brown, Charles 1999. ``Minimum Wages, Employment, and the Distribution 
    of Income.'' Pp. 2101-216 in Orley Ashenfelter and David Card eds. 
    Handbook of Labor Economics v. 3B. Amsterdam: Elsevier.
Brown, Charles, Curtis Gilroy and Andrew Kohen 1982. ``The Effects of 
    the Minimum Wage on Employment and Unemployment.'' Journal of 
    Economic Literature 20: 487-528.
Dube, Arindrajit 2013. ``Statement to the U.S. Senate Committee on 
    Health, Education, Labor, and Pensions.'' March 14.
Gordon, Kenneth 1981. ``The Impact of Minimum Wages on Private 
    Household Workers.'' Pp. 191-209 in Simon Rottenberg, ed. The 
    Economics of Legal Minimum Wages. Washington, DC. American 
    Enterprise Institute.
NELP 2012. ``The Low-Wage Recovery and Growing Inequality.'' Data 
    Brief. http://www.nelp.org/page/-/Job_Creation/
    LowWageRecovery2012.pdf?nocdn=1.
Neumark, David and William Wascher 2008. Minimum Wages. Cambridge, MA: 
    MIT Press.
Neumark, David, Ian Salas and William Wascher 2013. ``Revisiting the 
    Minimum Wage and Employment Debate: Throwing out the Baby with the 
    Bathwater?'' NBER Working Paper 18681.
Seltzer, Andrew 2002. ``Monopsony and Minimum Wages: Historical 
    Evidence from the Tobacco Leaf-Processing Industry.'' Essays in 
    Economic and Business History 20: 167-81.
Stigler, George 1946. ``The Economics of Minimum Wage Legislation.'' 
    American Economic Review 36, 3: 358-65.
Welch, Finis 1973. ``Minimum Wage Legislation in the United States.'' 
    http://www.rand.org/content/dam/rand/pubs/papers/2008/P5145.pdf.
Wright, Gavin 1986. Old South, New South. New York: Basic Books.
Wright, Gavin 2013. Sharing the Prize: The Economics of the Civil 
    Rights Revolution. Cambridge, MA: Harvard University Press.
    
   [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] 
    
    
    Notes. State means and variances calculated using annual State 
minimum wage data over 1990-2012. The shading on the maps partitions 
the States into above- and below-median values.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
    Notes. A: Red and blue colored counties indicate cross-State border 
county pairs. Counties colored red are part of pairs with minimum wage 
variation between the counties at some point in time in the sample. 
Darker shades indicate balanced sample. Balanced sample are those 
counties with employment and earnings information for all quarters, 
1990-2010. Unbalanced sample includes those with limited information 
during that period. B: Red and blue colored counties constitute cross-
State commuting zones. Counties colored red are part of commuting zones 
with minimum wage variation within the commuting zone at some point in 
time in the sample.

    The Chairman. Thank you, Dr. Reich.
    Bishop Blaire, welcome and please proceed.

  STATEMENT OF THE MOST REVEREND STEPHEN E. BLAIRE, BISHOP OF 
  STOCKTON, CHAIRMAN, COMMITTEE ON DOMESTIC JUSTICE AND HUMAN 
 DEVELOPMENT, U.S. CONFERENCE OF CATHOLIC BISHOPS, STOCKTON, CA

    Bishop Blaire. Thank you. Good afternoon, everyone. 
Chairman Harkin, Ranking Member Alexander, and members of the 
committee, on behalf of the U.S. Conference of Catholic 
Bishops, I thank you for the invitation to address you today. I 
am pleased to be here today to commemorate the Fair Labor 
Standards Act.
    For the Catholic Bishops of the United States, advocating a 
just minimum wage is foundational. I was reminded today about 
Monsignor John Ryan, who was very instrumental in gaining 
support and crafting and the passage of the Fair Labor 
Standards Act.
    Every time that Congress or an administration has suggested 
raising the minimum wage, the bishops have been supportive 
simply because it is consistent with our teaching, and we see 
the effects firsthand in the families of our parishioners and 
in our own communities. I am not an economist, but rather a 
pastor and a teacher concerned with the protection of human 
life and dignity. I will not speak to the specifics of 
policies, but rather to the conditions that must emerge to make 
these policies just.
    A just wage is a moral issue. For me, it is also personal. 
My own father, after being a widower twice in life and raising 
11 children, remarried at the age of 59. At the age of 70, he 
was compelled to re-enter the workforce to keep food on the 
table for his wife and three children of which I was one. So 
after a lifetime of professional work and then retirement, he 
had to work again until he was 80 packing groceries. And 
without this job, we would not have had enough to eat or a roof 
over our heads.
    The church teaches that human labor has an inherent 
dignity, so wages gained from work should affirm that dignity. 
A just wage confirms the dignity of the worker. And, 
conversely, a wage that does not even allow a worker to meet 
basic needs demeans human dignity. That means the worker 
becomes just another commodity.
    Mr. Chairman and members of the committee, wages must also 
support families. If families are the fundamental seed of 
society, then decent jobs with just wages are the water that 
allows them to grow. Work should be a ladder out of poverty for 
families. It should not trap them in poverty. Yet this is where 
we find ourselves today, with a growing number of working 
families struggling to survive.
    Our diocese of Stockton in the San Joaquin Valley of 
central California includes some of the deepest and most 
pervasive poverty in our country. Every day, I see working 
families struggling to survive. What do they pay for this 
month, school clothes for the kids or gasoline to get to work, 
fresh produce for a healthy diet or the rent? No family should 
be faced with such extreme choices. And while they are grateful 
for community or government support, they do not want to rely 
on the generosity of others. They want to be self-sufficient.
    Employers have a moral obligation to pay a just wage, and 
the government has an obligation to ensure it. One of the great 
challenges of business leaders today is to bring moral values 
and ethics into the business world, so that the economy truly 
serves the person. Businesses certainly need to be profitable, 
but that profit must not come at the expense of workers.
    Catholic teaching has always endorsed the potential 
benefits and freedoms of a market economy. But it also points 
out that the considerable energies and powers of the market 
shall not go unchecked and must protect human life and dignity 
while advancing the common good. Setting a just minimum wage is 
merely one way the government has acted to do that.
    To conclude, I am increasingly concerned with the growing 
scourge of inequality. Americans believe we already have an 
intolerable level of inequality and would like to live in a 
more equal society. Addressing these severe imbalances will 
take a steadfast commitment on the part of everyone to placing 
the common good above self-interest.
    We can begin the process of fixing our economy by returning 
the workers to the center of economic life with decent jobs 
that pay decent wages. Increasing the minimum wage to a level 
that reflects the real economic reality faced by families is 
one way to draw a circle of protection around them and build a 
just economy.
    Thank you again, and I will welcome any questions you may 
have.
    [The prepared statement of Bishop Blaire follows:]

       Prepared Statement of the Most Reverend Stephen E. Blaire

    Chairman Harkin, Ranking Member Alexander, and members of the 
committee, on behalf of the United States Conference of Catholic 
Bishops (USCCB), I thank you for the invitation to address you today. I 
am Stephen Blaire, Bishop of the Catholic Diocese of Stockton, CA and 
Chairman of the Committee on Domestic Justice and Human Development at 
the United States Conference of Catholic Bishops.
    We are here today to celebrate the 75th anniversary of the Fair 
Labor Standards Act, signed in 1938, which codified for the first time 
a national minimum wage and other important worker protections, and all 
but eliminated child labor. It is very appropriate that we undertake 
this discussion in the current economic and political climate. I will 
address later the bishops' support for the Fair Labor Standards Act and 
subsequent efforts to raise the minimum wage, but here I will mention 
that the support is rooted in Pope Leo XIII's seminal encyclical Rerum 
Novarum, which stated that a worker's wages, to be just and consistent 
with human dignity, must be sufficient to support a family in comfort 
and even leave some for savings.\1\
---------------------------------------------------------------------------
    \1\ Pope Leo XIII, Rerum Novarum, 46, 1891. Available: http://
www.vatican.va/holy_father/leo_xiii/encyclicals/documents/hf_l-
xiii_enc_15051891_rerum-novarum_en.html.
---------------------------------------------------------------------------
    I testify before you today not as an economist, a statistician, or 
a labor market expert, but rather as a pastor and teacher concerned 
with human development and the protection of human dignity. I will not 
speak to the specifics of policies, but rather to the conditions that 
must emerge in society and in the family to make those policies just.
    A just wage is a moral issue; however for me it is also a personal 
one. After being a widower twice in life and raising 11 children, my 
father in 1939 remarried at the age of 59. Eleven years later, at the 
age of 70, he was compelled by economic factors to re-enter the 
workforce to keep food on the table for his wife and three children, of 
which I was one. After a lifetime of professional work and retirement, 
he worked again until he was 80 packing groceries. Without this job we 
would not have had enough to eat or a roof over our heads as a family, 
and when he died there would have been no Social Security benefits 
earned for the surviving family.
    Five years into a desperately slow economic recovery, deep economic 
problems persist:

     Over 4 million people have been jobless for over 6 months, 
and that does not include the millions more who have simply given up 
looking for work;
     The gap between unemployed/underemployed job seekers and 
open positions is extraordinary: for every available job, there are as 
many as five people vying for it; \2\
---------------------------------------------------------------------------
    \2\ Determined by taking the amount of unemployed persons plus the 
amount of persons involuntarily working part-time in April 2013 
(Available: http://www.bls.gov/news.release/archives/
empsit_05032013.pdf) and dividing by the number of job openings 
(Available: http://www.bls.gov/news.release/pdf/jolts.pdf). All data 
from the Bureau of Labor Statistics.
---------------------------------------------------------------------------
     Millions of families live with anxiety and uncertainty as 
they cope with stagnant or falling wages, forcing them to take second 
or third jobs and even forcing some teenage children into the workforce 
prematurely to help support the family;
     Half of the jobs in this country pay less than $27,000 a 
year,\3\ and
---------------------------------------------------------------------------
    \3\ Social Security Administration, Wage Statistics for 2011, 2013, 
Available: http://www.ssa.gov/cgi-bin/netcomp.cgi?year=2011.
---------------------------------------------------------------------------
     Poverty remains high: there are over 46 million people 
living in poverty, 16 million of them children. In other words, over 
one in five children in our country lives in poverty.\4\
---------------------------------------------------------------------------
    \4\ United States Census Bureau, Income, Poverty, and Health 
Insurance Coverage in the United States: 2011, 2012. Available: http://
www.census.gov/prod/2012pubs/p60-243.pdf.

    The causes of poverty and our broken economy are many, but as Pope 
---------------------------------------------------------------------------
John Paul II noted in Laborem Exercens:

           . . . human work is a key, probably the essential key, to 
        the whole social question, if we try to see that question 
        really from the point of view of man's good. And if the 
        solution--or rather the gradual solution--of the social 
        question, which keeps coming up and becomes ever more complex, 
        must be sought in the direction of ``making life more human,'' 
        then the key, namely human work, acquires fundamental and 
        decisive importance.\5\
---------------------------------------------------------------------------
    \5\ Pope John Paul II, Laborem Exercens, 3, 1981. Available: http:/
/www.vatican.va/holy_father/john_paul_ii/encyclicals/documents/hf_jp-
ii_enc_14091981_laborem-exercens_en.html.

    In other words, if we are going to fix the American economy, then a 
---------------------------------------------------------------------------
discussion of workers' wages is a good place to start.

    Work has an inherent dignity, so just wages gained from work 
support that dignity. Insufficient wages violate it.

    Mr. Chairman, the Church has a rich tradition on human labor rooted 
in the belief that work has an inherent dignity. The new bishop of 
Rome, Pope Francis, recently remarked that

          ``[w]ork, to use a metaphor, `anoints' us with dignity, fills 
        us with dignity, makes us similar to God, who has worked and 
        still works, who always acts; it gives one the ability to 
        maintain oneself, one's family, to contribute to the growth of 
        one's own nation.'' \6\
---------------------------------------------------------------------------
    \6\ Pope Francis, ``General Audience,'' May 1, 2013. Available: 
http://www.vatican.va/holy_father/francesco/audiences/2013/documents/
papa-francesco_20130501_udienza-gener
ale_en.html.

    Hence the importance of the worker's wage: since work has an 
inherent dignity, then there must be little doubt that wages are more 
than a mere product of the economy. A just wage confirms the dignity of 
the worker. And conversely, a wage that does not even allow a worker to 
support a family or meet basic human needs tears her down and demeans 
her dignity. The worker becomes just another commodity.
    I think this is the type of situation Pope Francis was talking 
about when he said earlier this month:

          ``Man is not in charge today, money is in charge, money 
        rules. God our Father did not give the task of caring for the 
        earth to money, but to us, to men and women: we have this task! 
        Instead, men and women are sacrificed to the idols of profit 
        and consumption: it is the `culture of waste.' If you break a 
        computer it is a tragedy, but poverty, the needs, the dramas of 
        so many people end up becoming the norm.\7\
---------------------------------------------------------------------------
    \7\ Pope Francis, ``General Audience,'' June 5, 2013. Available: 
http://en.radiovaticana.va/news/2013/06/05/
pope_at_audience:_counter_a_culture_of_waste_with_solidarity/en1-
698604.

    The Working Poor Families Project recently reported that in 2011 
there were 10.4 million low-income working families.\8\ \9\ Those 
families include 23.5 million children. Work should be a ladder out of 
poverty for families, it should not trap them in poverty. Yet this is 
where we find ourselves--a growing number of families are working but 
do not make enough to live in dignity. It is a scandal that the richest 
country in the world has allowed over 23 million children in working 
poor families to become the norm. These families struggle to provide 
their children with the adequate nutrition, school supplies, clothes, 
and security they need for their educational, social, and emotional 
development. I am sure members of the committee will agree that we must 
not tolerate so many children living under such circumstances.
---------------------------------------------------------------------------
    \8\ The Working Poor Families Project, ``Low-Income Working 
Families: The Growing Economic Gap,'' 2012. Available: http://
www.workingpoorfamilies.org/wp-content/uploads/2013/01/Winter-
2012_2013-WPFP-Data-Brief.pdf.
    \9\ This report defines ``working poor'' as 200 percent of the 
Federal poverty level, or $45,622 for a family of four.
---------------------------------------------------------------------------
    Many of these low-income workers have to rely on charity or the 
safety net to supplement their wages in order to meet basic needs. For 
example, as you know funding for the Supplemental Nutrition Assistance 
Program (SNAP, formerly known as food stamps) is currently being 
debated. Many people do not know that the majority of SNAP households 
with a capable, working-age adult are working. The percentage goes up 
in households with children. It is not difficult to identify the 
problem here: unjust wages. If Congress is concerned with rising costs 
in the SNAP program, Congress should raise the wages of those working 
families, so they can afford food on their own.

    The family is the fundamental unit of society, and work is the 
principal means by which families gain the resources to form and 
sustain themselves.

    The importance of the family for individual human development on 
all levels has been well established. It is in and among our family 
that we learn to love and accept love, forgive and be forgiven, argue 
and reconcile--we learn how to interact with each other as humans.
    In a certain sense, the family is organized around work. Without 
the remuneration that comes from our work, humans would not have the 
resources to form or sustain families. It was true two thousand years 
ago with the family that lived in Nazareth; it was true in 1891 at the 
time of Pope Leo XIII; and it is as apparent as ever now. If families 
are the fundamental seed of society, then decent jobs with just wages 
are the water that allows them to grow.
    Our diocese of Stockton, in the San Joaquin Valley of Central 
California, includes some of the deepest and most pervasive poverty in 
our country. Every day, I see families struggling to survive under the 
weight of too little food and too many bills. What do they pay for this 
month--school clothes for the kids or gasoline to get to work? Fresh 
produce for healthy diets or the rent? No family should be faced with 
such extreme choices.
    So it is not just a lack of work that creates this pressure, but 
for many it is a lack of decent wages. Many if not most of the families 
I encounter with these problems have an income, but it is not enough to 
support them. Mom works at the supermarket. Dad has two jobs as a short 
order cook. And the people who are unemployed are desperate for work. 
Many families I encounter in this position, although they are grateful 
for the support of food pantries, donation centers, and the government, 
do not want to rely on the generosity of others. They want to be self-
sufficient.

    Employers have a moral obligation to pay a just wage . . .

    Catholic teaching has long recognized that everyone and all 
institutions in an economy have an obligation to protect human life and 
dignity, and advance the common good. As the Catholic bishops have 
pointed out,

          ``We judge any economic system by what it does for and to 
        people and by how it permits all to participate in it. The 
        economy should serve people, not the other way around.'' \10\
---------------------------------------------------------------------------
    \10\ United States Conference of Catholic Bishops, Economic Justice 
for All, 13, 1986. Available: http://www.usccb.org/upload/
economic_justice_for_all.pdf.

    A vital piece of the conversation that I believe has been missing 
---------------------------------------------------------------------------
is the obligation of employers to pay just wages. The Church teaches:

          A just wage is the legitimate fruit of work. To refuse or 
        withhold it can be a grave injustice. In determining fair pay 
        both the needs and the contributions of each person must be 
        taken into account.

                  ``Remuneration for work should guarantee man the 
                opportunity to provide a dignified livelihood for 
                himself and his family on the material, social, 
                cultural, and spiritual level, taking into account the 
                role and the productivity of each, the state of the 
                business, and the common good.''

          Agreement between the parties is not sufficient to justify 
        morally the amount to be received in wages.\11\
---------------------------------------------------------------------------
    \11\ Libreria Editrice Vaticana, Catechism of the Catholic Church, 
2434, 1992. Available: http://www.usccb.org / beliefs- and- teachings / 
what- we-believe / catechism / catechism- of- the- catholic- church/
epub/index.cfm#.

    Unfortunately, too many families are forced to work two or more 
jobs just to make enough money to purchase basic needs. Possibly this 
is because the current minimum wage yields an annual salary of about 
$15,080. This amount is below the poverty level for any size family 
that includes even one child, according to the Census Bureau.\12\ When 
the minimum wage does not even permit a family to raise a child, it has 
failed to guarantee a worker ``the opportunity to provide a dignified 
livelihood for himself and his family.'' This is unacceptable.
---------------------------------------------------------------------------
    \12\ United States Census Bureau, Income, Poverty, and Health 
Insurance Coverage in the United States: 2011, p. 49. 2012. Available: 
http://www.census.gov/prod/2012pubs/p60-243.pdf.
---------------------------------------------------------------------------
    Private enterprises, at their best, create decent jobs, contribute 
to the common good, and pay wages that help workers form and nurture 
families. Some businesses, unfortunately, chase profits and success at 
the expense of workers' dignity and, in the most tragic cases--as we 
have seen recently in Bangladesh, Texas, Arizona, and Louisiana--their 
lives. Business leaders, who have been given much and have a legitimate 
vocation, must fight the urge to live a

          ``divided life. . . . Dividing the demands of one's faith 
        from one's work in business is a fundamental error which 
        contributes to much of the damage done by businesses in our 
        world today, including overwork to the detriment of family or 
        spiritual life. . . .'' \13\
---------------------------------------------------------------------------
    \13\ Pontifical Council for Justice and Peace, Vocation of the 
Business Leader, 10, 2011. Available: http://www.stthomas.edu/
cathstudies/cst/conferences/Logic%20of%20Gift%20Semina/Logicofgiftdoc/
FinalsoftproofVocati.pdf.

    One of the great challenges of business leaders today is to bring 
moral values and ethics into the business world, so that the economy 
truly serves the person. Businesses certainly need to be profitable for 
the economy to function properly, but that profit must not come at the 
---------------------------------------------------------------------------
expense of workers.

    The government has an obligation to ensure it.

    Mr. Chairman, I have been discouraged by those in Congress, with 
some notable exceptions, who seem to not have a real concern with the 
enduring decent jobs crisis in this country. There are some in Congress 
who seem to think our current situation is acceptable. While it is 
certainly the primary responsibility of employers to pay workers a just 
wage, it is proper for government to take steps to ensure this takes 
place. Catholic teaching has always endorsed the potential benefits and 
freedoms of a market economy. It also points out that the considerable 
energies and powers of the market shall not go unchecked, and must 
always be oriented toward protecting human life and dignity, and 
advancing the common good.
    Blessed John XXIII wrote about the obligation of the State:

          As for the State, its whole raison d'etre is the realization 
        of the common good in the temporal order. It cannot, therefore, 
        hold aloof from economic matters. On the contrary, it must do 
        all in its power to promote the production of a sufficient 
        supply of material goods, ``the use of which is necessary for 
        the practice of virtue.'' It has also the duty to protect the 
        rights of all its people, and particularly of its weaker 
        members, the workers, women and children. It can never be right 
        for the State to shirk its obligation of working actively for 
        the betterment of the condition of the working man.\14\
---------------------------------------------------------------------------
    \14\ Pope John XXIII, Mater et Magistra, 20, 1961. Available: 
http://www.vatican.va/holy_father/john_xxiii/encyclicals/documents/
hf_j-xxiii_enc_15051961_mater_en.html.

    Setting a just minimum wage is merely one way government has 
historically acted to protect the dignity of the worker, encourage 
---------------------------------------------------------------------------
family formation, and ensure children have access to basic human needs.

    The Catholic Church has been a consistent and vocal supporter of 
just wages, in teaching and in action.

    Mr. Chairman, I am pleased to be here to commemorate the 75th 
anniversary of the Fair Labor Standards Act (FLSA) because of its 
central importance in the history of protecting worker rights in this 
country. FLSA was a vital step in acknowledging the dignity of the 
worker, and it dovetailed with the established Church teaching on 
workers.
    In 1891, when Pope Leo XIII wrote Rerum Novarum in the context of 
the Industrial Revolution, his ``central theme [was] the just ordering 
of society.'' \15\ He established the necessity to safeguard the 
dignity of the worker, the moral imperative of a just wage, and the 
vital role of the government to assuring this. These principles of Leo 
have been affirmed and expanded by succeeding popes, the conference of 
Catholic bishops here in the United States and bishops around the 
world, and has been raised up in multiple forms by influential Catholic 
thinkers.
---------------------------------------------------------------------------
    \15\ Pontifical Council for Justice and Peace, Compendium of the 
Social Doctrine of the Church, 89, 2004. Available: http://
www.vatican.va/roman_curia/pontifical_councils/justpeace/documents/
rc_pc_justpeace_doc_20060526_compendio-dott-soc_en.html.
---------------------------------------------------------------------------
    In 1919 the National Catholic War Council, a precursor to our 
current USCCB, issued its recommendations for rebuilding America after 
World War I in its ``Program for Social Reconstruction.'' In it, the 
bishops unequivocally supported a living wage, saying:

          ``. . . a living wage is not necessarily the full measure of 
        justice. All the Catholic authorities on the subject explicitly 
        declare that this is only the minimum of justice. . . . Since 
        our industrial resources and instrumentalities are sufficient 
        to provide more than a living wage for a very large proportion 
        of the workers, why should we acquiesce in a theory which 
        denies them this measure of the comforts of life? Such a policy 
        is not only of very questionable morality, but is unsound 
        economically.''\16\
---------------------------------------------------------------------------
    \16\ Administrative Committee of the National Catholic War Council, 
Social Reconstruction: A General Review of the Problems and Survey of 
the Remedies, p. 14, 1919.

    For the Catholic bishops of the United States, advocating a just 
minimum wage is foundational. Every time Congress or an Administration 
has suggested raising the minimum wage, the bishops have been 
supportive simply because it is consistent with our teaching and we see 
the effects firsthand in the families of our parishioners and our own 
---------------------------------------------------------------------------
communities.

    The Church will continue to be on the side of workers and their 
families in the struggle to build a just and fair economy.

    Mr. Chairman, to conclude, I am increasingly concerned with the 
growing scourge of inequality in our country. Recently, a study came 
out about Americans' attitudes about inequality.\17\ The results were 
jarring: Americans believe we already have an intolerable level of 
inequality, and would like to live in a more equal society. The reality 
is much more severe than the perception, which makes our desired 
society even further away from the reality.
---------------------------------------------------------------------------
    \17\ Michael I. Norton and Dan Ariely, ``Building a Better 
America--One Wealth Quintile at a Time,'' Perspectives on Psychological 
Science 6 (2011).
---------------------------------------------------------------------------
    Pope Emeritus Benedict XVI, in Caritas in Veritate, gave us a very 
clear measure of a just economy:

          The dignity of the individual and the demands of justice 
        require, particularly today, that economic choices do not cause 
        disparities in wealth to increase in an excessive and morally 
        unacceptable manner, and that we continue to prioritize the 
        goal of access to steady employment for everyone. . . . Through 
        the systemic increase of social inequality . . . not only does 
        social cohesion suffer, thereby placing democracy at risk, but 
        so too does the economy, through the progressive erosion of 
        ``social capital'': the network of relationships of trust, 
        dependability, and respect for the rules, all of which are 
        indispensable for any form of civil coexistence.\18\
---------------------------------------------------------------------------
    \18\ Pope Benedict XVI, Caritas in Veritate, 32, 2009. Available: 
http://www.vatican.va/holy_father/benedict_xvi/encyclicals/documents/
hf_ben-xvi_enc_20090629_caritas-in-veri
tate_en.html.

    He could have been speaking about the United States. In recent 
decades, gains from economic growth have been spread very unevenly. 
Last year, the Congressional Budget Office reported that over the past 
30 years, the average income of the wealthiest 1 percent has increased 
275 percent. The income of the poorest 20 percent among us increased, 
on average, by less than 20 percent.\19\ Most recently, the disparity 
has grown more extreme. Over the last 2 years, median household income 
has flatlined for the poorest workers, but for the middle class it has 
actually gone down.\20\
---------------------------------------------------------------------------
    \19\ Congressional Budget Office, Trends in the Distribution of 
Household Income Between 1979 and 2007, 2011. Available: http://
www.cbo.gov/publication/42729.
    \20\ Lowrey, Annie, ``Incomes Flat in Recovery, but not for the 
1%,'' New York Times, February 15, 2013. Available: http://
www.nytimes.com/2013/02/16/business/economy/income-gains-after-
recession-went-mostly-to-top-1.html.

    Mr. Chairman, these severe imbalances are not inevitable, but the 
solutions are varied, numerous, and complicated. Addressing what ails 
our economy will take patience, persistence, and a steadfast commitment 
on the part of everyone to placing the common good above self-interest.
    We can begin the process of fixing our economy by returning the 
worker to the center of economic life. One of the best ways to do that 
is with decent jobs that pay just wages, thereby honoring human dignity 
and restoring hope to workers and families. Increasing the minimum wage 
to a level that reflects the real economic reality faced by families 
today would go far in building an economy worthy of the humans that 
operate in it.

    The Chairman. Thank you very much, Bishop Blaire.
    Mr. Shelton, welcome and please proceed.

STATEMENT OF HILARY O. SHELTON, WASHINGTON BUREAU DIRECTOR AND 
     SENIOR VICE PRESIDENT FOR ADVOCACY AND POLICY, NAACP, 
                         WASHINGTON, DC

    Mr. Shelton. Thank you and good afternoon, Chairman Harkin, 
Ranking Member Alexander, and members of this esteemed 
committee, including our good friends, Senators Warren, Casey, 
and Murphy. I greatly appreciate being invited to testify 
before this storied panel to discuss the minimum wage, the Fair 
Labor Standards Act, and the impact these policies have had on 
communities of color, including African-Americans.
    I'd also like to thank you, Mr. Chairman, for all that you 
are doing and all that you have done to highlight the Fair 
Labor Standards Act, the minimum wage, and the need for 
legislation to increase the current minimum wage and index it 
to inflation.
    My name is Hilary Shelton. As you mentioned, I'm also 16 
years as the Director of the NAACP's Washington Bureau and 
Federal legislative and policy arm of the National Association 
for the Advancement of Colored People. Founded in 1909, the 
NAACP is our Nation's oldest, largest, and most widely 
recognized grass roots-based civil rights organization. We 
currently have more than 2,200 membership units across the 
Nation with members in every one of the 50 States.
    The NAACP strongly supports the Fair Minimum Wage Act, S. 
450 and H.R. 1010 in the 113th Congress. In order to fully 
understand our current position, let me begin by putting our 
support in a historical context.
    In 1932, when the Congress was first considering the Fair 
Labor Standards Act, Walter White was our association's 
executive director. He recognized the potential positive impact 
a minimum wage could have on racial and ethnic minority 
workers, especially African-Americans, and thus worked 
tirelessly to ensure that all workers were covered by key 
provisions in that act, including a 40-hour work week, 
mandatory overtime pay, and a minimum wage.
    In fact, Executive Director White strongly supported a 
version of FLSA which covered all workers. And while we were 
disappointed that the initial law did not cover agricultural 
and domestic workers, two areas which at the time were 
dominated by African-American laborers, in order to appease the 
segregationist element of the U.S. Senate, we were, 
nevertheless, pleased with the new law.
    Since that time, we have been strong supporters for 
increasing the minimum wage, expanding its reach, and tying it 
to inflation so not to get caught up in the whims of petty 
partisan politics. And while we are encouraged by the fact that 
the minimum wage has increased since its initial 25 cents an 
hour, we continue to fight to ensure that the buying power of 
the minimum wage keeps up with the cost of living in the United 
States and that minimum wage earners, by definition, hard-
working men and women, are able to keep their families out of 
poverty.
    Mr. Chairman, members of the committee, as you know, 
throughout the past 75 years, every time we debate increasing 
the minimum wage, we hear the argument that an increase in the 
minimum wage will result in a decrease in available jobs. Given 
the consistently high unemployment rate among African-
Americans, we take these arguments very seriously. The NAACP is 
very careful to not advocate for any policy which would 
contribute to a higher unemployment rate.
    What we have found, however, is that the opposite of this 
argument is actually true. When American workers have a higher 
income and more income security, they're likely to spend more, 
thus creating more jobs. In fact, the NAACP believes that the 
Fair Minimum Wage Act of 2013 would generate more than $32 
billion in new economic activity, translating into 140,000 new 
full-time jobs.
    Furthermore, although African-Americans make up just a 
little over 12 percent of the U.S. population, we are over 14 
percent of those who will see a much-needed increase in their 
salaries. Among those who will particularly benefit from an 
increase in the minimum wage are women of color. Women 
represent nearly two-thirds of the minimum wage workers across 
the country. Furthermore, African-American women were just 
under 13 percent of all employed women in 2012, but more than 
15 percent of women who made a minimum wage were African-
American.
    Given that more women of color are the primary breadwinners 
for their families than their Caucasian counterparts, the end 
result is the perpetuation of poverty among families of color. 
According to the 2011 census data, African-American women are 
the heads of their household almost 29 percent of the time, 
compared to white women, who are heads of their household less 
than 9 percent of the time.
    Furthermore, an increase in the minimum wage would have a 
tremendous impact on children as well, given that the majority 
of African-American children nationwide, 54 percent, are being 
raised by single mothers. An African-American woman who works 
full-time year-round at the current minimum wage earns just 
$14,500 annually. That's nearly $3,600 below the Federal 
poverty line for a mother with two children. The NAACP will 
continue to advocate for policies that we strongly believe will 
help working African-Americans and, indeed, all Americans who 
work, such as the Fair Minimum Wage Act.
    In closing, Mr. Chairman, I'd like to thank you again for 
your courage and your leadership on this issue. The NAACP 
stands strongly in support of your legislation, the Fair 
Minimum Wage Act, S. 450, and I stand ready to answer your 
questions. I look forward to that dialog.
    [The prepared statement of Mr. Shelton follows:]

                Prepared Statement of Hilary O. Shelton

    Good afternoon, Chairman Harkin and Ranking Member Alexander and 
members of this esteemed committee. I greatly appreciate being invited 
to testify before this storied panel to discuss the minimum wage, the 
Fair Labor Standards Act, and the impact these polices have had on 
communities of color, specifically African-Americans. I would also like 
to thank you, Mr. Chairman, for all that you are doing and all that you 
have done to highlight the impact of the Fair Labor Standards Act, and 
the Minimum Wage on American workers, and the need for legislation to 
increase the current minimum wage and index it to inflation.
    My name is Hilary Shelton, and I am the director of the NAACP 
Washington Bureau and the senior vice president for Policy and 
Advocacy. Founded more than 104 years ago, in 1909, the National 
Association for the Advancement of Colored People, the NAACP, is our 
Nation's oldest, largest, and most widely recognized grassroots-based 
civil rights organization. We currently have more than 2,200 membership 
units across the Nation, with members in every one of the 50 States. 
For almost 16 years now, I have been the director of the NAACP 
Washington Bureau, our Association's Federal legislative and political 
advocacy arm.
    The NAACP currently strongly supports The Fair Minimum Wage Act, S. 
450/H.R. 1010 in the 113th Congress.
    But in order to fully understand our current position, let me begin 
by putting our support in historical context.
    When the Congress was considering the Fair Labor Standards Act 
(FSLA) in the mid-1930s, Walter White was our association's executive 
director. Walter White recognized the potential positive impact a 
minimum wage could have on racial and ethnic minority workers, 
especially African-Americans, and thus worked tirelessly to ensure that 
all workers were covered by the key provisions of that Act--a 44-hour 
work week; protections against child labor; overtime protections; and a 
minimum wage.
    A review of NAACP archives shows that during congressional 
consideration of various ``New Deal'' legislative proposals, the NAACP 
spent considerable time and energy expanding our legislative advocacy 
efforts to ensure that proposals such as the FSLA and the National 
Recovery Act did not contain provisions which would prevent the 
benefits of the new laws from reaching African-Americans.\1\ In fact, 
White strongly supported a version of the FLSA which covered all 
workers, and while we were very disappointed with the fact that the 
initial law did not cover agricultural or domestic workers--two areas 
which at the time were dominated by African-American laborers--we were 
nevertheless pleased with enactment of this law.
---------------------------------------------------------------------------
    \1\ Bracey, Jr., John H. & Meler, August, general editors, Papers 
of the NAACP part 10 Peonage, Labor and the New Deal, 1913-39. 
University Publications of America, pp. vii-viii.
---------------------------------------------------------------------------
    Continued advocacy efforts by the NAACP on behalf of African-
American workers, including the strengthening and expansion of the FSLA 
and stronger labor laws, led to the creation of the NAACP Washington 
Bureau in 1941 with the first director, Clarence Mitchell, who had 
previously worked for the Federal Fair Employment Practice Committee.
    Since that time, we have been strong supporters of increasing the 
minimum wage and expanding its reach. As early on as 1945, we testified 
before the House Labor Committee in support of increasing the minimum 
wage to 75 cents per hour.
    The original minimum wage, which was signed into law 75 years ago 
today, was 25 cents per hour. While I am pleased to report that the 
minimum wage has increased substantially since then, we are continuing 
to fight battles to ensure that the buying power of the minimum wage 
keeps up with the cost of living in the United States, and that minimum 
wage earners, who by definition are working men and women, are able to 
keep their families out of poverty.
    I should be very clear: throughout the past 75 years, every time we 
have had a debate about increasing the minimum wage, we hear the 
argument that an increase in the minimum wage will result in a decrease 
in available jobs. Given the consistently high unemployment rate among 
African-Americans, we take this argument very seriously. We at the 
NAACP are very careful to not advocate for any policy which would 
contribute to higher unemployment rates. What we have found, however, 
is that the opposite of this argument is true: when American workers 
have a higher income, and more income security, they are likely to 
spend more, thus creating more jobs. And while I understand that 
another one of my colleagues will be testifying at length on this 
issue, suffice it to say that the NAACP has never found an increase in 
the minimum wage to lead to higher unemployment. In fact, as written, 
the NAACP believes that the Fair Minimum Wage Act of 2013 would 
generate more than $32 billion in new economic activity, translating to 
140,000 new full-time jobs as higher sales lead businesses to hire more 
employees.
    As I said earlier, the NAACP has consistently been a strong 
advocate for an increase in the minimum wage, which in turn will lead 
to greater economic security for millions of Americans, a 
disproportionate number of whom are African-American. While African-
Americans have made great strides in terms of opening doors and making 
our way up the employment ladder to better paying jobs, we are 
nevertheless still overrepresented in the area of minimum wage workers. 
African-Americans and other people of color are disproportionately 
represented among low-wage workers with African-Americans making up 
approximately 14.1 percent of those working jobs that earn a minimum 
wage compared to being approximately 12 percent of the U.S. 
population.\2\
---------------------------------------------------------------------------
    \2\ Mishel, Lawrence, Economic Policy Institute, ``Declining value 
of the federal minimum wage is a major factor driving inequality,'' 
February 21, 2013.
---------------------------------------------------------------------------
    The minimum wage needs to be increased: what started as 25 cents an 
hour is now $7.25 an hour. Yet if it were to keep up with inflation 
over the past 40 years alone, it would be $10.69 per hour. Contrary to 
stereotypes, low-wage workers whose pay scales are affected by the 
minimum wage are overwhelmingly adults, many who support families. 
According to the Bureau of Labor Statistics, three quarters of minimum 
wage earners are 20 years of age or older. The percentage is even 
higher for low-wage workers earning $9.00 or $10.00 per hour, whose pay 
scales would rise if the minimum wage were restored to its historical 
level. In fact, the median worker age is close to 40 for home health 
care workers, one of the Nation's top-growth low-wage occupations. 
Especially after the recent economic hardships faced by most in the 
Nation, more and more Americans are spending their careers in low-wage 
jobs where the minimum wage helps set pay scales.
    Among those who would particularly benefit from an increase in the 
minimum wage are women of color. In 2012, more than 7 percent of 
African-American women and 8 percent of Hispanic women worked in jobs 
that paid at or below the Federal minimum wage, such as home health 
aides, maids and housekeepers, and servers, compared to less than 4 
percent of white men.
    Given that more women of color are the primary breadwinners for 
their families than their Caucasian counterparts, the end result is the 
perpetuation of poverty among families of color. According to the 2011 
Census data, African-American women are the heads of their households 
almost 29 percent of the time, compared to White women, who are the 
heads of their households less than 9 percent of the time.\3\
---------------------------------------------------------------------------
    \3\ Found at http://www.census.gov/population/race/data/ppl-
ba11.html.
---------------------------------------------------------------------------
    An increase in the minimum wage has a tremendous impact on children 
as well, given that the majority of African-American children 
nationwide--54 percent--are being raised by single mothers. In 2011, an 
African-American or a Hispanic woman working full-time, year round who 
was a relatively low-wage earner (at or below the 25th percentile) for 
her ethnic group and gender did not earn enough to bring a family of 
four above the Federal Poverty Level.\4\
---------------------------------------------------------------------------
    \4\ National Women's Law Center: ``Closing the Wage Gap: How 
Raising the Minimum Wage Promotes Fair Pay for Women'' June 3, 2013.
---------------------------------------------------------------------------
    A higher minimum wage would disproportionately help women: They 
constitute a majority (54.5 percent) of those who would benefit, 
greater than their 48.3 percent share of the workforce. The vast 
majority (87.9 percent) of those who would be affected by the higher 
minimum wage are age 20 or over; thus, it is clear the increase would 
not mainly benefit teenagers. Similarly, single parents would 
disproportionately benefit from a higher minimum wage: 10.4 percent of 
those who would be affected are single parents, higher than their 7.5 
percent share of the workforce.\5\
---------------------------------------------------------------------------
    \5\ Ibid.
---------------------------------------------------------------------------
    Mr. Chairman, members of this committee, there exists today an 
unacceptable wealth gap which currently exists between races: a 2011 
study by the Pew Foundation showed that wealth in White households 
exceeds that of Hispanic households by a staggering 18 to 1 ratio and 
by a completely unacceptable 20 to 1 for African-American 
households.\6\ We as a nation and a society can and must do better. The 
NAACP will continue to advocate for policies that we strongly believe 
in as helping working African-Americans, and indeed all Americans who 
work, rise out of poverty, including the Fair Minimum Wage Act.
---------------------------------------------------------------------------
    \6\ Paul Taylor et al., Twenty to One: Wealth Gaps Rise to Record 
Highs Between Whites, Blacks and Hispanics (Washington, DC: Pew 
Research Center Social and Demographic Trends, 2011).
---------------------------------------------------------------------------
    Mr. Chairman, members of the committee, I thank you again for 
inviting me to testify before you today. It has been an honor. I 
welcome any questions you may have about the NAACP's long-standing 
support for the FLSA or the minimum wage or the Fair Minimum Wage Act.

    The Chairman. Thank you very much, Mr. Shelton.
    And now we'll turn to Mr. Sherk.

   STATEMENT OF JAMES SHERK, SENIOR POLICY ANALYST IN LABOR 
         ECONOMICS, HERITAGE FOUNDATION, WASHINGTON, DC

    Mr. Sherk. Chairman Harkin, Ranking Member Alexander, and 
members of the committee, thank you for inviting me to testify. 
My name is James Sherk, and I'm a senior policy analyst in 
Labor Economics at the Heritage Foundation. The views expressed 
in this testimony, however, are my own and are not an official 
position of the Heritage Foundation.
    This afternoon, I want to explain to you why minimum wage 
increases often hurt disadvantaged workers and do not alleviate 
poverty. The minimum wage does not help its intended 
beneficiaries for several reasons.
    The first reason is that it reduces job opportunities. One 
of economics most well-established findings is that higher 
prices cause people to buy less. This applies to businesses 
hiring workers, too. No enterprise will pay its employees more 
than the value of what they produce. American Samoa's recent 
experience illustrates this fact.
    The U.S. territory's average income is one-fifth of the 
mainland United States, and the tuna canning industry dominates 
its private sector. Until recently, American Samoa had its own 
minimum wage. However, Congress applied the 2007 increase to it 
as well, gradually raising its minimum wage to the Federal 
rate. This was the economic equivalent of raising the U.S. 
minimum to about $20 an hour.
    In May 2009, the Samoan minimum wage was increased to $4.76 
an hour, only part way through the scheduled increase. But it 
now covered two-thirds of the workers in the island's two tuna 
canneries. This did not boost the Samoan economy. Instead, one 
cannery laid off workers, cut benefits, and froze hiring. The 
other closed entirely. Samoan unemployment went from 5 percent 
to 36 percent. Real wages fell by 11 percent.
    American Samoa's Democratic Governor, Togiola Tulafona, 
begged Congress to stop raising the minimum wage, when he said,

          ``We are watching our economy burn down. Our job 
        market is being torched. Our businesses are being 
        depressed. Our hope for growth has been driven away. 
        How much does our government expect us to suffer?''

    Congress hurt the very workers it intended to help.
    Now, the U.S. minimum wage applies to far fewer workers, 
and so it has far less dramatic effects. But the large majority 
of economic studies find that it costs jobs among the workers 
it applies to.
    The second reason is that the minimum wage causes employers 
to replace adult employees with teenagers, making it harder for 
inexperienced adults to gain skills. Higher minimum wages draw 
more workers with outside support, like suburban teenagers, 
into the labor market. As they apply for job openings, they 
crowd out lower-income adults. Research shows that minimum wage 
hikes have larger effects on adult employment than on total 
employment.
    Even the studies that conclude that the minimum wage does 
not reduce total employment, like David Card's in the 1990s, 
find employers substitute teenage workers for adults. 
Researchers at Boston University found that an increase 
covering one-fifth of restaurant workers would increase the 
odds that a high school student got hired at a restaurant 
instead of an adult by 25 percent.
    This effect makes it harder for disadvantaged adults to 
gain the skills necessary to rise out of poverty, because 
minimum wage jobs are entry level positions. They provide new 
workers with skills and experience that make them more 
productive and enable them to command higher pay in the future.
    Over half of American workers once made within a dollar of 
the minimum wage, but few stayed there for long. Two-thirds of 
minimum wage workers earn a raise within a year. These are 
learning wage jobs, an important first rung on many workers' 
career ladders. Adults who did not acquire these skills earlier 
particularly need access to this first rung if they are to 
advance. Raising the minimum wage crowds them out of this 
opportunity.
    The third reason is that the minimum wage provides little 
financial benefit to poor families. In part, this happens 
because few minimum wage workers live in poor families. But the 
deeper reason is that the structure of America's social 
assistance programs deprives low-income workers of the fruits 
of their labors.
    We have many overlapping programs that assist the poor, and 
they phase out as income rises. However, the government has not 
coordinated the phase-outs, so poor families face effective 
confiscatory tax rates as they lose benefits from multiple 
programs at once.
    A poor family generally benefits if the head of the 
household starts working and takes a full-time minimum wage 
job. But earnings beyond that level produce little additional 
net financial benefit until their earnings exceed 150 percent 
of the poverty level.
    Urban Institute calculations showed that a single parent 
with one child, working a minimum wage job full-time, faces an 
effective marginal tax rate of 91 percent. That same parent 
with two children would face a tax rate of 79 percent. And in 
some States, a raise will cost poor families money. Not even 
French millionaires face these tax rates.
    Now, consider Patty Jones, a hypothetical unemployed single 
mother in Des Moines, offered a minimum wage job. The Urban 
Institute calculates that taking that full-time job raises her 
family's net monthly income by $700. However, a raise to $10.10 
an hour decreases her income by over $260. While she makes 
almost $500 more, she will lose $71 in EITC refunds, pay $37 
more in payroll taxes, and $45 more in State income taxes. She 
also loses $88 in SNAP benefits and $528 in child care 
subsidies. She would be better off without the raise.
    Minimum wage increases make it more difficult for 
disadvantaged adults to find jobs and gain experience. But the 
poor workers who do benefit from the jobs actually see little 
net income gain. A better way to reduce poverty would be to 
restructure aid programs to reduce the disincentives to work. 
Few Americans at any income level would work longer hours when 
facing tax rates exceeding 50 percent.
    Thank you. I appreciate the opportunity to explain that the 
minimum wage often hurts disadvantaged workers and does not 
alleviate poverty.
    [The prepared statement of Mr. Sherk follows:]

                   Prepared Statement of James Sherk

    Chairman Harkin, Ranking Member Alexander, and members of the HELP 
Committee, thank you for inviting me to testify this afternoon. My name 
is James Sherk. I am a senior policy analyst in Labor Economics at The 
Heritage Foundation. The views I express in this testimony are my own, 
and should not be construed as representing any official position of 
The Heritage Foundation.
    Supporters of the minimum wage intend it to lift low-income 
families out of poverty. Unfortunately, despite these good intentions, 
the minimum wage has proved ineffective at doing so. Indeed, it often 
holds back many of the workers its proponents want to help. Higher 
minimum wages both reduce overall employment and encourage relatively 
affluent workers to enter the labor force. Minimum wage increases often 
lead to employers replacing disadvantaged adults who need a job with 
suburban teenagers who do not.
    This can have long-term consequences. Minimum wage positions are 
typically learning wage positions--they enable workers to gain the 
skills necessary to become more productive on the job. As workers 
become more productive they command higher pay and move up their career 
ladder. Two-thirds of minimum wage workers earn a raise within a year. 
Raising the minimum wage makes such entry-level positions less 
available, in effect sawing off the bottom rung of many workers' career 
ladders. This hurts these workers' career prospects.
    Even if minimum wage workers do not lose their job, the overlapping 
and uncoordinated design of U.S. welfare programs prevents those in 
need from benefiting from higher wages. As their income rises they lose 
Federal tax credits and assistance. These benefit losses offset most of 
the wage increase. A single mother with one child faces an effective 
marginal tax rate of 91 percent when her pay rises from $7.25 to $10.10 
an hour. Studies also find higher minimum wages do not reduce poverty 
rates. Despite the best of intentions, the minimum wage has proved an 
ineffective--and often counterproductive--policy in the war on poverty.
    Congress could do more to help low-income families by restructuring 
and coordinating welfare programs and their associated phase-out rates. 
No one in America--and especially not low-income workers--should face 
tax rates in excess of 50 percent.
                      history of the minimum wage
    Congress instituted the minimum wage in 1938 as part of the Fair 
Labor Standards Act (FLSA). The first minimum wage stood at 25 cents an 
hour. The last minimum wage increase occurred in 2007, when Congress 
raised the rate in steps from $5.15 an hour that year to $7.25 an hour 
in July 2009. The District of Columbia and 19 States have also 
established local minimum wages higher than the Federal rate. The 
highest State minimum wage in the country occurs in Washington State at 
$9.19 an hour. The average minimum wage in the U.S.--including higher 
State rates--currently stands at $7.57 an hour.\1\
---------------------------------------------------------------------------
    \1\ Heritage Foundation calculations using data on State minimum 
wage rates from the Department of Labor, Wage and Hour Division. The 
figure is a weighted average, where the weights are each State's 
respective share of hourly employees in the United States.
---------------------------------------------------------------------------
    Over the past 65 years the minimum wage has varied considerably in 
inflation-adjusted buying power. It has averaged $6.60 an hour in 
purchasing power in 2013 dollars. But it has ranged from a low of $3.09 
an hour in late 1948 to a high of $8.67 an hour in 1968.\2\ Today's 
minimum wage buys somewhat more than the minimum wage has historically, 
although it remains over a dollar an hour below its historical high.\3\
---------------------------------------------------------------------------
    \2\ Source: Heritage Foundation calculations using data from the 
Department of Labor, Wage and Hour Division. Inflation adjusted using 
the Personal Consumption Expenditures (PCE) price index.
    \3\ Analysis inflation adjusting historical minimum wage rates with 
the Consumer Price Index (CPI) will report higher real rates. The CPI 
estimates higher inflation than the PCE index and other chained 
measures of inflation do. This results in a larger upwards to 
historical rates to account for inflation. Using the CPI the minimum 
wage stood at $10.60 an hour in 1968. However, economists widely agree 
that the Laspreyes fixed-basket methodology the CPI utilizes produces 
less accurate estimates than a chained-index methodology. Consequently 
this paper uses the PCE index to adjust for past inflation. See for 
example Clinton McCully, Brian Moyer, and Kenneth Stewart, 
``Reconciliation between the Consumer Price Index and the Personal 
Consumption Expenditures Price Index,'' Bureau of Economic Analysis 
Papers, September 2007.


[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Congress typically raises the minimum wage only during times of 
healthy economic growth and low unemployment. In 1990, Congress enacted 
a minimum wage hike that took effect on April 1 of that year, when 
unemployment stood at 5.4 percent. Congress voted to raise the minimum 
wage again in August 1996--when unemployment stood at 5.1 percent. The 
next vote to raise the minimum wage occurred in May 2007, when 
unemployment stood at 4.4 percent.\4\ Congress has not voted to raise 
the minimum wage when unemployment stood above 7.5 percent since the 
Great Depression ended.\5\
---------------------------------------------------------------------------
    \4\ Department of Labor, Bureau of Labor Statistics, '``The 
Employment Situation,'' April 1990, August 1996, May 2007.
    \5\ Although the economy has slipped into recessions after minimum 
wage increases (such as in 2007), these contractions were not expected 
when Congress voted.
---------------------------------------------------------------------------
                      who earns the minimum wage?
    Stereotypes of minimum wage earners range from teenagers holding 
summer jobs to single mothers struggling to support their family. 
Bureau of Labor Statistics (BLS) data sheds light on who actually makes 
the minimum wage.
    Relatively few Americans do so. In 2011 and 2012, 3.7 million 
Americans reported earning $7.25 or less per hour--just 2.9 percent of 
all workers in the United States.\6\ \7\ \8\ Those who do work in 
minimum-wage jobs fall into two distinct categories: young workers, 
usually in school, and older workers who have left school. Most 
minimum-wage earners fall into the first category; just over half are 
between the ages of 16 and 24.\9\ The rest are 25 or older. Table 1 
shows the characteristics of minimum wage workers overall, and broken 
down by age groups.
---------------------------------------------------------------------------
    \6\ Heritage Foundation analysis of data from the Current 
Population Survey (CPS). The Census Bureau and Bureau of Labor 
Statistics jointly conduct the CPS. All numbers, except average family 
income and poverty status, come from analysis of the 2011 and 2012 
Merged Outgoing Rotation Group (MORG) file of the CPS. Minimum-wage 
earners were defined as hourly employees paid $7.25 an hour or less. 
Poverty and family income statistics come from the March supplement to 
the 2011 and 2012 CPS data. Data available for download at http://
thedataweb.rm.census.gov/ftp/cps_ftp.html and https://cps.ipums.org/
cps/.
    \7\ The 2.9 percent figure includes both salaried and hourly 
employees. Approximately 5 percent of hourly employees get paid the 
Federal minimum wage.
    \8\ These numbers include workers who also earn tip income. Many of 
those earning less than the minimum wage work in restaurants and make 
more than the minimum wage after taking tips into account.
    \9\ 50.5 percent of minimum wage earners are between the ages of 16 
and 24.

                          Table 1.--Demographic Characteristics of Minimum-Wage Workers
----------------------------------------------------------------------------------------------------------------
                                                                                   Minimum-wage employees
                                                                  All     --------------------------------------
                                                               Employees       All       Age 16-24     Age 25+
----------------------------------------------------------------------------------------------------------------
Female......................................................          48%          63%          60%          67%
White.......................................................          80%          78%          80%          76%
Black.......................................................          13%          15%          14%          17%
Asian.......................................................           4%           3%           2%           4%
Married.....................................................          47%          23%           5%          41%
 
Wage and Income Characteristics:
  Working Part Time.........................................          19%          67%          79%          54%
  Average Family Income.....................................      $79,534      $53,113      $65,896      $42,462
  At or Below Poverty Line..................................           6%          23%          22%          24%
  Above 150 percent of the Poverty Line.....................          89%          65%          68%          62%
 
Educational Attainment:
  Less than High School.....................................           8%          28%          34%          22%
  High School Graduate......................................          27%          30%          23%          37%
  Some College..............................................          28%          34%          40%          29%
  Bachelor's Degree.........................................          23%           6%           3%          10%
  Graduate Degree...........................................          13%           1%           0%           2%
----------------------------------------------------------------------------------------------------------------
 Source: Heritage Foundation calculations based on data from U.S. Census Bureau, Current Population Survey
  (CPS), 2011 and 2012 monthly surveys. Poverty and family income data are from the March Supplement to the 2011
  and 2012 CPS. Minimum wage workers are those who report hourly earnings of $7.25 an hour or less.

    Minimum-wage workers under 25 are typically not their family's sole 
breadwinners. Rather, they tend to live in middle-class households that 
do not rely on their earnings--their average family income exceeds 
$65,000 a year. Generally, they have not finished their schooling and 
are working part-time jobs. Over three-fifths of them (62 percent) are 
currently enrolled in school.\10\ Only 22 percent live at or below the 
poverty line, while two-thirds live in families with incomes exceeding 
150 percent of the poverty line. These workers represent the largest 
group that would benefit directly from a higher minimum wage, provided 
they kept or could find a job.
---------------------------------------------------------------------------
    \10\ Heritage Foundation calculations using the 2011 and 2012 
Current Population Survey. The months of June, July, and August were 
excluded to avoid conflating summer breaks with non-enrollment.
---------------------------------------------------------------------------
    Adults who earn the minimum wage are less likely to live in middle- 
and upper-income families. Nonetheless, three-fourths of older workers 
earning the minimum wage live above the poverty line. They have an 
average family income of $42,500 a year, well above the poverty line of 
$23,050 per year for a family of four. Most (54 percent) of them choose 
to work part-time, and two-fifths are married.
    Many advocates of raising the minimum wage argue it will help low-
income single parents surviving on it as their only source of income. 
Minimum-wage workers, however, do not fit this stereotype. Just 4 
percent of minimum-wage workers are single parents working full-time, 
compared to 5.6 percent of all U.S. workers.\11\ Minimum-wage earners 
are actually less likely to be single parents working full-time than 
the average American worker.
---------------------------------------------------------------------------
    \11\ Heritage Foundation analysis of data from the Current 
Population Survey (CPS). A single parent is defined as someone who 
reports that he or she has one or more of his or her own children 
present in the household and who is widowed, divorced, separated, or 
never married. Full-time employees are classified as those working 35 
or more hours a week.
---------------------------------------------------------------------------
    Though some minimum-wage workers do struggle with poverty, they are 
not representative of the typical worker in minimum-wage jobs. The data 
simply does not support the stereotype of minimum-wage workers living 
on the edge of destitution.
                        learning wage positions
    Most minimum wage jobs are entry-level positions filled by workers 
with limited education and experience. As Table 1 shows, almost three-
fifths of minimum wage workers have no more than a high school 
education. They work for the minimum wage because they currently lack 
the productivity to command higher pay.
    Minimum-wage jobs give these workers experience and teach them 
essential job skills. Sometimes these skills are unique to an 
individual job, such as how to operate a particular piece of equipment. 
More often they pertain to general employability: the discipline of 
waking up early to go to work each day, learning how to interact with 
customers and coworkers, how to accept direction from a boss. These 
skills are essential to getting ahead in the workplace, but difficult 
to learn without actual on-the-job experience.
    Once workers gain these skills they become more productive, and 
most quickly earn raises. Over two-thirds of workers starting out at 
the minimum wage earn more than that a year later.\12\ Minimum-wage 
jobs are learning wage jobs--they teach inexperienced employees skills 
that make them more productive. They are the first step on many 
workers' career ladders.
---------------------------------------------------------------------------
    \12\ David Macpherson and William Even, ``Wage Growth Among Minimum 
Wage Workers,'' Employment Policies Institute, June 2004, p. 3-5, at 
www.epionline.org/studies/macpherson
_06-2004.pdf.
---------------------------------------------------------------------------
    While very few Americans currently work for the minimum wage, a 
substantial number once did so. Over half of Americans started their 
careers making within $1 of the minimum wage.\13\ Most quickly get 
promoted as their productivity increases.
---------------------------------------------------------------------------
    \13\ William Carrington and Bruce Fallick, ``Do Some Workers Have 
Minimum Wage Careers,'' Monthly Labor Review, May 2001, pp. 17-27, 
Table 2.
---------------------------------------------------------------------------
    Workers have a say in how quickly they get promoted. Most minimum-
wage earners work part time, and many are students and young adults who 
desire this flexibility. But minimum-wage workers who choose to work 
longer hours gain more skills and experience than those who work part-
time and, as expected, earn larger raises. A typical minimum-wage 
employee who works 35 hours or more a week is 13 percentage points more 
likely to be promoted within a year than is a minimum-wage worker 
putting in fewer than 10 hours per week.\14\
---------------------------------------------------------------------------
    \14\ Macpherson and Even, ``Wage Growth Among Minimum Wage 
Workers,'' pp. 8-11.
---------------------------------------------------------------------------
    The notion that workers are trapped earning $7.25 an hour for much 
of their working lives is mistaken and ignores the primary value of 
minimum-wage jobs. Their importance lies not so much in the low wages 
they pay in the present, but in making workers more productive so they 
can command higher pay in the future.
                 labor demand falls as prices increase
    One of the central premises of economics is that ``demand curves 
slope downwards''--when prices rise people buy less of a good or 
service. When gasoline becomes more expensive Americans drive less, and 
when it becomes less costly Americans drive more. The same applies to 
business owners. When the price of goods or services they use in 
production rises, they buy less of them. This includes labor costs--
when wages rise employers hire fewer workers. Economists estimate the 
long-run elasticity of labor demand in the U.S. economy at around ^0.3. 
\15\ In other words, a 10 percent increase in labor costs causes 
employers to cut their workforce by 3 percent. Higher compensation 
costs without corresponding increases in productivity cause employers 
to hire fewer workers.
---------------------------------------------------------------------------
    \15\ Daniel S. Hamermesh, Labor Demand (Princeton, N.J.: Princeton 
University Press, 1993).
---------------------------------------------------------------------------
    This finding applies to employers of both highly skilled and 
unskilled workers.\16\ Employers will not pay a worker more than their 
productive value to a firm. Businesses that do so quickly go out of 
businesses.
---------------------------------------------------------------------------
    \16\ Although studies typically find workers with greater skills 
have a smaller elasticity of demand.
---------------------------------------------------------------------------
                             american samoa
    The recent experience of American Samoa dramatically illustrates 
how wage increases reduce employment. The tiny Pacific island chain has 
been an American territory for over a century. However, American 
Samoans have a largely separate economy and considerably lower incomes 
than residents of the continental United States: the average Samoan 
worker made $12,000 in 2009.\17\ The tuna canning industry makes up a 
significant portion of their private sector.
---------------------------------------------------------------------------
    \17\ Government Accountability Office, American Samoa and the 
Commonwealth of the Northern Mariana Islands: Employment, Earnings, and 
Status of Key Industries Since Minimum Wage Increases Began, Report No. 
GAO-11-427, June 2011, Figure 11.
---------------------------------------------------------------------------
    Until recently American Samoa had a different minimum wage schedule 
than the continental United States. A committee within the Department 
of Labor set Samoan wage minimums according to local economic 
conditions. In January 2007 the minimum wage in the canning industry 
stood at $3.26 an hour. Unfortunately for American Samoa, Congress 
applied the 2007 Federal minimum wage increase to the territory. The 
legislation aligned the Samoan minimum wage with the U.S. rate of $7.25 
an hour in 50 cent annual increments.\18\
---------------------------------------------------------------------------
    \18\ Ibid., Table 4.
---------------------------------------------------------------------------
    Almost every hourly worker in the tuna canning industry makes less 
than $7.25 an hour.\19\ At that level the minimum wage would cover 80 
percent of the islands' hourly workers.\20\ This would be the economic 
equivalent of raising the minimum wage to $20.00 an hour in the 
continental United States.\21\
---------------------------------------------------------------------------
    \19\ Government Accountability Office, American Samoa and the 
Commonwealth of the Northern Mariana Islands, p. 63.
    \20\ U.S. Department of Labor, Impact of Increased Minimum Wages on 
the Economies of American Samoa and the Commonwealth of the Northern 
Mariana Islands, January 2008.
    \21\ Heritage Foundation calculations using data from the Outgoing 
Rotation Groups of the 2012 monthly current population survey. $20.00 
an hour is the 80th percentile for workers paid hourly wages.
---------------------------------------------------------------------------
    By May 2009 the third scheduled minimum wage increase in Samoa took 
effect, rising to $4.76 an hour and covering 69 percent of canning 
workers. This did not increase purchasing power, stimulate demand, and 
raise living standards, as many minimum wage proponents theorize. 
Instead StarKist--one of the two canneries then located in Samoa--laid 
off workers, cut hours and benefits, and froze hiring.\22\ The other 
cannery--Chicken of the Sea--shut down entirely in September 2009.\23\
---------------------------------------------------------------------------
    \22\ Government Accountability Office, American Samoa and the 
Commonwealth of the Northern Mariana Islands p. 63.
    \23\ Ibid., p. 40.
---------------------------------------------------------------------------
    The Government Accountability Office reports that between 2006 and 
2009 overall employment in American Samoa fell 14 percent and 
inflation-adjusted wages fell 11 percent. Employment in the tuna 
canning industry fell 55 percent.\24\ The GAO attributed much of these 
economic losses to the minimum wage hike.
---------------------------------------------------------------------------
    \24\ Ibid., Table 2.
---------------------------------------------------------------------------
    The Democratic Governor of American Samoa, Togiola Tulafona, 
harshly criticized this GAO report for understating the damage done by 
the minimum wage hike. Testifying before Congress Governor Tulafona 
objected that ``this GAO report does not adequately, succinctly or 
clearly convey the magnitude of the worsening economic disaster in 
American Samoa that has resulted primarily from the imposition of the 
2007 U.S. minimum wage mandate.'' \25\ Governor Tulafona pointed out 
that American Samoa's unemployment rate jumped from 5 percent before 
the last minimum wage hike to over 35 percent in 2009.\26\ He begged 
Congress to stop increasing the islands' minimum wage:
---------------------------------------------------------------------------
    \25\ Testimony of American Samoa Governor Togiola Tulafona before 
the Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs of 
the Committee on Natural Resources, U.S. House of Representatives, 
September 23, 2011. Opening statement available online at http://
americansamoa.gov/index.php/news-bottom/30-gov-togiola-tells-u-s-
congress-minimum-wage-increase-will-destroy-as-economy.
    \26\ Ibid., Written Testimony, Table 3.

          ``We are watching our economy burn down. We know what to do 
        to stop it. We need to bring the aggressive wage costs decreed 
        by the Federal Government under control. But we are ordered not 
        to interfere . . . Our job market is being torched. Our 
        businesses are being depressed. Our hope for growth has been 
        driven away . . . Our question is this: How much does our 
        government expect us to suffer, until we have to stand up for 
        our survival.'' \27\
---------------------------------------------------------------------------
    \27\ Ibid., opening statement.

    Samoan employers responded to higher labor costs the way economic 
theory predicts: by hiring fewer workers. Congress hurt the very 
workers it intended to help. Fortunately, Congress heeded the 
Governor's plea and suspended the future scheduled minimum wage 
increases.
                    minimum wage employment effects
    Virtually no economist doubts that raising the minimum wage to 
$20.00 an hour in the mainland United States would have similar 
consequences. Economists only debate the consequences of small minimum 
wage increases.
    In part this is because, at current rates, the minimum wage affects 
very few workers, so it has relatively small effects on the overall 
economy. Even groups considered highly affected by the minimum wage 
have few minimum-wage workers overall. Just one-fifth of teenagers and 
restaurant employees work for the Federal minimum wage.\28\ Raising the 
minimum wage by $1.00 an hour--as many States have done--has little 
effect on most workers, even most teenagers. Consequently, a moderate 
increase in the minimum wage will have only small effects on the U.S. 
economy. It affects too few workers to have a larger impact. A law 
eliminating a tenth of minimum-wage jobs would raise overall 
unemployment by less than 0.3 percentage point. \29\ Congress should 
not conflate small effects with no effect. The minimum wage does hurt 
the prospects of the relatively small number of workers it covers.
---------------------------------------------------------------------------
    \28\ Department of Labor, Bureau of Labor Statistics, 
``Characteristics of Minimum Wage Workers--2012,'' Tables 1 and 4, at 
http://www.bls.gov/cps/minwage2012tbls.htm.
    \29\ The increase in unemployed would probably be less--many of 
these workers, especially teenagers and college students, would 
probably drop out of the labor market altogether and no longer count as 
unemployed.
---------------------------------------------------------------------------
    Until the mid-1990s, labor economists had a consensus that a 10 
percent increase in the minimum wage reduced employment of impacted 
groups (like teenagers) by about 2 percent.\30\ Research by David Card 
of the University of California-Berkeley challenged this 
conclusion.\31\ His research, focusing on case studies of States that 
raised the minimum wage and States that did not, concluded the minimum 
wage had no adverse effect on employment. This spurred an explosion of 
research on the topic. This research coincided with a significant 
number of States raising their minimum wages above the Federal level in 
the 1990s and 2000s. These State increases created far more case 
studies for economists to analyze and permitted panel studies utilizing 
variation in minimum wage rates across all U.S. States.
---------------------------------------------------------------------------
    \30\ Charles Brown, Curtis Gilroy, and Andrew Kohen, ``The Effect 
of the Minimum Wage on Employment and Unemployment,'' Journal of 
Economic Literature Vol. 20, No. 2 (June 1982), pp. 487-528.
    \31\ David Card and Alan Krueger. ``Minimum Wages and Employment: A 
Case Study of Fast-Food Industry in New Jersey and Pennsylvania,'' 
American Economic Review, Vol. 48, No. 4 (1994), pp. 772-93.
---------------------------------------------------------------------------
    Two-thirds of the studies in this ``new minimum wage research'' 
utilizing State variation in minimum wages came to the same conclusion 
that previous economists had: higher minimum wages reduce the 
employment of less-skilled workers.\32\ Among the most methodologically 
rigorous studies, 85 percent came to this conclusion.
---------------------------------------------------------------------------
    \32\ David Neumark and William Wascher, Minimum Wages (Cambridge, 
MA: The MIT Press, 2008).
---------------------------------------------------------------------------
    A recent line of papers by Michael Reich, Arindrajit Dube, and 
Sylvia Allegretto contest these findings.\33\ They argue that States 
that raised their minimum wage above the Federal level (typically in 
the Northeast and West Coast) have slower underlying employment growth 
than States that did not raise their minimum wage (typically in the 
South and Mountain West). They contend that studies finding negative 
employment effects conflate these pre-existing trends with the effects 
of higher minimum wages. They find that once researchers control for 
State or regional trends the negative relationship goes away. They then 
compared counties that border each other across a State line and 
concluded higher minimum wages have negligible employment effects on 
teenagers and restaurant employees.
---------------------------------------------------------------------------
    \33\ See for example Sylvia Allegretto, Arindrajit Dube, and 
Michael Reich, ``Spatial Heterogeneity and Minimum Wages: Employment 
Estimates for Teens Using Cross-State Commuting Zones,'' Berkeley, CA: 
Institute for Research on Labor and Employment, 2009; Sylvia 
Allegretto, Arindrajit Dube, and Michael Reich, ``Do Minimum Wages 
Really Reduce Teen Employment? Accounting for Heterogeneity and 
Selectivity in State Panel Data,'' Industrial Relations, Vol. 50, No. 
2, pp. 205-40; Arindrajit Dube, T. William Lester, and Michael Reich, 
``Minimum Wage Effects Across State Borders: Estimates Using Contiguous 
Counties,'' Review of Economics and Statistics, Vol. 92, No. 4 (2010), 
pp. 945-64.
---------------------------------------------------------------------------
    David Neumark of the University of California-Irvine and William 
Wascher of the Federal Reserve Board strongly dispute this 
critique.\34\ They show that the evidence for pre-existing trends 
biasing previous studies is weak. They demonstrate that it takes very 
specific controls to make the relationship between the minimum wage and 
job losses disappear. Using more general specifications favored by 
economists produces the standard conclusion that minimum wage increases 
cost jobs.
---------------------------------------------------------------------------
    \34\ David Neumark, Ian Salas, and William Wascher, ``Revisiting 
the Minimum Wage-Employment Debate: Throwing Out the Baby with the 
Bathwater?'' National Bureau of Economic Research Working Paper No. 
18681 (2013), http://www.nber.org/papers/w18681.
---------------------------------------------------------------------------
    Neumark and Wascher also argue that the many counties compared 
across State borders have very different economic climates. For 
example, Dube et al., compare urban Leon County in Florida (the home 
county of Tallahassee) with its population of 275,000 to rural Grady 
County, GA--population 25,000. Neumark and Wascher used statistical 
tests to analyze how closely the labor markets of these cross-border 
counties resemble each other. They find that among reasonable 
candidates for comparison, the cross-border counties ``appear no better 
than a random draw.'' \35\
---------------------------------------------------------------------------
    \35\ Ibid., pp. 27-28.
---------------------------------------------------------------------------
    They conclude that economists should look at data from all States, 
not just cross-border comparisons, and use standard specifications to 
control for pre-existing trends. Doing so produces the usual finding 
that minimum wage increases cost jobs. Raising the price of unskilled 
labor causes employers to hire fewer unskilled workers.
                   crowding out disadvantaged workers
    The minimum wage especially hurts disadvantaged workers' job 
prospects. Higher minimum wages encourage employers to replace less-
skilled workers with more productive employees. Given the choice 
between hiring an unskilled worker for $10.10 an hour and a worker with 
more experience for the same rate, companies will always choose the 
more experienced and productive employee.
    Higher minimum wages also make working in such jobs more 
attractive, drawing greater numbers of workers with outside sources of 
income into the labor market. Many suburban teenagers and college 
students enter the labor market when the minimum wage rises. As they 
apply for job openings they crowd out urban teenagers and disadvantaged 
adults who would have sought the jobs at the previous wages. Overall, 
the minimum wage reduces disadvantaged workers' employment much more 
than it reduces overall employment. It causes the very workers, minimum 
wage advocates most want to help, to have the greatest difficulty 
finding jobs.
    Empirical research consistently bears this out. One recent study 
examined administrative data from a large retail chain.\36\ When the 
minimum wage rose, the chain slightly reduced overall employment. 
Surprisingly, however, teenage employment rose in several stores. These 
teen employment gains came at the expense of larger job losses among 
adults. The composition of teenage employment also changed, with more 
teens coming from wealthier neighborhoods and fewer from low-income 
neighborhoods. The higher wages prompted many suburban teenagers to 
apply for work. They crowded many low-income adults and youth out of 
jobs.
---------------------------------------------------------------------------
    \36\ Laura Giuliano, ``Minimum Wage Effects on Employment, 
Substitution, and the Teenage Labor Supply: Evidence from Personnel 
Data,'' The Journal of Labor Economics, Vol. 31, No. 1 (January 2013), 
pp. 155-94.
---------------------------------------------------------------------------
    Another study examined how teenage employment and school enrollment 
changed after States raised their minimum wage.\37\ It found that when 
States raised their minimum wage, younger teens and those who had 
dropped out of school were more likely to become unemployed. At the 
same time, higher-skill teenagers were more likely get jobs. When they 
have to pay higher wages, businesses hire higher-skill workers, 
freezing the least productive workers out of the job market.
---------------------------------------------------------------------------
    \37\ David Neumark and William Wascher. ``The Effects of Minimum 
Wages on Teenage Employment and Enrollment: Evidence from Matched CPS 
Surveys,'' in Solomon Polchek, ed. Research in Labor Economics, Vol. 15 
(Greenwich, Conn.: JAI Press, 1996).
---------------------------------------------------------------------------
    Even studies that find the minimum wage has negligible overall 
employment effects find it decreases the employment of disadvantaged 
workers. Kevin Lang and Shulamit Kahn of Boston University examined how 
restaurant employment changed after minimum wage hikes in the late 
1980s and early 1990s.\38\ They found no evidence that the minimum wage 
reduced total restaurant employment, but they did find that it 
dramatically changed the mix of workers that restaurants hired. Teenage 
and student employment rose, while adult employment dropped.
---------------------------------------------------------------------------
    \38\ Kevin Lang and Shulamit Kahn, ``The Effect of Minimum-Wage 
Laws on the Distribution of Employment: Theory and Evidence,'' Journal 
of Public Economics, Vol. 69, No. 1 (July 1998), pp. 67-82.
---------------------------------------------------------------------------
    A higher minimum wage is great news for a high school student 
working part time to buy an iPhone. It hurts lower-skill adult workers 
who need work to support themselves and perhaps their families. Making 
entry-level jobs less available makes it harder for them to gain the 
skills and experience necessary to advance to better paying jobs. The 
minimum wage effectively saws off the first rung on their career 
ladder.
                 little benefit to families in poverty
    The minimum wage raises the pay of many workers at the cost of some 
jobs. A lot of advocates for minimum wage increases consider this a 
good tradeoff. They argue that the gains for the workers who benefit 
far outweigh the costs to those who lose out. For example, raising the 
minimum wage by 40 percent--from $7.25 an hour to $10.10 an hour--would 
cost roughly 8 percent of heavily affected worker groups their jobs 
(although losses would be larger among the most disadvantaged 
workers).\39\ At first glance this may seem like a good deal.
---------------------------------------------------------------------------
    \39\ This assumes an employment elasticity of ^0.2.
---------------------------------------------------------------------------
    However, this analysis ignores the way American tax and welfare 
programs claw back wage gains made by low-income workers. Congress has 
created many overlapping means-tested benefit programs: the 
supplemental nutrition assistance program (SNAP, formerly called food 
stamps), temporary assistance for needy families (TANF), the Earned 
Income Tax Credit (EITC), child-care subsidies, housing vouchers, and 
Women, Infants, and Children (WIC) benefits. The government also 
provides extensive in-kind health care benefits: Medicaid, SCHIP, and 
the soon to be operating health care exchange subsidies.
    These benefits phaseout at different rates as income rises. Earning 
an additional dollar of income reduces SNAP benefits by 24 cents. 
Workers in the EITC phase-out range lose 21 cents for each additional 
dollar they earn. Housing vouchers phaseout at a 30 percent rate. Low-
income workers must also pay payroll (15 percent) and income taxes (10-
15 percent) on each additional dollar of income. Medicaid operates with 
a cliff: when workers' incomes exceed a certain threshold, they lose 
all benefits.
    Congress did not coordinate these benefit phase-outs across 
programs. Consequently low-income workers can face very high effective 
tax rates as they lose benefits from multiple programs. Consider 
workers both losing SNAP benefits and landing in the EITC phaseout 
range. For each additional dollar they earn they pay 15 cents in 
additional payroll taxes, 15 cents in income taxes, an average of 5 
cents in State income taxes, as well as losing 21 cents of their EITC 
benefit and forgoing 24 cents of SNAP benefits--an effective marginal 
tax rate of 80 percent. Each extra dollar earned increases their net 
income by only 20 cents. Not even millionaires pay such high tax rates.
    The Congressional Budget Office studied this issue in a report 
released last year.\40\ It found that a single parent with one child 
earning between $15,000 to $25,000 experiences almost no financial 
benefit from working additional hours or getting a raise.\41\ What they 
gain in market income they lose in reduced benefits, leaving them no 
better off.
---------------------------------------------------------------------------
    \40\ Congressional Budget Office, ``Effective Marginal Tax Rates 
for Low- and Moderate-Income Workers,'' November 2012, http://
www.cbo.gov/sites/default/files/cbofiles/attachments/11-15-2012-
MarginalTaxRates.pdf.
    \41\ Ibid., Summary Figure 1.
---------------------------------------------------------------------------
    The academic literature concludes that low-income families 
financially benefit when the head of the household enters the labor 
force and takes a job that pays near the poverty level. However, 
additional hours of work--or higher wages--beyond that generally 
produce little additional net benefit until earnings exceed 150 to 200 
percent of the poverty level.\42\
---------------------------------------------------------------------------
    \42\ Elaine Maag, C. Eugene Steuerle, Ritadhi Chakravarti, and 
Caleb Quakenbush, ``How Marginal Tax Rates Affect Families at Various 
Levels of Poverty,'' National Tax Journal, Vol. 65, No. 4 (December 
2012), pp 759-82.
---------------------------------------------------------------------------
    Unfortunately, minimum-wage workers with incomes below the poverty 
level fall into this earnings dead zone. A childless adult working 
full-time for the minimum wage earns $15,080 a year, above the poverty 
level for one person ($11,490). That adult (or a teenager) qualifies 
for relatively few Federal benefits. But a single parent working the 
same job would fall below the poverty level for either one ($15,510) or 
two ($19,530) children. That single parent qualifies for many means-
tested Federal benefits. If the Federal minimum wage rose to $10.10 an 
hour ($21,008 a year for a full-time job) benefit reductions would claw 
back the majority of his or her raise.
    Table 2 shows the effective marginal tax rates facing full-time 
workers in various family situations whose incomes rise from $7.25 an 
hour to $10.10 an hour. The figures come from the Urban Institute's Net 
Income Change Calculator. Some columns show the effective tax rates 
when workers participate in all programs for which they are eligible. 
Others show the tax rate when workers only participate in food stamps 
and pay their taxes. Note that these figures understate the effective 
marginal tax rates because they exclude the loss of health care 
benefits like Medicaid and SCHIP. Even without including health 
benefits, workers lose at least 50 percent of their benefits and in 
some cases much more.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Source: Urban Institute, Net Income Change Calculator, http://
nicc.urban.org/netincomecalculator/ (accessed June 20, 2013). Figures 
are based on the following assumptions: Individual works for 40 hours a 
week and their hourly wage increases from $7.25 per hour to $10.10 per 
hour. Parent has a child age 3 or two children ages 3 and 7. the parent 
pays $700 a month in child care expenses and $600 a month in rent. 
Program assumptions: Families participating in ``All Programs'' are 
assumed to pay State and Federal taxes, including EITC, and participate 
in Food Stamps/SNAP, TANF, available child-care subsidies, WIC, and 
housing vouchers. These programs exclude all health-related benefits, 
including Medicaid, SCHIP, and Obamacare exchange subsidies. Families 
participating in just SNAP are assumed to recieve food stamps and 
Earned Income Tax Credit payments, but otherwise not participate in any 
other State or Federal means-tested programs.

    Nationwide, the average single parent with one child who 
participates in all programs for which they are eligible faces an 
effective marginal tax rate of 91 percent. The same parent with two 
children faces an effective tax rate of 79 percent. In some States the 
raise would actually financially hurt families.
    Consider a Patty Jones, a hypothetical single mother in Des Moines, 
IA, who gets an offer for a job at minimum wage. \43\ If she goes from 
not working to working full-time, her monthly income rises from $1,146 
to $1,838. However, if she gets a raise to $10.10 an hour, her monthly 
income falls to $1,574. She loses over $260. While her market income 
rises by $494, she loses $71 in EITC refunds, pays $37 more in payroll 
taxes and $45 more in State income taxes. She also loses $88 in food 
stamp benefits and $528 in child-care subsidies. Patty would be better 
off without the raise.
---------------------------------------------------------------------------
    \43\ All assumptions are the same as for a single parent with one 
child as explained in the footnotes of Table 2.
---------------------------------------------------------------------------
    This system makes it very difficult to lift families out of poverty 
by raising the minimum wage. Higher minimum wages make it more 
difficult for disadvantaged adults to find jobs. This hurts their 
finances. However, for those living below the poverty line who keep 
their job, the raise provides little net benefit. Much or all of what 
they gain in higher pay gets clawed back as reduced benefits.
    College students and teenagers with jobs do benefit from a higher 
minimum wage; they have few government benefits to lose. But Congress 
does not raise the minimum wage to help teenagers buy jeans or iPhones. 
It does so to help families struggling below the poverty line. Current 
law makes it almost impossible to achieve that goal.
                          no effect on poverty
    Economic research further shows that raising the minimum wage does 
not reduce poverty.\44\ Economists have studied changes in aggregate 
State poverty rates when States raise their minimum wage. They have 
also examined micro-data on individual families' finances when the 
minimum wage changes. A study finds minimum wages reduce poverty.\45\ 
One other study finds the opposite result.\46\ But the overwhelming 
balance of recent research finds no effect of the minimum wage on 
poverty.\47\ Even David Card, a researcher celebrated by minimum wage 
advocates, comes to this conclusion.\48\
---------------------------------------------------------------------------
    \44\ Note that this does not follow directly from the preceding 
section. Poverty calculations exclude non-cash benefits like Medicaid, 
SNAP, and housing vouchers.
    \45\ John Addison and McKinley L. Blackburn, ``Minimum Wages and 
Poverty,'' Industrial and Labor Relations Review Vol. 52, No. 3 (1999), 
pp. 393-409.
    \46\ David Neumark, Mark Schweitzer, and William Wascher, ``The 
Effects of Minimum Wages on the Distribution of Family Incomes: A Non-
Parametric Analysis,'' Journal of Human Resources Vol. 40, No. 4 
(2005), pp. 867-94.
    \47\ Richard V. Burkhauser and Joseph J. Sabia, ``Minimum Wages and 
Poverty: Will a $9.50 Federal Minimum Wage Really Help the Working 
Poor?'' Southern Economic Journal, Vol. 77, No. 3 (January 2010); 
Richard Vedder and Lowell Gallaway, ``Does the Minimum Wage Reduce 
Poverty?'' Employment Policies Institute, June 2001; Jill Jenkins, 
``Minimum Wages: The Poor Are Not Winners,'' Employment Policy 
Foundation, January 12, 2000; Ronald B. Mincy, ``Raising the Minimum 
Wage: Effects on Family Poverty,'' Monthly Labor Review Vol. 113, No. 7 
(July 1990); Richard Burkhauser, and Joseph J. Sabia, 2007. `` The 
Effectiveness of Minimum Wage Increases in Reducing Poverty: Past, 
Present, and Future,'' Contemporary Economic Policy Vol. 25, No. 2 
(2007), pp. 262-81; Craig Gundersen, and James Patrick Ziliak, 2004. 
``Poverty and Macroeconomic Performance Across Space, Race, and Family 
Structure,'' Demography Vol. 41, No. 1 (2004), pp. 61-86; David 
Neumark, and William Wascher. 2002. ``Do Minimum Wages Fight Poverty?'' 
Economic Inquiry Vol. 40, No. 3(2002) pp. 315-33.
    \48\ David Card and Alan B. Krueger, Myth and Measurement: The New 
Economics of the Minimum Wage (Princeton, N.J.: Princeton University 
Press, 1995).
---------------------------------------------------------------------------
    This should come as a little surprise. Besides reducing job 
opportunities and the perverse structure of the welfare state, very few 
poor families have any minimum wage workers. Only 11 percent of the 
workers who would gain from raising the minimum wage to $9.50 an hour 
live at or below the poverty line.\49\
---------------------------------------------------------------------------
    \49\ Burkhauser and Sabia, ``Minimum Wages and Poverty: Will a 
$9.50 Federal Minimum Wage Really Help the Working Poor?''
---------------------------------------------------------------------------
    In fact, very few poor families have any full-time workers at all. 
Only 9 percent of adults living below the poverty line work full-time 
year round. One quarter work part-time. Two-thirds of adults living 
below the poverty line do not work at all.\50\ Raising the minimum wage 
hurts their job prospects but does nothing to increase their earnings--
they have none.
---------------------------------------------------------------------------
    \50\ U.S. Census Bureau, Historical Poverty Tables, Table 25, 
``Work Experience and Poverty Status for People 16 years Old and Over: 
1987-2011,'' at http://www.census.gov/hhes/www/poverty/data/historical/
hstpov25.xls.
---------------------------------------------------------------------------
    If Congress wants to reduce poverty it should focus on 
restructuring the welfare state to remove the current disincentives to 
work. For too many low-income families additional work does not pay. 
Few Americans at any income level would work longer hours when faced 
with a tax rate exceeding 50 percent.
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    Members of The Heritage Foundation staff testify as individuals 
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Foundation or its board of trustees.

    The Chairman. Thank you very much, Mr. Sherk.
    Thank you all for your testimonies. We'll start a round of 
5-minute questions.
    Mr. Reich, we'll start with you. We have conflicting 
studies here. Mr. Sherk mentioned some studies. My colleague 
from Tennessee mentioned studies earlier. If there are studies 
that show that raising the minimum wage costs jobs, what's 
wrong with those studies? Is there anything wrong with them, or 
have we just got two different studies that show different 
things? What is this?
    Mr. Reich. You make a very good point, Senator Harkin, 
namely, that there are studies and there are studies, just like 
there are--what is it--lies, damned lies, and statistics. The 
fact is--well, let me give you an example.
    I was interviewed a couple of months ago by a TV reporter 
from San Jose who said, ``You know, teen employment has gone 
way down in the last several years while the minimum wage went 
up''--I mean, in the period from 2007 to 2009. And I said, 
``Yes, but the economy went down the toilet. Don't you think 
that had a bigger effect than the minimum wage?'' So the key 
thing in these studies is to have the right controls, and 
econometrics has really advanced in the last several years. 
There's just a lot of bad studies out there.
    But newer methods really do show the negative biases in the 
older studies, and that's why our paper has been accepted and 
published in one of the top general economics journals, not in 
one of the third or fourth-tier journals; why the White House 
has several times, including this morning, went out of its way 
to refer to our studies as particularly compelling; and why a 
lead group of economists who were polled by the University of 
Chicago Business School a couple of months ago found that they 
favored by 4 to 1 the Harkin-Miller bill. This is a very big 
change in economists' thinking over previous years, and we 
didn't have as good methods.
    The Chairman. Is there anything succinctly that you can say 
or point to as to why some of these studies that Mr. Sherk 
mentioned are----
    Mr. Reich. States that have not had minimum wage increases 
have been growing faster than States that do, not because of 
the minimum wage. It can't have that big of an impact. They 
have been growing for many other reasons, like sunbelt States. 
And if you don't include for the kind of local controls in your 
studies, you're comparing States that are in very different 
economic circumstances.
    It's not a random assignment like we have in medical trials 
when we say, ``Well, this group is going to get the real drug, 
and the other half ''--and it's randomized which is getting the 
placebo. That's not the case in real life, in the minimum wage 
policy context.
    What we do is we get rid of all these--we call them 
preexisting effects, so we get a cleaner study. I think that's 
the new standard that econometrics allows us to follow. The 
intuitive comparison is these----
    The Chairman. If you raise the minimum wage, and you do it 
broadly--I mean, everybody has to pay it--raise everything up, 
so the competitive forces would be the same out in society.
    Mr. Reich. Yes, and that's another kind of point that a lot 
of business people--I've seen them testify many times at 
hearings in California. They'll say, ``Well, I'll go out of 
business if I have to pay the extra amount. Nobody will want to 
pay $20 for a hamburger.'' That might be the perspective from 
their own books. But you have to look in terms of the market as 
a whole.
    And from the point of view of how the labor will adjust, 
they're going to have an easier time finding workers. Their 
turnover is going to go down. It's possible their prices will 
go up a little bit, maybe 10 cents on a $10 entree, but that's 
not going to--that's how the economy absorbs minimum wage 
increases.
    The Chairman. Bishop Blaire, some people say that raising 
the minimum wage won't help the poor because most minimum wage 
workers aren't poor. In fact, Mr. Sherk said--and I wrote it 
down--few minimum wage workers live in poor families. Well, 
should a fair minimum wage be a part of a national effort to 
address poverty, then?
    Bishop Blaire. Of course, different data and different 
statistics are being presented here. I think our main argument 
is that there is an inherent dignity in work. And, therefore, 
when you work, you should be paid a just salary and 
compensation. Whether you're a teenager or 30 years old or 70 
years old, you deserve appropriate compensation and not to be 
exploited.
    I would say myself, because we are so deeply concerned 
about the conditions of poverty in the United States, and from 
my own experience, that people who live in poverty want to have 
enough of an income so that they don't have to depend on all 
these other resources from the government, and the more that 
they can be responsible for themselves. And while it is a small 
number of people at the present time who are at minimum wage or 
below minimum wage, when you raise the minimum wage, people's 
salaries will go up, and it will help people to address the 
issue of poverty.
    The Chairman. Thank you, Bishop Blaire. My time has well 
run out.
    Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman.
    Thanks to each of you for coming today.
    Mr. Sherk, let me ask you to elaborate on the comment that 
Senator Harkin asked about, that the minimum wage seems to have 
no effect on poverty. Are there other government programs that 
have more effect on relieving poverty than a proposal to raise 
the minimum wage?
    Mr. Sherk. Well, again, only about 11 percent of workers in 
households earning between the current minimum wage and $9.50 
an hour was in the paper that was recently published examining 
this. Only about 11 percent of the adults affected came from 
families at or below the poverty level. The vast majority of 
workers who would benefit from the minimum wage increase are 
not below the poverty line. So you can't reduce overall poverty 
if you're not benefiting the people who are poor.
    One of the huge problems we see facing low-income families 
is that there are very strong disincentives to work. If you're 
a single mother working 20 hours a week, and you're getting $8 
or $9 an hour, you could maybe work full-time hours, but your 
family income in many States is not going to increase. The 
example I gave from your State, Senator Harkin, were 
calculations from the Urban Institute, who also find this very 
concerning, that there are just very low incentives to 
additional work to gain experience.
    Now, it's very understandable that if you're a single 
mother, do you want to spend 20 hours more a week with your 
child or not? Well, the understandable response is going to be 
to want to spend more time with your family if you're not 
coming out any further ahead. But over the course of an entire 
career, that prevents them from getting the experience and the 
upward mobility.
    I think it would make a lot of sense--the earned income tax 
credit is a very good program. But we need to restructure the 
way we've designed these social assistance programs so that you 
don't have low-income families facing--only keeping, say, 10 
cents on the dollar, 20 cents on the dollar when they do more 
work. That's simply not fair for them. That's not a tax rate 
that any country even taxes millionaires at, and it prevents 
people from getting ahead.
    Senator Alexander. Mr. Sherk, let me pursue this just a 
little. Let's say that one would agree that in a rich society, 
which we relatively are, that wants to be just, that we would 
hope that individuals would have a certain standard of living. 
It strikes me that the fairest way to do that is for all of us 
to share in that responsibility rather than to impose that 
responsibility on the employer.
    And it seems to me that it's not only fairer, but it's more 
efficient to design government programs--for example, you've 
got the earned income tax credit, you've got supplemental 
nutrition, the food stamps, and you have a whole variety of 
government programs that are directly aimed at low-income 
Americans. And then you've got other programs, like Pell grants 
and means-tested programs, that are designed to provide really 
a floor.
    So from an efficiency point of view, isn't that a better 
way if we want to relieve poverty, to do it through programs 
that are aimed specifically at people with less money? And, 
second, wouldn't it be a better way to create an environment to 
produce the largest number of new jobs not to impose that cost 
solely on the employer and mandate that the employer take the 
responsibility that all of us--the argument would go--have to 
create a certain standard of living?
    Mr. Sherk. I would agree with both of those points, 
Senator. On the issue of the efficiency, you're exactly right. 
If you target the benefits, like the earned income tax credit, 
which is conditional on working additional hours--you're not 
giving it to suburban teenagers, you're not giving it to 
college students who are working part-time jobs--the benefits 
are targeted at those who are needy, and you don't have 
unemployment effects on the adults.
    And you don't have an effect where you have more suburban 
teenagers coming into the labor market and taking the jobs that 
could have gone to a disadvantaged adult who is in a difficult 
position and probably needs the income a whole lot more than 
the teenager does. You don't have those sort of substitution 
and replacement effects and all the negative consequences.
    But the best solution, Senator, would be a strong and 
healthy growing economy. If you look back at the late 1990s, 
you had a minimum wage increase in 1996 and 1997, but the 
fastest wage growth was actually taking place in 1998, 1999, 
2000, up and down the income scale. Low-income workers were 
benefiting. High-
income workers were benefiting. Middle class workers were 
benefiting. Everyone was benefiting from a healthy, robust 
economy. Unemployment was falling. That is the best jobs 
program, not government activity, but a good business climate 
that leads to more job growth and more investment.
    Senator Alexander. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Senator Casey, then Senators Warren, Murphy, and Sanders.

                       Statement of Senator Casey

    Senator Casey. Mr. Chairman, thanks very much. We 
appreciate the panel's testimony on this important issue.
    I wanted to start with the issue of who will be affected by 
an increase in the minimum wage. And this is mostly a question 
that affects women and children in large measure. By one 
estimate--this is according to the Economic Policy Institute--
18 million children, which is 23 percent of all children in the 
country--18 million children will get a raise, in essence, 
meaning their families will get a raise. And 17 million women 
will get a raise if we raise the minimum wage.
    I believe it's a matter of basic justice and fairness, but 
it does have the additional benefit of lifting all boats at the 
same time. That's why, often, labor organizations that don't 
have anything to gain, really, at all, that already have wage 
rates set by way of bargaining and arriving at a fair wage, are 
in favor of it, because they know that it lifts all boats and 
helps more and more people get out of poverty and get closer 
and closer to the middle class. So that's the premise upon 
which I would rest my support, among other reasons.
    But, Bishop, when you give testimony, you've got to 
consider the broader economy and the difficult choices that we 
face. But I wanted to ask you, and it's, in some ways, the 
amplification of your testimony. What do you see with--and 
you're a bishop, not a parish priest, but I guess a lot of days 
you're acting like a parish priest. But what do you see when 
you look across your diocese more broadly in terms of where the 
economy is? Things have moved in the right direction, but still 
a lot of people are struggling.
    Bishop Blaire. In my diocese, I have an awful lot of people 
who are farm workers and people who work in warehouses and an 
awful lot of people who are working two jobs to put food on the 
table. So I agree very much with what you are saying, and I do 
believe that improving the minimum wage is a component. 
Obviously, it's one component in the bigger picture of jobs and 
putting people back to work.
    But I think you have to have a just compensation, and it 
does raise and, I think, improve everybody else's salaries, 
people who are just barely above the minimum wage. So, yes, I 
see an awful lot of people in the area where I live who really 
are struggling.
    Senator Casey. And I know that some of the estimates about 
where it would be if it stayed on track all these years--by one 
estimate, if it had kept pace with inflation since 1968, it 
would be worth more than $10.50 per hour. We know the economic 
impact it can have on individual families.
    But I also wanted to ask Mr. Shelton a question. In 
particular, whenever you see the monthly unemployment numbers 
come out, and you have an overall unemployment rate which has, 
nationally, been hovering around 7.5 percent, but, consistently 
and persistently, every month, it's exponentially higher for 
African-Americans, in the double figures for as many months 
behind as we can count, I want to ask you, in particular, the 
impact that the increase in the minimum wage would have on 
those who are still struggling who happen to also be African-
American workers in the economy.
    Mr. Shelton. There are a number of things that it affects, 
Senator. When you look at our communities, you're absolutely 
right. That is, on any given day, if you look at the 
unemployment rate for America, and you want an educated guess 
of what it is in African-American communities, you simply 
double that number. So it is very, very problematic for us.
    When you look at African-American families that are working 
at the minimum wage level, you see they're working multiple 
jobs to be able to make ends meet, to pay their rent, to keep 
food on the table, and things along those lines. And, of 
course, family life suffers as a result of that.
    As was mentioned, over 52 percent of African-American 
children are in female-headed, single-family households, and 
there is that one person who is there to both put food on the 
table and to make sure they're there to be able to eat and do 
other things the children need from their mothers. So, indeed, 
being able to raise the minimum wage means more time at home, 
and the quality of life index increases.
    We also see that cycle of prosperity that happens in the 
low-
income communities in which they live. If you can buy more 
food, that means you're paying the local market more money, and 
that cycle of prosperity continues throughout the community, 
and other things, of course, that we all need. It is 
tremendously essential that we see a raise in the minimum wage.
    And, of course, the African-American communities, we're 
seeing in so many cases, ends up being that canary in the coal 
mine. When hard economic conditions hit, we feel it first. Then 
we see it resonate throughout. And in this case, hopefully, 
what we'll see is a prosperity growth as we've seen in times 
before. That is, we'll see more money, people being able to 
work hard, give that hard day's labor for a fair day's pay, and 
be able to take care of their families.
    Senator Casey. Thank you very much.
    The Chairman. Senator Warren.
    Senator Warren. Thank you, Mr. Chairman.
    I want to thank you all for being here. I appreciate it. 
This is very helpful. I also have been looking at the data 
about the impact of the minimum wage. As I understand it, what 
most of the studies show now is if we raise the minimum wage to 
$10.10, then we would generate about 140,000 new jobs--Mr. 
Shelton referred to this. I think we're reading the same 
studies--and that we'd get about $32 billion more in economic 
activity.
    I know that Senator Alexander cares about generating more 
jobs and more economic activity. And as Senator Casey said, we 
affect 23 million children and, in particular, lift 17 million 
children out of poverty if their parents earned a higher 
minimum wage, which, of course, in turn, reduces reliance on 
food stamps, Medicaid, earned income tax credit, and other 
forms of support. So it seems to me the only argument we ever 
hear not to do this is the argument that if we raise the 
minimum wage, there will be fewer jobs available.
    I appreciate reading your studies, Dr. Reich. Also, Dr. 
Dube from the University of Massachusetts-Amherst, was here 
before to talk to us about his studies. So I just want to think 
about this gold standard study. When you look at a metropolitan 
area that reaches across two States, and the minimum wage goes 
up in one State but doesn't go up in the other, I would say 
that's probably the gold standard for testing whether or not 
there's going to be an impact on jobs from changing the minimum 
wage.
    So my question, Mr. Sherk, is are there any of those gold 
study standards that show that when that happens, jobs have 
disappeared?
    Mr. Sherk. The question here, Senator, is what makes an 
appropriate control group, and that's at the heart of the 
dispute between Mr. Reich and his colleagues and between 
Nuemark and Wascher and the research.
    Senator Warren. I'm sorry, Mr. Sherk. Is there a study of 
the kind I just described?
    Mr. Sherk. There are studies that control for local 
effects, that have your local controls, and compares--they're 
not the cross-border studies. There are other studies----
    Senator Warren. Excuse me. Let me just make sure I have 
this right. There are cross-border studies. Is that right?
    Mr. Sherk. There are studies that compare the effects of 
States that raise minimum wage to those that do not and include 
regional controls.
    Senator Warren. All right. And what do those studies show, 
consistently?
    Mr. Sherk. The vast majority of studies show that raising 
the minimum wage reduces employment. Now, what you have is----
    Senator Warren. I'm sorry. Dr. Reich, is that right?
    Mr. Reich. No, no, no. Nuemark and Wascher don't use 
regional controls. You have to read the studies, not just cite 
the results. They argue against having these controls, like you 
said in your prepared statement. Once you get into local 
controls, you don't find negative effects.
    Mr. Sherk. What they include is your State's specific 
trends for the----
    Mr. Reich. That's just comparing one State to a random 
other State. It's not a local control. That's the whole point. 
That's what's wrong.
    Senator Warren. Mr. Sherk, I was asking about a particular 
form of study, that is, you look at one metropolitan region 
that cuts across the State border, and the minimum wage is 
raised on one side and not on the other, so you've got a 
consistent metropolitan region. I think that sounds like the 
gold standard in determining whether or not a change in minimum 
wage affects whether or not there will be jobs.
    As I understand it, Dr. Dube's study, Dr. Reich's study, 
and other studies have a consistent outcome. And what is that 
outcome, Dr. Reich?
    Mr. Reich. Well, first of all, let me just say Arin Dube 
was a student of mine and these are co-authored studies.
    Senator Warren. Oh. Fair enough.
    Mr. Reich. But we've now done this with five different data 
sets, the American Community Survey, the Census. We also used 
the Quarterly Workforce Indicators, the Quarterly Census of 
Employment and Wages. We've used five different statistical 
approaches to having local controls, and they all come out the 
same way.
    Senator Warren. And that is?
    Mr. Reich. That there's no negative employment effect.
    Senator Warren. All right. I just want to say my home State 
of Massachusetts has a higher minimum wage than the rest of the 
country. We're currently at $8, and we have a pending proposal 
in our State legislature to raise it to $11 an hour. I hope you 
will note that the Massachusetts economy is growing. Our 
unemployment rate is at 6.4 percent, more than a full point 
below the national average of 7.6 percent.
    I understand we need control studies. The control studies, 
it seems to me, re-inforce the experience we have in 
Massachusetts. We have raised our minimum wage. We have stayed 
above the national minimum wage, and we have done better on 
employment. We have raised the boat for all of our families, 
and it has worked for us.
    We have an opportunity here, it seems to me, Mr. Chairman, 
to generate jobs, to lift 17 million children out of poverty, 
to reduce the amount of money that we spend on Medicaid, on 
food stamps, on earned income tax credit. This is an 
opportunity for us. We need to raise the minimum wage.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warren.
    Senator Murphy.

                      Statement of Senator Murphy

    Senator Murphy. Thank you very much, Mr. Chairman. We have 
a lot of numbers here at this hearing. One of the most 
important, though, is one that came at the very least from Mr. 
Shelton's testimony, and that is $14,000, the amount of yearly 
income generated by someone that's working on the minimum wage. 
And notwithstanding the discussion about what percentage of 
people on the minimum wage are living below the poverty line, 
there are still millions of people who rely in whole or in 
large part upon the minimum wage for their income.
    In Connecticut, if you don't have a housing voucher, you 
are going to spend at the very least two-thirds of that $14,000 
on housing. And you are essentially going to spend the rest of 
it on food and transportation, and your $14,000 is gone.
    So I guess, Mr. Sherk, my very simple question to you is 
this. Do you think that $14,000 is enough for somebody to live 
on today?
    Mr. Sherk. Of course not. I would not pretend that that 
would be a comfortable lifestyle by any means. The question is: 
What is the best way to help them? If $14,000 is not much to 
live on, take a look at American Samoa, where $4.76 an hour is 
even less to live on. Congress raised the minimum wage, and did 
it benefit them? Did it boost their economy? Their unemployment 
went from 5 percent to 36 percent. The island's Democratic 
Governor begged Congress to call it off, because it was doing 
such damage.
    I think that everyone here has good intentions and wants to 
help low-income families. But the key is finding a way to do so 
effectively and to do so in a way that will not harm the very 
people we're trying to help.
    Senator Murphy. I think American Samoa is probably an 
interesting analogy, but probably not a terribly apt one, given 
the fact that we're not talking about expediting the rise in 
minimum wage in the United States at the rate that we're asking 
American Samoa to. And, of course, there are lots of other 
comparisons between the strengths of our economy and their 
economy that probably don't work. But I appreciate the analogy, 
nonetheless.
    I think the other issue here, Mr. Sherk--and I'll ask this 
question to Dr. Reich. One of the suppositions in your 
testimony is assuming that individuals are rational economic 
actors in the sense that they are going to make tradeoff 
decisions between the benefits that they receive from 
government and the wage that they receive through their 
employer.
    I would argue that that's not how people think, that the 
vast majority of people out there who are on Medicaid, who are 
on SNAP benefits, who are receiving housing vouchers do not 
want to be on those programs. They do not want to rely on the 
government in order to help pay for their housing or their 
kids' food or for their medical benefits. They want to live 
independently.
    The reason why you don't see a lot of people out there 
turning down raises from their employers is because they want a 
pathway out of that partial dependence on the government, even 
if, in the short run, it is going to cost them some money, 
because the Holy Grail to them is the day in which they no 
longer have to rely on those benefits, and the only way to get 
there is perhaps to live through a short period of time in 
which they maybe have an overall diminution in the amount of 
money coming into their economy.
    I understand the analysis which suggests that that actually 
hurts some people in the short run. But it's just not how 
people think. People don't want to be on these programs, and 
they want a higher wage, because they see it as a pathway to 
eventually get to total independence.
    Let me actually shift to the question I do want to ask Dr. 
Reich, and that is this. We have this larger trend playing out 
in our economy right now with respect to the winner-take-all 
economy, where technology is essentially replacing labor. And 
one of the byproducts of that is that income to companies now 
tends to accumulate in the hands of a much smaller number of 
people, because it just takes a lot less folks to do work than 
it used to.
    That seems to me to be an additional argument in favor of 
the minimum wage, as we try to figure out how to deal with the 
consequences of a new economic order whereby technology moves 
money and moves wealth into the hands of a small number of 
people. To me, there are all sorts of ways to attack that.
    But just let me ask you that question. I mean, that's a 
larger macro-economic trend. Should we view the minimum wage as 
one of the ways to respond to that larger issue?
    Mr. Reich. Thanks for the question. First, let me respond 
on the working poor, the poverty point. I don't know. I guess 
you wouldn't use the same medicine to cure cancer as to cure 
heart disease. Now, when Franklin Roosevelt signed the Fair 
Labor Standards Act, the unemployment rate was almost 20 
percent. He didn't think that the minimum wage was going to get 
rid of poverty for those 20 percent who were unemployed or 
those people who weren't yet collecting social security. Of 
course not.
    The minimum wage is supposed to help the working poor, and 
as you were pointing out, there are quite a few of them, 10 
million probably, who would be helped by a minimum wage 
increase, people who rely only on wages. There are other things 
to do for the elderly, the people who have run out of 
unemployment benefits, and so forth.
    But I think it's really a mistake to couch the argument 
about whether minimum wages reduce poverty and then to look 
mainly at the people who aren't getting wages at all. If you 
look at the bottom half of the income distribution and not just 
the people who are already in poverty, that's where most of the 
minimum wage workers are. They're not mainly rich suburban 
kids. That's just a very small segment.
    On your question about the macro-economic trends, when I 
was in college--and it was a long time ago--there was a lot of 
concern about technology and automation eliminating jobs. That 
was in the 1960s. To me, this is a perennial. We have more jobs 
than we've ever had and more people working at jobs around the 
whole world than we've ever had. I think the problem is 
increased polarization of income, of earnings, that you were 
referring to rather than the lack of jobs.
    If you look at the low-paid service jobs, they've been 
growing quite rapidly. It's not that they've been disappearing 
in the United States. The automation argument is, ``Oh, well, 
we're losing all those jobs,'' but we're not. And these are 
jobs that have to be done here. They're not exportable. I think 
the minimum wage is a very effective lever for those low-wage 
service jobs.
    Why does a barber in Bangladesh get paid less than a barber 
in Boston? Well, it's because economy has interconnected parts. 
There are reference points for wages. There's overall 
productivity. It's quite possible for the United States to pay 
more to its barbers or its hair stylists--I guess that would be 
the more contemporary term--than we do at present. We're not 
going to lose those jobs.
    Senator Murphy. Thank you, Mr. Chairman.
    The Chairman. Senator Sanders.

                      Statement of Senator Sanders

    Senator Sanders. Thank you, Mr. Chairman, and I thank all 
of the panelists for being here.
    Let's give an overview of the American economy. Today, we 
have almost as many people living in poverty, somewhere around 
46 million, than at any time in the last 60 years. We have the 
highest rate of childhood poverty of any major country on 
earth, somewhere around 22 percent. We have more income and 
wealth inequality than any major country on earth. And, 
astoundingly, in the last study that I've seen, between 2009 
and 2011, Mr. Chairman, all of the new income created in this 
country went to the top 1 percent.
    Meanwhile, as Dr. Reich has implied, many of the new jobs 
that are being created are low-wage jobs, service industry 
jobs. That's the problem. Now, I would just mention for the 
record that my State has the third highest minimum wage in the 
country, and that is $8.60 an hour. We also have the fourth 
lowest unemployment rate in the country. And I would just say 
for the record that I have really not heard almost anybody 
suggest that raising the minimum wage to the level that we have 
in Vermont has been an impediment to our economy, which is 
doing reasonably well.
    I think Bishop Blaire, a while ago when he spoke in his 
remarks, made a very important point having to do with the 
dignity of work and the appreciation of work, and that if 
somebody is going to work, that person has got to receive at 
least a wage that they can go out and live with dignity on. 
That's an extremely important point.
    When we don't have that--and I was in Detroit, MI, talking 
to African-American kids a couple of weeks ago, there are kids 
there who are desperately trying to do the right thing. The 
best jobs that they can get if they're a high school graduate, 
even with some college, is working in a fast food restaurant at 
$7.25 an hour. They can't even get 40 hours a week. They're 
getting 20 hours a week. They're getting 30 hours a week. They 
are desperately trying to bring themselves out of poverty. 
They're going nowhere in a hurry.
    Now, if I understand Mr. Sherk's remarks--and correct me if 
I'm not--one of the points that you made is that by raising the 
minimum wage people are going to lose certain government 
benefits which provide them with a higher standard of living. 
So if your minimum wage goes up, you're going to lose food 
stamps, you may lose part of the earned income tax credit, you 
may lose affordable housing, you may lose Medicaid, and at the 
end of the day, one is worse off than one would have been 
without a raise in the minimum wage.
    Am I understanding you pretty correctly?
    Mr. Sherk. More or less. You've basically got two effects. 
Some people lose their job. Some people don't lose it, but they 
see most of the benefit clawed back, and they don't come out 
ahead.
    Senator Sanders. I am reading from, as I understand it, a 
quote from the Heritage Foundation. It says, ``Food stamps is 
an expensive, old-style program that rewards idleness.'' Now, 
what we're seeing in the House are massive cuts in Medicaid, 
massive cuts in food stamps, transforming Medicare from how we 
know it, cuts in the Pell grant program.
    I would assume, based on what you've told me, that the 
Heritage Foundation would be strongly opposed to all of these 
disastrous Republican cuts in social programs. Am I correct in 
assuming that?
    Mr. Sherk. The problem we have with the social programs is 
that they deny low-income workers the fruits of their labor. I 
believe the context of that quote was in the need for work 
requirement.
    Senator Sanders. Let me be more direct. Your argument is 
that if people make more money, they're going to lose programs. 
One rational solution to that is to increase programming. So 
are you in favor of substantially increasing the food stamp 
program and Medicaid benefits? Is that the Heritage 
Foundation's position?
    Mr. Sherk. I'm not here officially representing the 
Heritage Foundation----
    Senator Sanders. But you work for the Heritage Foundation.
    Mr. Sherk [continuing]. Just as Dr. Reich is not officially 
representing his college or his school. But my argument is that 
we've removed the incentive to work. If you take a look at 
families below the poverty line, two-thirds don't have any 
adults working at all.
    Senator Sanders. So we remove the incentive to work by 
having adequate social programs, so you're opposed to that. But 
on the other hand, you are opposed to raising the minimum wage 
so somebody can earn a decent living to go out and buy the food 
and the shelter that they need. I don't quite understand it. I 
don't quite understand it. Either you're for one or the other.
    If you're saying that you want people to have a minimal 
standard of living and not raise the minimum wage, you have to 
compensate for low wages by having decent social programs.
    Mr. Sherk. I'm saying what we should do is restructure the 
social programs so the benefit phase-out rates don't overlap at 
the same time, so that those----
    Senator Sanders. I can't understand how if you're going 
to--you seem to be a smart guy. But you're arguing two 
absolutely contradictory points. You can argue that raising the 
minimum wage will result in lower benefits, a bad thing--good 
point. Then the answer is that we provide more benefits. Or you 
can argue to forget the benefits and let's make sure everybody 
in America makes $15 to $18 an hour. We don't have to worry 
about the benefits. Which point do you----
    Mr. Sherk. Part of the problem with the benefits is they 
create these phase-out rates. The high marginal tax rates that 
get close to 100 percent come from the existence of the 
benefits phasing out. So in Senator Harkin's State of Iowa, the 
reason that a hypothetical single mother with one child would 
come out behind is because of, basically, the massive--your 
child care subsidies will----
    Senator Sanders. Do you think the Federal Government should 
address it?
    Mr. Sherk. The issue would be that by providing fewer 
benefits, you reduce the effective phase-out rate, or by--even 
if you're spending the same amount, coordinate the benefit 
phase-outs so that they're not all happening at the same time 
over the same income level.
    Senator Sanders. With all due respect, Mr. Sherk, I think 
you--whether or not you're here representing the Heritage 
Foundation--are really not making a whole lot of sense, to my 
mind. But thank you very much.
    The Chairman. Thank you, Senator Sanders.
    Well, since my State of Iowa and my city of Des Moines has 
been invoked a lot of times here, I was reading your example of 
this, Mr. Sherk, about this hypothetical single mother in Des 
Moines. She gets an offer of a job for minimum wage. She goes 
from not working to working full-time. Her monthly income rises 
from $1,146 to $1,838. That's the minimum wage. She went from 
not working to working, and she gets an increase from $1,146, 
which I assume was all of her government benefits, to $1,838.
    Mr. Sherk. So her market income from not working to $7.25 
an hour would have been about $1,300, of which about $600 would 
get clawed back and she comes out net $700 ahead.
    The Chairman. No, no. She's ahead now by--let's see, $1,146 
to $1,838. That's about what--$700 more a month she gets, $700 
more a month. Is that true?
    Mr. Sherk. Yes. But----
    The Chairman. If that's true, then you say that--OK. What 
if we lowered the minimum wage to $5 an hour? How would that 
be?
    Mr. Sherk. I'd have to go back to the Urban Institute 
statistics to calculate that.
    The Chairman. Let's just lower the minimum wage to $2.50 an 
hour, and she goes from not working to working.
    Mr. Sherk. I'd have to re-run the calculations on that.
    The Chairman. It seems to me you are accepting a minimum 
wage of $7.25 as raising her income from not working to 
working.
    Mr. Sherk. I apologize for the lack of clarity in my 
testimony. What you find with these phase-out rates is that if 
you go from not working to taking a job that's around the 
poverty level, you do come out ahead. However, if you then go 
take a job around the poverty level, close to the minimum wage, 
and then over that--the next $5 or $6 an hour you'd earn, so, 
say, from $7.25 an hour up to $13 and $14 an hour, you keep 
very little of that additional income. And in your State of 
Iowa, going from $7.25 an hour to $10.10 would actually cost 
her net income.
    Senator Sanders. Mr. Chairman, can I jump in for 1 second?
    Mr. Reich. I'd like to, also, if there's----
    Senator Sanders. You started something, Tom. One quick 
question. One quick question.
    The Chairman. Yes.
    Senator Sanders. And we don't mean to beat up on you, Mr. 
Sherk. You're welcome and we're glad you're here.
    There are some conservatives who do not believe in the 
concept of the minimum wage. In other words, if the economy is 
such and I can offer you $3 an hour----
    Senator Alexander. Let me jump in. I don't believe in it.
    Senator Sanders. You do not.
    Senator Alexander. I do not.
    Senator Sanders. All right. Then we have a Ranking Member--
--
    Senator Alexander. Just speaking up, as long as we're going 
to have a----
    Senator Sanders. All right. There we go.
    Senator Alexander. As long as we're going to interrupt the 
chairman and ask our own questions, I----
    Senator Sanders. So you do not believe in the concept of 
the minimum wage.
    Senator Alexander. That's correct.
    Senator Sanders. You would abolish the minimum wage.
    Senator Alexander. Correct.
    Senator Sanders. And if somebody had to work for $2 an 
hour, they would work for $2 an hour.
    Senator Alexander. No. I would go for a much more targeted 
approach. I've been around long enough to remember Pat Moynihan 
and the negative income tax. And the question I would want to 
ask if we are interested in social justice and in work is--if 
we want to honor work instead of getting a welfare check, then 
wouldn't a more efficient way to help people in poverty be to 
increase the earned income tax credit rather than to do what we 
always do here, which is come up with a big idea and send the 
bill to somebody else?
    What we're doing is coming up with a big idea and sending 
the bill to the employer, just like we come up with a big idea 
about Medicaid and send the bill to the Governor, or we come up 
with a big idea about storm sewers and send the bill to the 
mayor in Burlington. Why don't we just pay for the big ideas we 
come up with?
    And if we want to create a standard of living for people 
that's much higher than they have today, let's attach the 
dollars to the job and everybody pay for it. I don't want to do 
that. But if we were going to do it, then that's the way I 
would think we should do it.
    Senator Sanders. That's a very interesting discussion for 
another time.
    I just wanted to ask Mr. Sherk--you heard what Senator 
Alexander said. If Senator Alexander brought forth a bill to 
abolish the minimum wage, what would you recommend?
    Mr. Sherk. I believe the minimum wage hurts its intended 
beneficiaries, and I think that's--it has not--I do not support 
the concept of the minimum wage.
    Senator Sanders. I appreciate your honesty. Thank you.
    The Chairman. Well, if I can reclaim my time----
    [Laughter.]
    Senator Alexander. Welcome back to your own hearing, right?
    [Laughter.]
    The Chairman. Again, this is where we're getting into 
numbers, Mr. Sherk. I had my staff run the same numbers as you 
have on this hypothetical person in Des Moines, IA. They're not 
the same, and here's why. You are using a figure from 2008--
child care subsidies. Those have been updated since 2008.
    So using your same figures, using the same hypothetical 
person, you have calculated that she loses $700 a month in the 
child care costs. That's what you show.
    Mr. Sherk. It was $528 a month, I believe, $528 in child 
care subsidies.
    The Chairman. No, no----
    Mr. Reich. Senator Harkin, if I could interject, he's only 
talking about the phase-out. There's also the phase-in, and the 
earned income tax credit helps workers on the phase-in part. I 
think that's what Senator Alexander is referring to. It becomes 
a wage subsidy. More people work as a result of the earned 
income tax credit. But I guess I'll wait until----
    The Chairman. Mr. Sherk, we can dance on the head of a pin 
on this. But you show a $528 subsidy, but you say her costs are 
$700 a month.
    Mr. Sherk. I apologize for the confusion. These numbers----
    The Chairman. I'm not going to let this go. I'm not going 
to let this go. You show $700 per month in costs on child care, 
but she gets $528. In your example, she loses that. She loses 
$528.
    However, we checked with the Iowa Department of Human 
Services, and they showed that her child care costs will still 
be heavily subsidized because the law changed. And it will 
increase from $8 a month to $128 per month, even if her salary 
goes to $10.10 an hour.
    So that's the problem, again, with using figures and not 
basing it upon updated statistics and laws that get changed. 
You used 2008. Well, maybe in 2008, that was right. But it's 
not right today. It's different. So I ask you to go back and 
look at the updated child care costs in Iowa and re-run those 
figures and bring them back to us.
    Mr. Sherk. Senator, I would happily do so.
    I used the Urban Institute's net income change calculator, 
because----
    The Chairman. Well, they're wrong.
    Mr. Sherk [continuing]. Because I know that you might doubt 
numbers I would produce at Heritage. But I think I can say with 
confidence that no one will accuse the Urban Institute of 
having conservative sympathies. But I'm happy to investigate 
their numbers in case they made a mistake.
    The Chairman. If the Urban Institute was using 2008 
figures, they're wrong. They're just simply wrong.
    Well, I guess I haven't completely gone over my time yet. 
But it seems like--and we do have a fundamental difference. 
Some people believe there shouldn't be a minimum wage. Some 
people believe there should be. I think it's been well settled 
in this country for a long time that we do have a minimum wage, 
and the arguments in the past have been how much do we raise it 
and by how much.
    I think when we come back to this, it just seems to be 
fundamental that work has dignity. People would rather work 
than to get a government program.
    And, yes, we have a social safety net to help people in 
dire circumstances, but it always occurred to me that if we 
keep increasing the earned income tax credit or whatever other 
benefits, we're simply having government subsidize different 
businesses out there. They can still make their profits and pay 
shareholders a lot of money and pay their executives a lot of 
money, but then the government is picking up everything else on 
the other side. That's just one aspect of it.
    The other aspect is the dignity aspect of work. You either 
believe that work has dignity or it doesn't. Now, if you 
believe it doesn't, well, then, fine. That's your own 
philosophy. I think most people believe there is dignity in 
work, and if there's dignity in work, then there has to be 
enough compensation, I think Bishop Blaire said, where you are 
dignified in that work.
    The problem I've had with lowering minimum wages or doing 
away with minimum wages is that there's always some poor person 
out there that's willing to work for less than you are. There's 
always somebody out there that will take that job with less 
wages, because their circumstances are so dire and they're in 
such bad shape, they'll undercut you because they have to have 
it, no matter what.
    So what you do is you have this contest which is what I've 
always called the fight between capital and labor. Yes, capital 
should have a return. Capital should have a return, but at the 
expense of labor. What is a fair division between capital and 
labor? And that's where, I think, we've gone out of whack in 
this country.
    We were on it for a long time. In the 1940s, 1950s, 1960s, 
1970s, there seemed to be a pretty fair division between labor 
and capital. In the last 30 years, capital has gotten 
everything, and labor practically gets nothing. And that's the 
situation we find ourselves in today.
    Labor needs a fair share of capital, of the money, than 
what it's getting today. One way that we can do that is by 
raising the minimum wage and ensuring that work does have 
dignity and that you get paid enough to have some dignity in 
that work.
    I know we can talk about hypothetical situations and all 
these studies and stuff. But just ask the people who were at 
the White House this morning. I never talked to them. But just 
go out and talk to people who work on these jobs. They work 
hard. These people who work in these fast food services--women 
stand on their feet all day. This is hard work.
    The next time you go to one of these busy McDonald's or 
something, just watch somebody there. They're moving all the 
time. They don't get too many breaks. They work hard. And yet 
they don't get--I don't think they get compensated for the 
dignity of their work and what they're contributing to our 
society.
    Well, that's just my philosophy, and we'll have our 
philosophical differences here, I know, on this committee, and 
that's all well and good. We can have our philosophical 
differences. But it seems to me that at some point, we need to 
make a decision. Are we going to move ahead and increase the 
minimum wage so that it keeps up and it gets its fair share of 
capital, or are we just going to say, ``No, we're not?''
    I think the vast majority of the American people, and even 
businesses, too, recognize that we need to increase the minimum 
wage. So we'll continue to have these hearings, and I don't 
know how many hearings we'll have. We're going to have to mark 
up the bill sometime, I hope. I don't know when.
    Well, listen, I went ahead and gave my remarks. I'll be 
glad to yield to anybody else that wants to add something, 
Senator Alexander.
    Thank you all very, very much. I think you've added greatly 
to our hearings, and we'll continue to look at this subject, 
and, hopefully, we'll have a bill ready to go sometime this 
year.
    Thank you very much.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

     studies that show the negative economic effects of increasing 
                            the minimum wage
     Minimum Wages and Employment: A Review of Evidence from 
the New Minimum Wage Research (2006)

          Authored by David Neumark, Professor of Economics at 
        University of California at Irvine and William Wascher, 
        Economist, Board of Governors of the Federal Reserve System. 
        The study was updated in 2013.
          The study compared over 100 minimum wage studies 
        published since the 1990s.
          Nearly \2/3\ of the studies found negative employment 
        effects of minimum wages while only eight studies found 
        positive effects.
          85 percent of the ``most credible'' studies showed 
        negative employment effects, which were most pronounced in 
        studies of less-skilled employee groups.
          Studies showing positive employment effects generally 
        relied on a monopsony economic model, which is based on the 
        dubious economic assumption of an upward-sloping labor supply 
        curve.

     Unequal Harm: Racial Disparities in the Employment 
Consequences of Minimum Wage Increases (2011)

          Authored by William Even, Economics Professor, Miami 
        University and David McPherson, Economics Professor, Trinity 
        University.
          The study uses 600,000 data observations from 1994-
        2010, including a large sample of minority young adults.
         The study focuses on 16- to 24-year-old males without 
        a high school diploma, a group that are particularly 
        susceptible to wage mandates.
          Among white males in this group, the authors found 
        that each 10 percent increase in a Federal or State minimum 
        wage decreased employment by 2.5 percent; for Hispanic males, 
        the figure is 1.2 percent. But among black males in this group, 
        each 10 percent increase in the minimum wage decreased 
        employment by 6.5 percent.
          In looking at the States that increased their minimum 
        wages from 2007-9, the authors found: Approximately 13,200 
        black young adults in these States lost their job as a direct 
        result of the recession; 18,500 lost their job as a result of 
        the Federal wage mandate--nearly 40 percent more than the 
        recession.

     Analysis of Proposals to Increase the Minimum Wage (2013)

          Authored by Mark Wilson, vice president and chief 
        economist, H.R. Policy Association.
          The study found that increase the minimum wage to 
        $10.10 would potentially cost $42.6 billion per year. 
        Increasing the minimum wage to the President's plan of $9.00 
        would cost $17.7 billion per year.
          The potential costs are based strictly on the 
        increased amount of wages employers would be forced to pay 
        hourly wage earners. The study's projected costs assume that 
        increases would not have a negative effect on employment.

     Who Earns the Minimum Wage? Suburban Teenagers, Not Single 
Parents (2013)

          Authored by James Sherk, Senior Policy Analyst in 
        Labor Economics, The Heritage Foundation.
          The study found that based on data from the Bureau of 
        Labor Statistics and the Census Bureau, most minimum wage 
        earners are young, part-time workers. Thus, raising the minimum 
        wage would do little to help the working poor.
          Seventy-five percent of older workers (over the age 
        of 24) earning the minimum wage live above the poverty line and 
        have an average family income of $42,500 per year.

    Response by Hon. Seth D. Harris to Questions of Senator Harkin, 
         Senator Alexander, Senator Isakson, and Senator Scott

                             senator harkin
    Question. Mr. Harris, as you know, I have introduced legislation, 
the Fair Minimum Wage Act, to raise the minimum wage to $10.10 an hour, 
index the minimum wage to inflation, and raise the minimum wage for 
tipped workers to 70 percent of the regular minimum wage. Does the 
President support my efforts to raise the minimum wage?
    Answer. The Administration has long supported raising the minimum 
wage so hard-working Americans can earn a decent wage for a day's work 
to support their families and make ends meet and strongly supports this 
legislation.

                           senator alexander
    Question 1a.  At the hearing, I asked about the Letter of 
Interpretation by the Occupational Safety and Health Administration 
(OSHA) that permitted union representatives to accompany OSHA 
inspectors during walk-around inspections of a non-union worksite. I 
noted that the Letter of Interpretation conflicts with OSHA's own 
regulations.
    The regulations state in full:

          ``The representative(s) authorized by employees shall be an 
        employee(s) of the employer. However, if in the judgment of the 
        Compliance Safety and Health Officer, good cause has been shown 
        why accompaniment by a third party who is not an employee of 
        the employer (such as an industrial hygienist or a safety 
        engineer) is reasonably necessary to the conduct of an 
        effective and thorough physical inspection of the workplace, 
        such third party may accompany the Compliance Safety and Health 
        Officer during the inspection.'' 29 CFR 1903.8(C).

    How does the Letter of Interpretation comply with the regulation?
    Answer 1a. OSHA's regulations allow compliance officers to permit 
third parties to be walk-around representatives in order to make a 
positive contribution to a thorough and effective inspection. 
Specifically, 29 CFR 1903.8(a)-(d), allows the compliance officer 
significant discretion as to who participates in inspections. Although 
section 1903.8(c) states the general rule that walk-around 
representatives ``shall be'' employees of the employer, it explicitly 
allows walk-around participation by an employee representative who is 
not an employee of the employer when, in the judgment of the OSHA 
compliance officer, such a representative is ``reasonably necessary to 
the conduct of an effective and thorough physical inspection.''
    Worker participation in OSHA inspections is vital to a thorough and 
effective inspection. The February 21, 2013 letter clarifies that 
allowing non-employee third-party representatives (such as a community 
group) to accompany OSHA inspectors on walk-around inspections, if 
designated by workers at the worksite, is consistent with Section 8(e) 
of the OSH Act which provides that,

          ``[s]ubject to regulations issued by the Secretary, a 
        representative of the employer and a representative authorized 
        by his employees shall be given an opportunity to accompany the 
        Secretary or his authorized representative during the physical 
        inspection of any workplace . . . for the purpose of aiding 
        such inspection.'' 29 U.S.C. 657(e).

    Question 1b. The Letter of Interpretation makes the limited 
regulatory exception the rule.
    Do you agree that under the new policy, as long as a single 
employee selects a union official as the employees' representative, an 
employer must recognize the selection and an OSHA inspector must allow 
the representative to accompany them on a walk-around inspection?
    Answer 1b. Allowing non-employee third-party representatives to 
accompany OSHA inspectors on walk-around inspections is not a new OSHA 
policy. OSHA has traditionally interpreted this language to make plain 
that, subject to some limitations, it is up to the employees to choose 
a representative who will accompany the Compliance Safety and Health 
Officers (CSHO) during a workplace inspection. It is important to note 
that this representation is only for purposes of participating in the 
inspection; nothing in OSHA's policy requires an employer to 
``recognize'' the representative for any other purpose.

    Question 2. During the hearing, it was pointed out that several 
companies, including Costco and Starbucks, support increasing the 
minimum wage. In response, you claimed that such businesses support 
minimum wage increases because they increase the purchasing power of 
consumers earning the minimum wage, which supplies ``more money for 
businesses to grow.'' You further claimed that ``responsible 
businesses,'' which you define as paying a ``fair'' and ``responsible'' 
wage, are being undercut by employers who pay the minimum wage. But 
Costco and Starbucks, both of which are large corporations, already pay 
above the minimum wage.
    Isn't it true that increasing the minimum wage would increase labor 
costs for startups and other small businesses instead of Costco and 
Starbucks?
    Isn't it also true that what you characterize as ``responsible 
businesses'' are actually asking the Federal Government to pick winners 
and losers by imposing higher labor costs on their smaller competitors, 
thereby placing them at a competitive disadvantage?
    Answer 2. Prior to the hearing, I had the opportunity to speak with 
a group of small business owners who shared with me a March 2013 poll 
conducted on behalf of Small Business Majority, an advocacy group 
founded and run by small business owners. That poll found that more 
than two-thirds of small business owners support increasing the minimum 
wage and adjusting it annually to keep up with the cost of inflation. 
Eighty-five percent of small business owners surveyed pay all of their 
employees more than the minimum wage. The two cited benefits by survey 
participants include an increased demand for small businesses' goods 
and services and decreased pressure on taxpayer-financed government 
assistance.

    Question 3. You suggested that the tip credit of $2.13 per hour is 
too low under current law, and that the tip credit causes restaurant 
patrons to ``subsidize'' an employer's wages paid to its workers 
instead of merely rewarding those workers for good service.
    According to the National Restaurant Association, the median hourly 
earnings received by servers nationwide range from $16 for entry-level 
servers to $22 for more experienced servers. Thus, the median hourly 
wage for a server ranges from more than double to more than triple the 
current minimum wage of $7.25, and far exceeds even the increase 
proposed in the Fair Minimum Wage Act of 2013.
    Do you oppose the concept of the tip credit and would you support 
abolishing it?
    Why do you support increasing the tip credit given that servers 
already earn substantially more than other minimum wage workers, 
including non-tipped employees in restaurants?
    Isn't it true that by increasing the tip credit for servers with 
median hourly wages of $16 to $22, you would be encouraging greater 
income inequality between tipped servers and non-tipped workers in 
restaurants?
    Is increased income inequality an acceptable policy outcome in your 
view?
    You noted that the Department of Labor does not collect data on 
tipped workers, yet you contend raising the tip credit will not result 
in negative employment effects. What evidence do you have that supports 
this?
    Answer 3. The Bureau of Labor Statistics administers the 
Occupational Employment Statistics (OES) program, which surveys 
establishments to produce employment and wage estimates annually for 
over 800 occupations, including waiters and waitresses (35-3031). 
According to the latest BLS estimates, the median hourly wage for the 
over 2.3 million jobs in this occupational category is $8.92 per 
hour.\1\ OES defines ``wage'' to include tips.\2\ Ninety percent of 
waiters and waitresses earn less than $14.19 per hour. The estimated 
median annual wage for the workers in this occupation is only $18,540 
and presents no risk of increasing inequity if they realize a modest 
increase in the employer direct-wage payment required by the FLSA.
---------------------------------------------------------------------------
    \1\ http://www.bls.gov/oes/current/oes353031.htm.
    \2\ http://www.bls.gov/oes/current/oes_tec.htm.
---------------------------------------------------------------------------
    For workers who earn most of their wages through tips, the wage 
their employers are required to pay them has not been raised since 
1991--22 years ago. The 1996 amendments to the FLSA froze the minimum 
direct wage that employers utilizing the tip credit are required to pay 
tipped workers when it set the direct wage payment at no less than 50 
percent of the 1996 minimum wage (i.e., $2.13 per hour).

    Question 4. In June, a Federal judge in Oregon enjoined the 
Department of Labor from enforcing its 2011 regulations regarding tip-
pooling against the three State restaurant associations and their 
members, and the National Restaurant Association and its members. Does 
the Department of Labor plan to refrain from enforcing the tip-pooling 
regulation nationwide?
    Answer 4. In Oregon Restaurant and Lodging Assn., et al. v. Solis, 
F. Supp. 2d, 2013 WL 2468298 (D. Or. 2013), the U.S. District Court for 
the District of Oregon declared the Department's 2011 regulations that 
limit an employer's use of its employees' tips when the employer has 
not taken a tip credit against its minimum wage obligations to be 
invalid. As a result of that decision and the judgment entered in that 
case, at least until the resolution of any appeal that may be taken, 
the Department is prohibited against enforcing those tip-retention 
requirements against plaintiffs (which include several associations, 
one restaurant, and one individual) and members of the plaintiff 
associations that can demonstrate that they were a member of one of the 
plaintiff associations in this litigation on June 24, 2013. The 
plaintiff associations in the Oregon litigation were the National 
Restaurant Association, Washington Restaurant Association, Oregon 
Restaurant and Lodging Association, and Alaska Cabaret, Hotel, 
Restaurant, and Retailer Association. In addition, although the 
decision and judgment do not require this, as a matter of enforcement 
policy, the Department has decided that it will not enforce its tip-
retention requirements against any employer that has not taken a tip 
credit in jurisdictions within the Ninth Circuit while the Federal 
Government considers its options. The Ninth Circuit has appellate 
jurisdiction over the States of California, Nevada, Washington, Oregon, 
Alaska, Idaho, Montana, Hawaii, and Arizona; Guam; and the Northern 
Mariana Islands. In investigations that do not meet these criteria, the 
Department will continue to enforce its longstanding policy that tips 
are the property of the employee, regardless of whether the employer 
takes a tip credit.

    Question 5a. At the hearing, you stated that the Department of 
Labor is taking the comments of the Medicaid community ``very, very 
seriously'' regarding the proposed rule greatly narrowing the 
companionship exemption under the Fair Labor Standards Act.
    What percentage of the comments from State Medicaid groups raises 
concerns about the proposed rule?
    Answer 5a. A significant number of comments were received on the 
Department's proposed rule, including a few from State program offices 
for services for elderly persons and persons with disabilities as well 
as from the National Association of Medicaid Directors representing the 
Nation's 56 State and territorial Medicaid agencies. Comments from 
State agencies focused on the impact of the proposed rule on delivery 
of publicly funded support services and State budgets.

    Question 5b. Have you met personally with any State Medicaid groups 
regarding the proposed rule? If so, please identify those groups.
    Answer 5b. No; however, the Department reached out directly to 
State Medicaid directors to talk with them to make certain that we 
understood their programs. In June 2012, the Department's Wage and Hour 
Division held a call jointly with the Centers for Medicare & Medicaid 
Services in which we invited all State Medicaid Directors to 
participate. Over 38 State Medicaid program representatives from 26 
States participated in that discussion about their programs. See 
Attachment A for a list of participants.
    In addition, while the rule was under consideration at OMB, State 
Medicaid Directors met with the Administration and DOL officials 
(pursuant to the E.O. 12866 process) to discuss their concerns.

    Question 6a. At a House Appropriations hearing in April, you 
testified regarding the Office of Federal Contract Compliance Programs 
proposed rule that sets a 7 percent quota for disabled individuals 
working for Federal contractors. You pointed out that the Department of 
Labor is exceeding the President's Executive Order requiring Federal 
agencies to have at least 5 percent of their workforce be individuals 
with disabilities. You said, as of October 2011 disabled individuals 
made up 11 percent of the Department of Labor's workforce.
    How did the Department of Labor collect the statistics on 
individuals with disabilities?
    Answer 6a. It is important to clarify that in its Notice of 
Proposed Rulemaking (NPRM) regarding section 503 of the Rehabilitation 
Act of 1973, the Office of Federal Contract Compliance Programs 
proposed setting a 7 percent utilization goal for Federal contractors. 
The utilization goal is an aspirational workforce goal that would apply 
to individuals with disabilities. The proposed goal, derived from 
disability employment data in the Census Bureau's American Community 
Survey, would provide Federal contractors with a quantifiable means to 
measure their success in recruiting qualified individuals with 
disabilities, and assist contractors in identifying workplace barriers 
to equal opportunity. As the NPRM states, the proposed goal is not a 
quota and a contractor's failure to meet it would not, by itself, 
constitute a violation of law.
    DOL ran workforce reports based on employee completion of the SF-
256, Self-Identification of Disability form and identified the number 
of Disabled Veterans (30 percent or more).
    On July 17, 2012, DOL's Assistant Secretary for Administration and 
Management and the Assistant Secretary for the Office of Disability 
Employment Policy issued a DOL-wide memorandum announcing a 
``Disability Census'' in August. The communication encouraged employees 
to review and update their identified disability status as appropriate, 
and in August, 371 employees updated their disability status.

    Question 6b. Does the 11 percent contain only new and existing 
hires?
    Answer 6b. The 11 percent was the percentage of employees with 
disabilities in the executive branch as reported by the Office of 
Personnel Management. DOL's percentage of disabled employees in its 
workforce was 10.35 percent as of September 30, 2011. The percentage of 
disabled employees in the DOL workforce was 12.74 percent as of 
September 30, 2012.

    Question 6c. Did the Department of Labor ask existing hires (those 
hired prior to the Executive order) to update their disability status?
    Answer 6c. The July 2012 communication about the DOL Disability 
Census was sent to all DOL employees.

    Question 6d. Can you provide the number of individuals with 
disabilities hired by the Department of Labor since Executive Order 
13548 was issued on July 26, 2010 and provide the disability 
classifications for those individuals, pursuant to the Office of 
Personnel Management Standard Form 256? Do not include any identifying 
or personal information of Department of Labor employees.
    Answer 6d. Since July 26, 2010, the Department has hired 3,650 
permanent employees. Of this total, 483 permanent hires self-identified 
as having a disability. In addition there were 271 permanent Disabled 
Veterans with 30 percent or more compensable disabilities hires that 
self-identified not having a disability or not wishing to disclose a 
disability. Together, these permanent hires represented 20.7 percent of 
the Department's permanent hires. See Attachment B.

    Question 6e. Did the Department of Labor train its staff before 
they collected data from existing employees regarding their 
disabilities?
    Answer 6e. No. However, DOL employees received e-mail instructions 
on how to update their disability status electronically as part of the 
DOL Disability Census in August 2012. As a result, 371 DOL employees 
updated their own disability status. No DOL staff ``collected data'' 
from other employees.

    Question 6f. Were they provided training packets or other 
materials? If so, please provide a copy of those training packets or 
other materials.
    Answer 6f. Attachments C-F are copies of the communications issued 
to DOL employees.
                                 ______
                                 
                              Attachments

                              Attachment A

                      FTS-DOL ESA WH Conference Call--Mr. Michael Hancock-Conference Leader
                                 June 26 2012 @ 2 PM CT--Confirmation # 4912550
----------------------------------------------------------------------------------------------------------------
                                                                                                State agency or
                                      First name           Last name             State           organization
----------------------------------------------------------------------------------------------------------------
1...............................  Jospeh............  Breen.............  NC................  Division of
                                                                                               Medical
                                                                                               Assistance.
2...............................  Kathy.............  Bruni.............  CT................  Dept. of Social
                                                                                               Services.
3...............................  Marcus............  Canaday...........  WVA...............  Bureau for Medical
                                                                                               Svcs.
4...............................  Cecilia...........  Cowie.............  MT................  Dept. of Public
                                                                                               Health & Human
                                                                                               Services.
5...............................  Barb..............  Edwards...........  MD................  Centers for
                                                                                               Medicare &
                                                                                               Medicaid.
6...............................  Kristin...........  Edwards...........  MO................  MO Health Net
                                                                                               Division.
7...............................  Merle.............  Edwards...........  VT................  Dept. of
                                                                                               Disability Aging
                                                                                               and Independent
                                                                                               Living.
8...............................  Mary..............  Ellen Wright......  KS................  Department of
                                                                                               Health.
9...............................  Jeffrey...........  Greer.............  CA................  Dept. of
                                                                                               Developmental
                                                                                               Svcs.
10..............................  Tami..............  Harlan............  AR................  Dept. of Human
                                                                                               Services Division
                                                                                               of Medical
                                                                                               Services.
11..............................  Richard...........  Henley............  LA................  Dept. of Health
                                                                                               and Hospitals.
12..............................  Rick..............  Hepfer............  SC................  Dept. of Health &
                                                                                               Human Services.
13..............................  Lisa..............  Hettinger.........  ID................  ID Medicaid.
14..............................  Glenda............  Higgs.............  AR................  DHS Medicaid.
15..............................  Heather...........  Hill..............  MI................  Medicaid.
16..............................  Patti.............  Killingsworth.....  TN................  Zero of Tencare.
17..............................  Karen.............  Kimball...........  NH................  Dept. of Health &
                                                                                               Human Services.
18..............................  Glen..............  Larsen............  UT................  Bureau Community
                                                                                               Based Services.
19..............................  Helen.............  Leonard...........  VA................  Dept. of Medical
                                                                                               Assistance
                                                                                               Services.
20..............................  Barbara...........  Lewis.............  DE................  Medicad and
                                                                                               Medical
                                                                                               Assitance.
21..............................  Mary Jo...........  Littlewood........  NC................  The Division of
                                                                                               Aging & Adult
                                                                                               Services.
22..............................  Nancy.............  Maier.............  ND................  ND Medicaid.
23..............................  Jeane.............  Maitland..........  IN................  Office of Medcaid
                                                                                               Policy &
                                                                                               Planning.
24..............................  Andrea............  Maresca...........  DC................  National
                                                                                               Association of
                                                                                               Medcaid
                                                                                               Directors.
25..............................  Nichole...........  Martin............  VA................  Dept. of Medical
                                                                                               Assistance.
26..............................  Laura.............  McClintock........  WA................  DOL.
27..............................  Tammy.............  Moffitt...........  NV................  Division of
                                                                                               Healthcare
                                                                                               Financing &
                                                                                               Policy.
28..............................  Lou Ann...........  Owen..............  LA................  LA Dept. of Health
                                                                                               & Hospitals.
29..............................  Connie............  Parker............  AR................  Dept. of Human
                                                                                               Services & Aging.
30..............................  Kevin.............  Patterson.........  MD................  Medicaid.
31..............................  Laura.............  Randles-Little....  CA................  CA Dept. of Social
                                                                                               Services.
32..............................  Greg..............  Rodriguez.........  CA................  Dept. of Social
                                                                                               Services.
33..............................  Don...............  Ross..............  OR................  Division of
                                                                                               Medical
                                                                                               Assistance
                                                                                               Programs
                                                                                               Medicaid.
34..............................  John..............  Shen..............  CA................  Dept. of Health
                                                                                               care services.
35..............................  Roy...............  Smith.............  SC................  Dept. of HHS.
36..............................  Jami..............  Snyder............  AZ................  AZ Healthcare Cost
                                                                                               Containment
                                                                                               System Access.
37..............................  Diane.............  Stahle............  IA................  Attorney General's
                                                                                               Office.
38..............................  Jamie.............  Staunton..........  WY................  Dept. of Health.
39..............................  Michael...........  Stickler..........  OR................  Dept. of Human
                                                                                               Svcs.
40..............................  Jarrod............  Terry.............  MD................  MD Dept. of
                                                                                               Health.
41..............................  Megan.............  Uzzell............  Federal...........  Dept. of Labor.
----------------------------------------------------------------------------------------------------------------

                              Attachment B

 
------------------------------------------------------------------------
                                                                 No. of
                        Disability code                            DOL
                                                                  hires
------------------------------------------------------------------------
1.............................................................        35
5.............................................................       236
6.............................................................       109
13............................................................         2
15............................................................        42
18............................................................         3
21............................................................         3
22............................................................        16
24............................................................         1
26............................................................         2
27............................................................         1
30............................................................         2
40............................................................        22
41............................................................         8
44............................................................        55
45............................................................         2
46............................................................         1
47............................................................         2
48............................................................         1
49............................................................         5
51............................................................         3
57............................................................         6
61............................................................         5
64............................................................         1
65............................................................         1
69............................................................         8
70............................................................        10
79............................................................         1
82............................................................         4
83............................................................         7
84............................................................        46
86............................................................        27
87............................................................         1
88............................................................        13
90............................................................         4
91............................................................        30
92............................................................         2
93............................................................         2
94............................................................        25
95............................................................        10
                                                               ---------
  Total Hires.................................................       754
------------------------------------------------------------------------
Please note that some of the codes listed above were abolished and moved
  to other codes consistent with the July 2010 revised SF-256. This
  systems change was effective on June 5, 2011. Currently, all
  disability codes align with the SF-256, revised July 2010.

                              Attachment C

From:        Michael Kerr Public--ASAM
Sent:          Tuesday, July 17, 2012 6:29 PM
Subject:       Memorandum for All DOL Federal Employees--2012 DOL 
        Disability 
                  Census
Attachments: Memorandum for All DOL Federal Employees--2012 DOL 
        Disability 
                  Census (7-17-12).pdf

This message is intended for all DOL Federal employees

From: T. Michael Kerr, Assistant Secretary for Administration and 
        Management
      Kathy Martinez, Assistant Secretary for Disability Employment 
        Policy

    Shortly, the Department will launch the 2012 DOL Disability Census. 
All DOL employees are encouraged to review and update their disability 
status. You may do so via your Employee Personal Page (EPP) at: https:/
/www.nfc.usda.gov/personal/eplogin.aspx (please click on ``ERI, Gender, 
& Disability'' and select the ``self-service'' button to make changes). 
Alternatively, you can complete the attached Standard Form 256 (Form 
256 ``Self Identification of Disability'') and provide the completed 
form to your servicing personnel office.
    Please review the choices on the front of the form. While you may 
not consider yourself disabled, you may have a disability. Please also 
note that, as the form states, your personal responses will remain 
confidential and will not become part of your official personnel 
records.
    Two years ago, President Obama signed Executive Order 13548, 
Increasing Federal Employment of Individuals with Disabilities, which 
requires Federal agencies to improve their efforts in the recruitment, 
hiring and retention of individuals with disabilities. Led by the 
Secretary DOL has engaged in the following activities:

     Increased training for managers about special hiring 
authorities for persons with disabilities;
     Enhanced outreach and networking relationships with 
external organizations that promote the employment of individuals with 
disabilities;
     Increased use of specific recruitment tools (e.g., the 
Bender List) among human resources professionals to find qualified 
applicants with disabilities for an array of positions;
     Increased awareness and promotion of the Department's 
Reasonable Accommodation Resource Center (RARC), which provides sign 
language interpretation, document production in Braille, and other 
forms of assistive technology to help improve and adapt the physical, 
technical, and recreational environments of employees with 
disabilities; and
     Increased resources to support applicants and employees 
with disabilities with employment inquiries.

    There is still room for improvement. The Secretary's commitment to 
EO 13548 is ongoing. There is considerable interest in ensuring that 
employees are receiving the support needed to be successful and to be 
able to contribute fully within the work environment. Updating 
individual disability information is, as the Form 256 states. ``the 
essential first step in improving these conditions and consequently 
meeting the requirements of the Rehabilitation Act.'' This is 
especially important considering that one's disability status may 
change during one's career.
    Thank you.

                              Attachment D

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                              Attachment E

From:        Michael Kerr Public--ASAM
Sent:        Monday, August 06, 2012 2:46 PM
Subject:      Status of the 2012 DOL Disability Census
Attachments: Status of the 2012 DOL Disability Census (8-6-12).pdf

This message is intended for all DOL Federal employees

From: T. Michael Kerr, Assistant Secretary for Administration and 
        Management
      Kathy Martinez, Assistant Secretary for Disability Employment 
        Policy

    By now, you know that last week we officially launched our 2012 DOL 
Disability Census on LaborNet. We weren't sure how many employees 
needed to update their disability codes, but we wanted to ensure that 
our data was as accurate as it could be. We are very happy that we made 
this effort a priority. At the end of our first week, nearly 300 
employees updated their disability status. We will keep the LaborNet 
banner up all month to remind you to make any updates if you haven't 
yet.
    Thank you those of you that have already updated your disability 
status and/or provided us with feedback. We received several comments 
about the current form and the Employee Personal Page (EPP) not 
allowing employees to make more than one disability code designation. 
We have discussed this concern with OPM, and they are working on a 
revision that allows for this in the future. We will keep you apprised 
of their progress. Finally, we wanted to communicate that we appreciate 
your feedback and are pursuing your ideas and concerns as best we can.
    Thank you for helping us to ensure employees and applicants are 
receiving the support needed to be successful at work.

                              Attachment F
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                            senator isakson
    Question 1. Several years ago, the construction industry came 
together with labor unions, in coordination with DOL, to develop the 
Crane and Derrick Standard to protect the American workforce from being 
killed or seriously injured by crane accidents. The Department has 
recently indicated that it intends to delay the implementation of this 
standard. Why, with the development of regulation with a 4-year phase 
in period and nearly unanimous consensus from stakeholders, would you 
consider the delay of the compliance deadline for this rule?
    Answer 1. OSHA published the Cranes and Derricks standard in 2010, 
and most of the provisions are currently in effect, including 
provisions to ensure power line safety, safe ground conditions, regular 
inspection and repair, and keeping workers away from overhead loads. 
However, after the final standard was published, the Agency heard from 
members of the crane industry, including members of the original 
advisory committee, that there was considerable confusion about OSHA's 
crane operator qualification requirements, specifically concerning the 
requirement that operators be certified by ``type and capacity'' of 
crane, as well as concerns that operator certification alone may not 
provide sufficient safety. OSHA heard this message in public and 
private meetings as well as in public stakeholder meetings on April 2 
and 3 of this year. The notes from the stakeholder meetings are posted 
on OSHA's Web site.\3\
---------------------------------------------------------------------------
    \3\ http://www.osha.gov/cranes-derricks/Meeting_notes.html.
---------------------------------------------------------------------------
    As a result, OSHA has announced that it intends to extend for 3 
years the date of enforcement for two provisions of the final cranes 
standard. OSHA will extend for 3 years the deadline for crane operators 
to be certified. To ensure that crane operators are qualified to 
operate the equipment during this period, OSHA will also extend for 3 
years the employer's current duty to ensure that crane operators are 
competent to safely operate equipment. Employers have long held this 
duty under OSHA's construction standards.

    Quesstion 2. What concerns and stakeholders have caused the 
Department to consider delaying the compliance date which the crane 
industry so strongly supported?
    Answer 2. A number of stakeholders expressed the concerns described 
above. A list of participants in our stakeholder meetings, as well as 
their written comments and notes that describe their concerns can be 
viewed in OSHA's Crane Operator Certification Requirements Web page.\4\
---------------------------------------------------------------------------
    \4\ http://www.osha.gov/cranes-derricks/stakeholders.html.
---------------------------------------------------------------------------
                             senator scott
    The significant policy shift represented by OSHA's February 21, 
2013 Letter of Interpretation regarding the accompaniment of OSHA 
inspectors by third parties on walk-around inspections is of great 
concern for a number of reasons.
    Question 1. This Letter of Interpretation (LOI) seems to have been 
issued with great haste and without any public input. Why did OSHA 
decide to pursue a significant change in OSHA practice and policy via a 
closed process (Letter of Interpretation) rather than the more open and 
deliberative process a rulemaking affords?
    Do you not agree that the opportunity for stakeholders to offer 
their input is of great importance?
    Answer 1. OSHA fully agrees that stakeholders should have the 
opportunity to offer input when OSHA is pursuing significant changes in 
practice and policy. Allowing non-employee third-party representatives 
to accompany OSHA inspectors on walk-around inspections, however, is 
not a new OSHA policy. The February 21, 2013 Letter of Interpretation 
was not a significant change of OSHA practice or policy, but a 
clarification of existing OSHA policy. Therefore, notice and comment 
were not required by the Occupational Safety and Health Act or by the 
Administrative Procedures Act.

    Question 2. Please explain how allowing third parties, such as 
union organizers, to accompany OSHA inspectors into non-unionized 
facilities does not violate the Field Operations Manual, which gives 
inspectors clear instructions to remain neutral in any labor dispute?
    The Manual reads:

          ``During the inspection, Compliance Safety and Health 
        Officers will make every effort to ensure that their actions 
        are not interpreted as supporting either party to the labor 
        dispute.''

    Answer 2. OSHA's Field Operations Manual clearly instructs OSHA 
Area Directors to thoroughly assess the credibility and veracity of any 
complaint filed during a labor dispute and states that ``During the 
inspection, CSHOs will make every effort to ensure that their actions 
are not interpreted as supporting either party to the labor dispute.'' 
The Field Operations Manual also instructs CSHO's to ``ensure that 
employee representatives are afforded the opportunity to participate in 
all phases of the inspection.'' OSHA management and staff are trained 
to comply with the Field Operations Manual and are required to follow 
its directions.
    OSHA inspectors are instructed and trained to ensure that the focus 
of all participants in its inspections is on worker safety and health. 
The walk-around regulations as a whole provide numerous safeguards to 
allow CSHOs to maintain this focus, and to make sure that walk-around 
representatives do not engage in disruptive behavior.

    Question 3. The question of the neutrality of inspectors will 
inevitably manifest itself and will subvert the safety focus of these 
inspections. The inclusion of these third parties also has the 
potential to invite opportunities for unions and other groups to 
advance their agendas against an employer. How is this in the best 
interest of workers' long-term safety?
    Answer 3. Worker participation in OSHA inspections is vital to a 
thorough and effective inspection. OSHA's regulations allow compliance 
officers to permit third parties to be walk-around representatives in 
order to make a positive contribution to a thorough and effective 
inspection.

    Question 4. What liability protections will be afforded to 
employers for having third parties who lack requisite safety training 
or clearance to be around sensitive (not classified) information in 
their facilities? Who is legally responsible if the third party is 
injured? Can criminal background checks be run on these third party 
representatives?
    Answer 4. This is not a new policy for OSHA. However, 29 CFR 
1903.8(d) states that:

          ``Compliance Safety and Health Officers are authorized to 
        deny the right of accompaniment under this section to any 
        person whose conduct interferes with a fair and orderly 
        inspection.''

    Section 1903.9(d) allows an employer to limit entry to an area 
containing trade secrets to authorized representatives who are 
authorized by the employer to enter that area. Nothing in OSHA's 
February 21, 2013, letter affects either of these rules.

    Question 5. The LOI fails to address the experience or 
qualifications required of third parties who might be selected to 
accompany OSHA inspectors, which is in direct contrast to OSHA 
regulations suggesting third parties who accompany inspectors in the 
limited cases the regulation affords should be safety engineers or 
industrial hygienists. Does OSHA plan to stipulate any specific 
criteria here?
    Answer 5. OSHA's regulations allow CSHOs to permit third parties to 
be walk-around representatives in order to make a positive contribution 
to a thorough and effective inspection. Specifically, 29 CFR 1903.8(a)-
(d), allow the compliance officer significant discretion as to who 
participates in inspections. Although section 1903.8(c) states the 
general rule that walk-around representatives ``shall be'' employees of 
the employer, it explicitly allows walk-around participation by an 
employee representative who is not an employee of the employer when, in 
the judgment of the OSHA compliance officer, such a representative is 
``reasonably necessary to the conduct of an effective and thorough 
physical inspection.'' While section 1903(c) offers examples of 
industrial hygienists or safety engineers as possible third parties, it 
does not purport to be an exclusive list and does not preclude the 
participation of other third parties who may make a positive 
contribution to a thorough and effective inspection.

        Response by James Sherk to Questions of Senator Harkin, 
                 Senator Alexander, and Senator Murray

                             senator harkin
    Question 1. Your testimony included the hypothetical case of a 
single mother working at minimum wage in Des Moines who would 
purportedly lose public benefits like child care subsidies if she 
received a raise. This is based on an online calculator from the Urban 
Institute, which uses 2008 program policies and laws. However, 
according to the fee chart from the Iowa Department of Human Services--
which is updated annually and shows current child care co-pays for low-
income families--a single mother of one child earning $7.25 per hour 
and working full-time would have a very low copay--paying only around 
$8 per month for child care. If her wage increased to $10.10, her copay 
would increase to $128 per month. That is, she does not lose her entire 
subsidy as you have asserted; rather her child care is still heavily 
subsidized, though she does pay a bit more. We have provided you with 
this fee chart. What is your response to this updated information? How 
do you reevaluate the hypothetical case you have presented?
    Answer 1. I contacted the Urban Institute staff who produced the 
NICC calculations. They checked their calculations and the current Iowa 
subsidy charts and verified that your staff is correct. Iowa's 
childcare subsidies slowly phaseout until they reach a threshold value, 
at which point they stop entirely. The NICC uses 2008 program rules, 
and in 2008 that threshold value was below $10.10 an hour. Inflation 
adjustments since then have raised the threshold for a single mother 
with one child to $10.56 an hour. (The fee chart shows subsidies for 
parents with higher income levels; only parents of children with 
disabilities qualify for them.)
    Re-evaluating the provided hypothetical, the single mother would 
face an effective marginal tax rate of 73 percent if her income rose 
from $7.25 an hour to $10.10 an hour. Her market income would rise by 
$494 a month, while she would owe $152 more in State and Federal taxes 
and lose $129 in childcare benefits \1\ and $88 in SNAP benefits. So 
her net income would rise by $125 a month, 25 percent of the increase 
in her market earnings.
---------------------------------------------------------------------------
    \1\ The calculations your staff produced assumed 20 work days a 
month, i.e., a 4-week month. The NICC calculations assume 4.33 weeks in 
a month, which increases the marginal cost per month to $129 from $120.
---------------------------------------------------------------------------
    If, however, she subsequently earned a 50 cent raise to $10.60 an 
hour she would be left worse off than if her pay remained at $7.25 an 
hour. At that point she would cross the eligibility threshold for 
childcare benefits and lose the approximately $400 a month in remaining 
childcare subsidies. This entirely offsets both her increased pay from 
the raise and the entire net income gains from going from $7.25 an hour 
to $10.10.
    The structure of the current welfare system heavily penalizes low-
income workers who earn raises or work additional hours. They receive 
little near-term benefit from additional work. The Des Moines Register 
recently reported on this problem.\2\ The paper covered a single mother 
who, in order to maintain eligibility for childcare subsidies, now 
works 4 days a week instead of her preferred five:
---------------------------------------------------------------------------
    \2\ Sara Sleyster, `` `Child care cliff' makes it tough for working 
poor to get ahead,'' The Des Moines Register, March 17, 2013, http://
www.desmoinesregister.com/article/20130318/NEWS/303180039/-Child-care-
cliff-makes-tough-working-poor-get-ahead.

          Single mother Stacia Mattix of Des Moines faced losing child 
        care assistance in December because she was making 30 cents 
        more than allowed. The 30 cents was not going to cover the more 
        than $300 a week she received in assistance for her two 
        children, ages 3 years and 18 months.
          Her solution was to drop a day from work to remain qualified, 
        which has cost her around $80 a week in income.
          ``I think it's unfair for the people who are working and 
        trying to make a decent living that they can't get any help 
        because they make a teeny-tiny bit over,'' said Mattix, 22.
          Mattix feels stuck. Her children must attend a child care 
        center because of the hours she works. In-home child care would 
        be cheaper, but she cannot find one that opens at 5:45 a.m.
          ``Making $10.81 an hour is not going to make up $300 a week 
        for day care,'' Mattix said. ``I think something needs to be 
        done about it.'' \3\
---------------------------------------------------------------------------
    \3\ Note that Ms. Mattix receives more childcare subsidies than the 
hypothetical single mother I discussed because she has two children.

    Question 2. Mr. Sherk, most opponents to the minimum wage claim 
that the minimum wage harms teenage employment. You have made the case 
that increasing the minimum wage encourages more teenagers and college 
students to apply for minimum-wage jobs and that these new workers 
crowd-out adult applicants. In other words, teens gain jobs, to the 
detriment of adult workers. Which is it--raising the minimum wage is 
bad for teens, or good for teens?
    Answer 2. Raising the minimum wage causes employers to hire fewer 
workers overall. However, it also causes some teenagers to enter the 
labor force and apply for jobs they would not have otherwise sought. 
This has ambiguous effects on teenage employment: it reduces job 
openings, but more teenagers apply for the remaining openings. 
Consequently total teen employment can either rise or fall depending on 
the ratio of adult to teenage workers before the increase and the 
change in teenage job seekers afterward.\4\
---------------------------------------------------------------------------
    \4\ To illustrate this consider companies A Corp. and B Inc. Before 
the minimum wage increase A Corp. employs only teenagers and B Inc. 
employs only adults. Because of the minimum wage hike A Corp. cuts its 
payroll and this reduces its total teenage employment--only teenagers 
can lose their jobs. B Inc. also cuts its payroll, but at the higher 
pay rate teenagers make up half of the qualified applicants for its 
openings. So teenagers account for half the new hires when B Inc. fills 
job openings. B Inc. employs more teenagers than before despite 
employing fewer workers.
---------------------------------------------------------------------------
    Minimum wage increases unambiguously harm the job prospects of 
workers, both teenagers and adults, who would have applied for jobs 
anyway. They face both fewer job openings and stiffer competition for 
those openings. As I discussed in my testimony, this lowers the ratio 
of adult to teenage employment within firms. It also shifts the 
composition of teenage employment. After minimum wage increases, 
businesses employ more teenagers living in affluent zip codes and fewer 
teenagers from lower-income zip codes.\5\ The higher pay induces more 
affluent teens to enter the labor market. They crowd out both 
disadvantaged adults and disadvantaged teenagers.
---------------------------------------------------------------------------
    \5\ Laura Giuliano, ``Minimum Wage Effects on Employment, 
Substitution, and the Teenage Labor Supply: Evidence from Personnel 
Data,'' The Journal of Labor Economics, Vol. 31, No. 1 (January 2013), 
pp. 155-194.
---------------------------------------------------------------------------
                           senator alexander
    Question 1. During the hearing, it was asserted that studies like 
those of Dr. Michael Reich studying metropolitan areas or counties 
across State lines are the ``gold standard'' of economic studies on the 
minimum wage. Do you agree that such studies are the ``gold standard'' 
for evaluating the economic effects of minimum wage increases? If not, 
please describe any problems with respect to these studies' 
methodology.
    Answer 1. The ``gold standard'' of any economic study is a 
randomized controlled trial, with some subjects randomly subject to the 
program or policy, and others randomly selected as a control group. 
Such studies control for all external differences between the treatment 
and control groups, leaving the policy as the only remaining factor 
driving changes between the two. Randomized controlled trials recently 
demonstrated that Job Corps does little to improve the wages or 
employability of youth who participated in the program.\6\ Randomized 
controlled trials also demonstrated that giving long-term unemployment 
insurance recipients Re-employment Eligibility Assessments (REAs) 
speeded their return to work.\7\
---------------------------------------------------------------------------
    \6\ Peter Z. Schochet, John Burghardt, and Sheena McConnell, ``Does 
Job Corps Work? Impact Findings from the National Job Corps Study,'' 
The American Economic Review, Vol. 98, No. 5 (December 2008), pp. 1864-
86.
    \7\ Eileen Poe-Yamagata, et al., ``Impact of the Reemployment and 
Eligibility Assessment (REA) Initiative,'' IMPAQ International, June 
2011, http://wdr.doleta.gov/research/FullText_
Documents/ETAOP_2012_08_Impact_of_the_REA_Initiative.pdf.
---------------------------------------------------------------------------
    Such randomized controlled trials are not possible in the context 
of the minimum wage debate. Congress does not randomly raise the 
minimum wage some firms must pay, but not others, and evaluate whether 
those firms hire fewer workers. This leaves researchers with a second-
best approach of comparing the economic results of jurisdictions that 
raise their minimum wage with those that do not and then controlling 
for external factors that might influence the comparison.
    Dr. Reich and his co-authors attempt to control for external 
factors with an intuitively plausible methodology: comparing counties 
that border each other across a State line, where one State raises its 
minimum wage and the other does not. It seems reasonable that such 
counties should be relatively similar to each other, and thus the 
primary difference between them would come from the higher minimum 
wage. However, other researchers have examined this assumption and 
found that counties that border each other are often very 
dissimilar.\8\
---------------------------------------------------------------------------
    \8\ David Neumark, Ian Salas, and William Wascher, ``Revisiting the 
Minimum Wage--Employment Debate: Throwing Out the Baby with the 
Bathwater?'' National Bureau of Economic Research Working Paper No. 
18681 (2013), http://www.nber.org/papers/w18681.
---------------------------------------------------------------------------
    Dr. David Neumark (University of California at Irvine) and Dr. 
William Wascher (The Federal Reserve Board) analyzed how closely the 
labor markets of cross-border counties resemble each other. They find 
that among reasonable candidates for comparison, the cross-border 
counties ``appear no better than a random draw.'' \9\ In the example I 
referenced in my written testimony, Dr. Reich's methodology compares 
urban Leon County in Florida (the home county of Tallahassee and site 
of a major university) with its population of 275,000 with rural Grady 
County, GA, population 25,000.
---------------------------------------------------------------------------
    \9\ Ibid., pp. 27-8.

    Question 2. There was some disagreement at the hearing as to 
whether studies finding that minimum wage increases reduce employment 
have local or regional controls as compared to Dr. Reich's studies 
purporting to employ local controls in comparing adjacent counties 
across State lines. You testified that the ``heart of the dispute'' 
between Dr. Reich's studies and the findings of other economists, i.e., 
that higher minimum wages reduce employment, regards what constitutes 
an appropriate control group. Please explain and clarify the apparent 
conflict in the economic literature of the minimum wage, including the 
differing controls used in each.
    Answer 2. Studies comparing States that raise their minimum wage to 
those that do not consistently find the minimum wage reduces 
employment. Dr. Reich and his co-authors argue this happens because 
States with minimum wages above the Federal rate--predominantly in the 
Northeast and Pacific coast--have slower underlying employment growth, 
especially among the teenage and restaurant workers most affected by 
the minimum wage. They contend this drives the apparent negative 
relationship between higher minimum wages and lower employment. Their 
research deals with this potential problem by either (1) comparing 
cross-border counties or (2) including controls for the census region 
the State resides in--thus comparing changes in employment only between 
States in the same census division. With either of these approaches 
they find no correlation between minimum wage rates and lower 
employment.
    On the first point, Dr. Neumark and Dr. Wascher object that Dr. 
Reich throws out large amounts of useful information on the effect on 
minimum wage increases. For example, a rural county in Tennessee and in 
Michigan may have comparable labor markets. A decrease in employment in 
Michigan relative to Tennessee following Michigan's minimum wage hike 
provides insight into the effect of higher minimum wages. But because 
Michigan and Tennessee do not border, Dr. Reich's studies ignore this 
information.
    Economists have other approaches for dealing with pre-existing 
trends. One involves directly controlling for State time trends. Dr. 
Neumark and Dr. Wascher included such controls in earlier studies and 
found it had no effect on their conclusions. Dr. Reich and his 
colleagues included controls for time trends over a period covering 
1990-2009 and found that doing so removed the negative employment 
effect of minimum wage increases. This is one of the reasons they 
criticize Neumark and Wascher's findings. However, their approach 
assumed that employment grows at a constant rate over time. This is 
unlikely to hold true, especially given the recessions of 1990, 2001, 
and 2008-9. When Neumark and Wascher controlled for State trends using 
a more flexible specification that allowed for different rates of 
growth during recessions and expansions they found minimum wage 
increases reduce employment. \10\
---------------------------------------------------------------------------
    \10\ Ibid., pp. 10-14.
---------------------------------------------------------------------------
    On the second point, Neumark and Wascher point out that many States 
in the same census region (such as West Virginia and Florida) have very 
different employment trends. They analyzed minimum wage effects 
separately for each census region and also analyzed the comparability 
of States within those regions. They found significant negative 
employment effects in the census regions where States are the most 
comparable. In census regions where State economic trends differed 
markedly--and thus make poor comparison groups--they found no effects.
    The argument that the failure to include regional controls biases 
minimum wage studies hinges upon the assumption that States in the same 
region (or neighboring counties) are better comparisons for each other. 
Neumark and Wascher find this is often not the case, but that such 
analysis finds negative employment effects when States have similar 
economic characteristics.\11\
---------------------------------------------------------------------------
    \11\ Ibid., pp. 15-24.
---------------------------------------------------------------------------
    It should be noted that studies with regional controls by 
researchers other than Neumark and Wascher also find negative 
employment effects--when the comparison States are chosen on the basis 
of their similarity. For example, a recent study analyzed the effect of 
New York's 2004 increase in the minimum wage. This study found that the 
nearby States of Pennsylvania, Ohio, and New Hampshire had similar 
economic trends. Compared with these States--or a more complex 
``synthetic control'' method--the researchers found that teenage 
employment in New York fell sharply after the minimum wage rose.\12\
---------------------------------------------------------------------------
    \12\ Joseph Sabia, Richard Burkhauser, and Benjamin Hansen, ``Are 
the Effects of Minimum Wage Increases Always Small? New Evidence from a 
Case Study of New York State,'' Industrial and Labor Relations Review, 
Vol. 65, No. 2, (April 2012).

    Question 3. During the hearing, you were asked about your example 
of the hypothetical single mother from Des Moines, Iowa earning minimum 
wage. It was suggested that the numbers you used from the Urban 
Institute did not take into account legal changes that have occurred 
since 2008. Would you please explain the source of your data, the 
method of your calculations, and your conclusions concerning how higher 
minimum wages combine with overlapping government social program phase-
outs to create disincentives to work?
    Answer 3. Many Federal programs phaseout as an individual's income 
rises. This makes sense--the government should not be providing food 
stamps or welfare benefits to middle-class workers. However, Congress 
did not coordinate the phase-out rates across programs. As a 
consequence low-income workers can face extraordinarily high effective 
marginal tax rates as they lose benefits from multiple programs at 
once. Many low-income workers receive little to no net benefit from 
working additional hours or earning a raise. This problem particularly 
affects full-time workers with earnings near the Federal minimum wage.
    To quantify this problem the Urban Institute created a Net Income 
Change Calculator (NICC).\13\ The calculator models how a worker's net 
income changes as his or her earned income rises. It accounts for 
changes in: Federal income and payroll tax liabilities; earned income 
tax credit (EITC) refund; welfare benefits (TANF); women, infants, and 
children benefits (WIC); food stamps (SNAP); subsidized housing; and 
child-care benefits. The calculator does not account for medical 
benefit programs like Medicaid or SCHIP. The program uses 2008 benefit 
eligibility rules.
---------------------------------------------------------------------------
    \13\ http://nicc.urban.org/netincomecalculator/.
---------------------------------------------------------------------------
    I used the NICC to calculate the effective change in the income of 
a single mother with one child in Iowa. I assumed that the mother 
worked full-time for the Federal minimum wage of $7.25 an hour and 
participated in all Federal programs for which she was eligible. I 
further assumed her child was 3 years old, that childcare cost her $700 
a month, that she pays $600 a month in rent, and has $1,000 in assets 
as well as a vehicle worth $3,000. I evaluated the effect on her net 
income of a $2.85 pay increase to $10.10 an hour. Anyone can replicate 
my results by entering these assumptions into the NICC.
    The NICC shows that, with the raise, the single mother earns $494 
more a month in market income. However, after taxes and benefits her 
net income falls by $264. The mother pays $152 more in total taxes 
(including a smaller EITC refund) and loses over $600 in government 
benefits. The bulk of these benefit reductions ($528) came from losing 
eligibility for childcare subsidies. Iowa's childcare subsidies slowly 
decrease over a limited income range until they hit a threshold 
earnings amount. At that point, they phaseout entirely. In 2008, that 
threshold was less than $10.10 an hour in a full-time job, so a parent 
getting a raise to $10.10 an hour would lose eligibility for all 
childcare subsidies.
    Senator Harkin's staff contacted the Iowa Department of Human 
Services and obtained an updated childcare fee chart indicating that a 
single mother of one child would currently lose $120 in benefits if her 
pay was raised to $10.10 an hour. Urban Institute staff determined that 
Senator Harkin's staff is correct. Inflation adjustments have increased 
the phase-out threshold for a full-time worker to about $10.56 an hour. 
(The fee chart that Senator Harkin's staff provided has subsidies for 
higher income amounts, but these only apply to the parents of children 
with disabilities.)
    In 2013, a raise to $10.10 an hour would reduce the mother's 
benefits by approximately $220, not the $600 I reported. So she faces 
an effective marginal tax rate of 75 percent over that income 
range.\14\ If, however, that mother received a further 50 cent raise 
she would lose eligibility for all childcare subsidies. The loss in 
subsidies at $10.57 an hour would leave her financially worse off than 
if her pay had remained at $7.25 an hour.
---------------------------------------------------------------------------
    \14\ Her market income would rise by $494 ($2.85/hour *40 hr/week 
*4.33 weeks/month) but she would forfeit $152 in higher taxes, $88 in 
SNAP benefits, and $129 in childcare subsidies, for a net increase in 
income of $125--just 25 percent of her additional earnings. Note that 
the figure Senator Harkin's staff calculated on childcare subsidies 
assumed a 4-week month, the NICC calculations assume 4.33 weeks per 
month. This explains the difference between $120 and $129 in lower 
subsidies.
---------------------------------------------------------------------------
    The structure of existing social assistance programs heavily 
penalizes low-income workers who work additional hours or earn raises. 
The Des Moines Register reported on this problem, and highlighted a 
case of a single mother who began working only 4 days a week to 
maintain her eligibility for childcare benefits, even though she would 
have preferred to work full-time: \15\
---------------------------------------------------------------------------
    \15\ Sara Sleyster, `` `Child care cliff ' makes it tough for 
working poor to get ahead,'' The Des Moines Register, March 17, 2013, 
http://www.desmoinesregister.com/article/20130318/NEWS/303180039/-
Child-care-cliff-makes-tough-working-poor-get-ahead.

          Single mother Stacia Mattix of Des Moines faced losing child 
        care assistance in December because she was making 30 cents 
        more than allowed. The 30 cents was not going to cover the more 
        than $300 a week she received in assistance for her two 
        children, ages 3 years and 18 months.
          Her solution was to drop a day from work to remain qualified, 
        which has cost her around $80 a week in income.
          ``I think it's unfair for the people who are working and 
        trying to make a decent living that they can't get any help 
        because they make a teeny-tiny bit over,'' said Mattix, 22.
          Mattix feels stuck. Her children must attend a child care 
        center because of the hours she works. In-home child care would 
        be cheaper, but she cannot find one that opens at 5:45 a.m.
          ``Making $10.81 an hour is not going to make up $300 a week 
        for day care,'' Mattix said. ``I think something needs to be 
        done about it.''

    Minimum wage increases occur in the income zone where these phase-
out and threshold effects are most severe. Suburban teenagers who do 
not qualify for these benefits would enjoy the full benefit from a 
higher wage rate (assuming they kept their jobs). But low-income adults 
receiving government assistance would forfeit much of the economic 
value of their higher pay.
    The government has created a system in which low-income adults 
benefit little from moderate increases in their pay--either through 
working longer hours, earning a raise, or a higher minimum wage. This 
is one of the reasons that just 9 percent of adults in families living 
below the poverty line work full-time year-round. They are responding 
rationally to the incentives the government has created.

    Question 4. In response to your concern about work disincentives, 
it was suggested that if you were opposed to minimum wage increases due 
to the effect government social program phase-outs have in consuming 
most of the additional resulting income, then you must be in favor of 
increasing government benefits, or vice versa. It was asserted that by 
advocating against increasing the minimum wage as well as against 
increasing government benefits, you were arguing ``two absolutely 
contradictory points.'' Please explain and clarify your position on how 
the Federal Government should modify government benefit phase-outs to 
reduce disincentives to work, and how that position relates to the 
proposed minimum wage increase.
    Answer 4. Government social programs create extremely high 
effective marginal tax rates for low-income families. That is to say, 
as their income rises--either through a raise or a minimum wage hike--
they both pay more in taxes and lose benefits. Many families with 
hourly earnings near the Federal minimum wage face effective tax rates 
in excess of 70 percent--and in some cases over 100 percent--if their 
pay increased by $1 to $3 an hour.
    These punishingly high effective tax rates occur because of Federal 
welfare programs. Congress never coordinated their phase-out rates 
across programs--consequently workers lose benefits from multiple 
programs at once over the same income zone. Congress should restructure 
these programs, such as by having them phaseout sooner, to limit 
effective tax rates to no more than 50 percent over any income zone.
    Without such a reform, a minimum wage increase can do little to 
help low-income families, even if they keep their jobs. The same 
applies to raises low-income families earn without Federal 
intervention. Two-thirds of minimum wage workers earn a raise within a 
year, but those living near poverty experience little net financial 
benefit from this pay increase. The structure of social assistance 
programs discourages workers from gaining the experience and skills 
that would enable them to rise out of poverty.

    Question 5. You testified about the effects of large minimum wage 
increases on the economy of American Samoa. Do these effects provide 
any lessons for the United States in considering whether to increase 
the Federal minimum wage? Please explain.
    Answer 5. The Federal minimum wage affects very few Americans--less 
than 3 percent of all workers. Changes in the minimum wage, while 
significant for those impacted, have little aggregate effect on the 
economy. Consequently advocates of a higher minimum wage can argue, 
with little risk of contradiction, that minimum wage hikes stimulate 
the economy--it is difficult for economists to tease out the small 
effects of the higher minimum wage from other factors impacting GDP. 
Supporters of raising the minimum wage now routinely argue that it 
would give workers more money, leading them to spend more, stimulating 
demand and the overall economy.
    American Samoa put these theories squarely to the test. Congress 
planned to gradually increase American Samoa's minimum wage to the 
Federal level of $7.25 an hour. At that rate it would have covered 80 
percent of all hourly workers in the territory's economy--the 
equivalent of a $20 an hour increase in the continental United States. 
Congress suspended the minimum wage increase when it got to $4.76 an 
hour. At that point it covered two-thirds of employees in the tuna 
canning industry, the territory's largest industry.
    Such a large increase in the minimum wage had a large and visible 
impact on American Samoa. But it did not increase purchasing power, 
stimulate demand, or raise living standards. Instead the tuna canning 
industry contracted sharply and unemployment septupled from 5 percent 
to 36 percent; higher than anything America experienced during the 
Great Depression.\16\ While wages grew, inflation grew faster, and so 
inflation-adjusted pay fell 11 percent.\17\ The islands' Democratic 
Governor attributed virtually all of this economic damage to the 
minimum wage hike and begged Congress to suspend the increases.\18\
---------------------------------------------------------------------------
    \16\ Written testimony of American Samoa Governor Togiola Tulafona 
before the Subcommittee on Fisheries, Wildlife, Oceans and Insular 
Affairs of the Committee on Natural Resources, U.S. House of 
Representatives, September 23, 2011, Table 3.
    \17\ Government Accountability Office, American Samoa and the 
Commonwealth of the Northern Mariana Islands: Employment, Earnings, and 
Status of Key Industries Since Minimum Wage Increases Began, Report No. 
GAO-11-427, June 2011, Table 2.
    \18\ Written testimony of American Samoa Governor Togiola Tulafona.
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    American Samoa's experience demonstrates that minimum wage hikes do 
not produce virtuous self-reinforcing economic cycles that lead to 
general prosperity and growth. It also shows that employers respond to 
higher minimum wages the way economic theory suggests: by hiring fewer 
workers. Congress should weigh these costs carefully as it considers 
minimum wage increases. Congress had good intentions when it raised the 
minimum wage, but the hike hurt many of the workers Congress wanted to 
help.

    Question 6. At the hearing, it was said that there are always 
individuals who are willing to work for less and are willing to 
undercut others because they desperately need the work. Do you agree 
this is a problem?
    Answer 6. One of the problems with the minimum wage is that it 
makes it harder for those who need jobs the most to get them. Workers 
have different reservation wages--the lowest wage they will accept to 
work in a job. Generally speaking, the more an individual needs a job 
the lower their reservation wage. Workers with other options, such as 
teenagers supported by their parents, require higher wages to induce 
them to work.
    Increased minimum wages encourage workers with higher reservation 
wages to enter the job market. They compete for job openings with 
workers with lower reservation wages who would have applied anyway. As 
a result, the workers most in need of jobs--and the opportunity to gain 
skills and earn raises--become less likely to get hired.
                             senator murray
    Question. In your testimony, you discussed about the effect of 
increasing the minimum wage on people working minimum wage jobs. 
However, in Washington State, where the minimum wage is nearly $2 per 
hour higher than the national rate, we have seen benefits for a far 
larger group of low-income workers. Workers earning just above the 
minimum wage have also seen higher wages, putting more money into their 
pockets that they've spent in the Washington State economy. These 
workers may not qualify for as many Federal benefits as workers earning 
only the minimum wage, and an extra few dollars in their paycheck can 
make a big difference in helping them make ends meet. Do you agree that 
the benefits to those workers need to be taken into account when 
considering the effects of an increase in the minimum wage?
    Answer. I would agree the costs and benefits to all workers should 
be taken into account when considering increasing the minimum wage. 
This includes the extent to which employers raise the pay for employees 
earning near the minimum wage, and the extent they reduce or increase 
hiring in this group.
    Policymakers should also evaluate why pay rises for workers earning 
near the minimum wage. One theory holds that employers want to maintain 
internal wage differentials--they do not want to pay more experienced 
workers' entry-level wages. Analysis shows these ``ripple effects'' 
occur to a limited degree.\19\
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    \19\ Jeannette Wicks-Lim, ``Mandated wage floors and the wage 
structure: Analyzing the ripple effects of minimum and prevailing wage 
laws,'' Ph.D. dissertation, University of Massachusetts-Amherst, 
September 2005.
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    Minimum wage increases can also raise the pay of higher earners 
through ``substitution effects.'' Many companies face a basic choice: 
they can either (a) hire many low-wage, unskilled workers to do the job 
or (b) hire a smaller number of more highly skilled and highly paid 
workers and use more machines to perform the same work. This does not 
apply to all industries, of course--highly skilled workers are not much 
more productive as house cleaners, and a modern automotive factory has 
no place for unskilled workers. However, many businesses face this 
choice.
    Minimum wage increases make hiring unskilled workers more expensive 
without raising their productivity. This increases the demand for more 
skilled workers, improving their job opportunities and earnings at the 
expense of inexperienced workers.
    These ``substitution effects'' are the primary way that unions 
benefit from minimum wage increases. Unionized workers tend to be more 
highly paid and highly skilled than the population as a whole. They 
benefit when Congress makes it harder for less-skilled workers to 
compete against them. Research shows that a 20 percent increase in the 
minimum wage raises the pay of unionized workers who earn twice the 
minimum wage by 10 to 20 percent.\20\
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    \20\ David Neumark, Mark Schweitzer, and William Wascher, ``The 
Effects of Minimum Wages Throughout the Wage Distribution,'' National 
Bureau of Economic Research Working Paper No. w7519, February 2000, at 
www.nber.org/papers/w7519. Figure 3 shows that a 10 percent increase in 
the minimum wage increases these union members' earned income by 5 to 
10 percent. Thus, a 40 percent increase could increase their earned 
income by 20 to 40 percent.
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    Unfortunately, this comes at the cost of decreasing the earnings of 
families with minimum wage workers. While those who keep their jobs 
make more, employers cut back on hiring and hours of less-skilled 
workers. Consequently the total earnings of minimum wage workers drop. 
\21\
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    \21\ Ibid., Figure 4B.

    [Whereupon, at 4:54 p.m., the hearing was adjourned.]

                                 [all]