[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
__________
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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.
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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.
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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.
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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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their own and do not reflect an institutional position for The Heritage
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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\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.
---------------------------------------------------------------------------
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\
---------------------------------------------------------------------------
\21\ Ibid., Figure 4B.
[Whereupon, at 4:54 p.m., the hearing was adjourned.]
[all]