[Senate Hearing 113-751]
[From the U.S. Government Publishing Office]
S. Hrg. 113-751
FROM POVERTY TO OPPORTUNITY: HOW A FAIR MINIMUM WAGE WILL HELP WORKING
FAMILIES SUCCEED
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HEARING
OF THE
COMMITTEE ON HEALTH, EDUCATION,
LABOR, AND PENSIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
ON
EXAMINING HOW A FAIR MINIMUM WAGE WILL HELP WORKING FAMILIES SUCCEED
__________
MARCH 12, 2014
__________
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Pensions
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COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS
TOM HARKIN, Iowa, Chairman
BARBARA A. MIKULSKI, Maryland LAMAR ALEXANDER, Tennessee
PATTY MURRAY, Washington MICHAEL B. ENZI, Wyoming
BERNARD SANDERS (I), Vermont RICHARD BURR, North Carolina
ROBERT P. CASEY, JR., Pennsylvania JOHNNY ISAKSON, Georgia
KAY R. HAGAN, North Carolina RAND PAUL, Kentucky
AL FRANKEN, Minnesota ORRIN G. HATCH, Utah
MICHAEL F. BENNET, Colorado PAT ROBERTS, Kansas
SHELDON WHITEHOUSE, Rhode Island LISA MURKOWSKI, Alaska
TAMMY BALDWIN, Wisconsin MARK KIRK, Illinois
CHRISTOPHER S. MURPHY, Connecticut TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts
Derek Miller, Staff Director
Lauren McFerran, Deputy Staff Director and Chief Counsel
David P. Cleary, Republican Staff Director
(ii)
C O N T E N T S
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STATEMENTS
WEDNESDAY, MARCH 12, 2014
Page
Committee Members
Harkin, Hon. Tom, Chairman, Committee on Health, Education,
Labor, and Pensions, opening statement......................... 1
Prepared statement........................................... 1
Alexander, Hon. Lamar, a U.S. Senator from the State of
Tennessee, opening statement................................... 4
Franken, Hon. Al, a U.S. Senator from the State of Minnesota..... 15
Isakson, Hon. Johnny, a U.S. Senator from the State of Georgia... 16
Scott, Hon. Tim, a U.S. Senator from the State of South Carolina. 17
Warren, Hon. Elizabeth, a U.S. Senator from the State of
Massachusetts.................................................. 19
Roberts, Hon. Pat, a U.S. Senator from the State of Kansas....... 20
Casey, Hon. Robert P., Jr., a U.S. Senator from the State of
Pennsylvania................................................... 42
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 43
Baldwin, Hon. Tammy, a U.S. Senator from the State of Wisconsin.. 44
Witness--Panel I
Perez, Hon. Thomas E., Secretary of Labor, Washington, DC........ 4
Prepared statement........................................... 6
Witness--Panel II
Elmendorf, Douglas W., Director, Congressional Budget Office,
Washington, DC................................................. 23
Prepared statement........................................... 24
Witnesses--Panel III
Boushey, Heather, Ph.D., B.A., Executive Director and Chief
Economist, Washington Center for Equitable Growth, Washington,
DC............................................................. 46
Prepared statement........................................... 48
Campbell, Sister Simone, SSS, Executive Director, NETWORK,
Washington, DC................................................. 58
Prepared statement........................................... 59
McCrary, Alicia, Fast Food Worker, Northwood, IA................. 63
ADDITIONAL MATERIAL
Statements, articles, publications, letters, etc.:
Senator Murray............................................... 70
Economic Policy Institute (EPI) Newsletter................... 70
Jeffrey Buchanan, Senior Domestic Policy Advisor, OXFAM
America, Washington, DC.................................... 71
Gwen Moore, Mankato, MN...................................... 75
Laurie Anne Palmer, BURGER KING Franchisee, Waterville, ME.. 76
Letter from Economists....................................... 80
(III)
John Schmitt, Senior Economist, Center for Economic and
Policy Research (CEPR), Washington, DC..................... 86
Response by Thomas E. Perez to questions of:
Senator Harkin........................................... 90
Senator Casey............................................ 91
Senator Alexander........................................ 92
Senator Scott............................................ 95
Senator Isakson.......................................... 95
Senator Murkowski........................................ 97
Senator Hatch............................................ 99
Response by Heather Boushey, Ph.D., B.A., to questions of:
Senator Harkin........................................... 101
Senator Casey............................................ 102
Senator Murray........................................... 104
Response by Sister Simone Campbell, SSS to questions of:
Senator Harkin........................................... 107
Senator Casey............................................ 108
Senator Murray........................................... 109
Response by Alicia McCrary to questions of:
Senator Harkin........................................... 110
Senator Murray........................................... 110
FROM POVERTY TO OPPORTUNITY: HOW A FAIR MINIMUM WAGE WILL HELP WORKING
FAMILIES SUCCEED
----------
WEDNESDAY, MARCH 12, 2014
U.S. Senate,
Committee on Health, Education, Labor, and Pensions,
Washington, DC.
The committee met, pursuant to notice, at 9:05 a.m. in room
SD-430, Dirksen Senate Office Building, Hon. Tom Harkin,
chairman of the committee, presiding.
Present: Senators Harkin, Casey, Franken, Bennet, Baldwin,
Murphy, Warren, Alexander, Isakson, Hatch, Roberts, and Scott.
Opening Statement of Senator Harkin
The Chairman. The Committee on Health, Education, Labor,
and Pensions will please come to order.
Today we are having a hearing on examining how the raise in
minimum wage will help reduce poverty and income inequality and
provide opportunities for working families to succeed.
Now, in the interest of time, because we have about six
votes starting around 10:30, and I want to hear from all of our
witnesses, some who came a great distance to be here at family
expense and others. I would like to hurry this up. I am going
to forego making a statement. I will just say one sentence and
then yield to Senator Alexander. We will turn to Secretary
Perez. We will finish with the Secretary in about 25 minutes.
Then we will call Dr. Elmendorf. Then we will have time for our
other four people who are here as our witnesses. So I will put
my statement in the record.
I will just say this. My feeling is that no one who works
full-time in our society ought to live in poverty, and
supplementing that with welfare, EITC, Earned Income Tax
Credit, food stamps, TANF, child care is not the answer. The
answer is just raising the minimum wage. That is all I have to
say about it.
With that, I will turn to Senator Alexander.
[The prepared statement of Senator Harkin follows:]
Prepared Statement of Senator Harkin
In his State of the Union address this year, President
Obama said, ``No one who works full-time should ever have to
raise a family in poverty.'' I strongly agree. Indeed, that
statement expresses a core American value.
But today, sadly, we are falling short. Millions of working
families are being left behind. Our country is enormously
wealthy, and the wealthiest members of our society have seen
their income skyrocket in recent years. But the people at the
bottom and in the middle, who go to work day in and day out and
rely on their wages for their families' well-being, are not
sharing in the benefits of our growing economy. In fact, median
household income has fallen 9 percent since 1999. Former labor
secretary Robert Reich tells us that the 400 richest people in
America now have more wealth than the bottom 150 million
combined.
Meanwhile, tens of millions of hardworking Americans are
struggling just to keep a roof over their heads, to pay their
heating bill, to find extra funds for a new pair of shoes for a
growing child, even to cobble together the change to take a bus
rather than walking miles to work. When working families must
rely on food stamps and food banks to feed their children
because their wages are so low, that is unacceptable. We simply
must find a way to shore up the incomes of working Americans.
You just can't get ahead if your job traps you in poverty.
We used to agree that minimum-wage workers--people who
perform some of the most difficult and essential jobs in our
society--should not have to live in poverty.
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The minimum wage kept families above the poverty line in
the 1960s and 1970s. But since the 1980s, the minimum wage has
lost ground to inflation and is no longer enough to allow a
full-time minimum wage worker and his or her family to rise
above the poverty line.
It's no wonder that many working people, today, have to
turn to the safety net. In fact, a recent study found that
taxpayers are picking up the tab for millions of working
families to survive--to the tune of $240 billion a year--
because their employers pay rock-bottom, poverty wages. A
survey of low-wage workers by Oxfam America last year found
that two-thirds of workers earning under $10 an hour must use
public assistance to get by. (I am submitting for the record a
statement by Oxfam America with more information which can be
found in Additional Material.) This isn't by choice--the low-
wage workers that I have spoken with want to be self-
sufficient, but we simply aren't giving them that chance.
We have a moral obligation to fix poverty wages. And we can
fix them. We can make work a way out of poverty again by
raising the minimum wage--one of our Nation's simplest and most
effective means to lift working families out of poverty.
My legislation, the Minimum Wage Fairness Act, introduced
along with Majority Leader Reid, will raise the minimum wage to
$10.10 an hour in three annual steps; it will link the minimum
wage to the cost-of-living in the future; and it will provide
for a raise in the minimum wage for tipped workers for the
first time in more than 20 years.
When it is fully implemented, the minimum wage will no
longer be a poverty wage. It will lift families above the
poverty line. And through the indexing mechanism, it will keep
families above the poverty line.
In fact, new research shows that raising the minimum wage
will reduce poverty, including the CBO report that we will
discuss more in depth today. And a major new economic study
from Dr. Arindrajit Dube at the University of Massachusetts at
Amherst looked at the historical effects of minimum wage
increases, and his work shows that our bill will have an even
greater effect on poverty. His study projects that, under my
bill, 4.6 million Americans would be lifted above the poverty
line when the $10.10 wage is fully implemented, and that number
will rise to 6.8 million people in the second year after
implementation.
But this is not just about statistics. The additional
income from a higher minimum wage will make a powerful
difference in working families' lives. It could pay for 7
months of groceries, or 6 months of rent. It could buy an
additional 1,600 gallons of gasoline a year. Families may be
able to put some funds away for a rainy day, or pay for that
community college course that will help them get ahead.
Now, once we raise the minimum wage, our work to reduce
poverty won't be done. The minimum wage is not the sole,
silver-bullet solution to poverty. There will always be many
Americans who are temporarily unemployed, who are unable to
work, or who are beyond their working years; they will need
different types of assistance. But raising the minimum wage is
an essential component of any effort to reduce poverty and
income inequality. We cannot eradicate poverty--particularly
for the working poor and their children--until work is truly a
path out of poverty, not a trap keeping people down.
Furthermore, as our economy grows, simple justice requires that
prosperity must reach those at the bottom as well as those at
the top.
Families need a basic foundation of economic security to
start building a better life. A fair minimum wage ensures that
someone who chooses to work, who proudly takes a job tending to
children or the elderly, or serving food in a restaurant, or
cleaning a hotel room, is not consigned to live in desperate
poverty. A fair minimum wage sets a floor below which no worker
is allowed to fall. It helps to lift families out of poverty
and provides them the opportunity to get ahead and to give
their children a chance at a better life.
We have a distinguished panel here today, and I look
forward to their testimony. I'd especially like to thank our
minimum wage worker, Alicia McCrary, who traveled here from
Iowa to speak today. I know it is very difficult to travel when
you are raising a family, and I am so pleased that you are here
with us today. We had another minimum wage worker witness
scheduled to speak at our original hearing date, Ms. Gwen Moore
of Minnesota. I ask unanimous consent to include her prepared
statement in the record. We can never have too many stories
from hardworking people.
Opening Statement of Senator ALexander
Senator Alexander. I will be equally brief.
I believe families should not live in poverty, and I think
the idea of raising the minimum wage to address that is a
stale, bankrupt, ineffective policy that, according to the
Congressional Budget Office, costs low-wage workers 500,000
jobs, makes it harder to create more jobs, and gives most of
the benefits to--80 percent of the benefits--to families above
the poverty level. We have a number of amendments and proposals
that we are looking forward to offering to this bill when we
have a markup that will create a pro-growth economy with more
good jobs.
The Chairman. And there I think you have the debate.
[Laughter.]
Thank you, Senator Alexander.
With that, Mr. Secretary, welcome back and thank you for
your great leadership at the Department of Labor on this issue
and a host of other issues that affect working families all
over America. We are extremely proud of your leadership there.
We will turn to you. Your statement will be made a part of the
record in its entirety. It is a great statement. I read it last
night. But if you could kind of collapse it a little bit, I
would sure appreciate it.
STATEMENT OF HON. THOMAS E. PEREZ, SECRETARY OF LABOR,
WASHINGTON, DC
Secretary Perez. You have set a tone, Mr. Chairman and
Senator Alexander. You set a tone of brevity that I will try to
do my best to follow. I will start by saying thank you to both
of you for the courtesy you always show me. Thank you, Senator
Harkin, for your leadership.
Three-quarters of a century ago, Congress passed the Fair
Labor Standards Act, landmark legislation that set a wage floor
below which no American would be allowed to fall. The FLSA
embodied the principle that you just stated, that no one who
works a full-time job in America should live in poverty and
that we should reward work with fair wages. The ultimate fair
labor standard is a fair wage.
In the ensuing decades, bipartisan majorities in Congress,
working with Democratic and Republican Presidents, have
periodically raised the minimum wage so it would keep pace with
the cost of living. According to the Economic Policy Institute,
throughout the 1960s and 1970s, a worker could support a family
of two on the minimum wage.
But the purchasing power of the minimum wage has eroded
over time, undermining the economic security of families.
Today, the minimum wage is worth about 20 percent less than
when Ronald Reagan was in office. Imagine taking a 20 percent
pay cut from what you were making 30 years ago.
Members of both parties often speak with great accuracy
about the importance of promoting economic self-sufficiency,
but freezing the minimum wage at $7.25 an hour does precisely
the opposite. In fact, it is driving people to safety net
programs. A recent study concluded that workers in the fast
food industry are relying on public assistance to the tune of
$7 billion a year. A recent report from the Center for American
Progress noted that passing Harkin-Miller would reduce food
stamps expenditures by $4.6 billion a year and reduce the food
stamps rolls by roughly 3.5 million people.
I have met so many people, a number of whom are here, and
they will tell you their heartbreaking stories of living at or
near the minimum wage, making choices, a gallon of milk versus
a gallon of gas, pay the electric bill or get the medicine for
your child. Their lives are filled with anxiety and struggle,
and they have immense pride and self-respect. They do not want
a handout. They just want their hard work to be rewarded with a
fair wage. They want to be independent and self-sufficient, and
they want and need a raise.
It is not just workers that I speak to in my journey,
learning about the minimum wage. It is employers of all sizes
who are embracing this idea. They understand that higher wages
are part of a successful business model, increasing morale and
productivity, cutting turnover and training costs. A March 2014
poll from the Small Business Majority showed that 57 percent of
small business owners support raising the minimum wage to
$10.10.
I speak regularly with business owners of all sizes such as
Costco's CEO Craig Jelinek, whom I saw last week, and he has
demonstrated that it is possible to take care of your workers
and take care of your shareholders and offer good products at a
fair price.
I met with the Gap last week when I was in San Francisco.
They raised their wages to $10.10, and they see this as a smart
investment in their workforce.
I spoke to another employer last week in Washington State
who said this is a consumption-deprived economy and what I need
most is customers. And when you put money in people's pockets,
they spend it and I get more customers.
I have seen it in the neighborhood Ace Hardware Store in
Takoma Park where I live where the owner there says paying
workers above the minimum wage translates into excellent
customer service that has helped her build a thriving business.
I have seen it in the restaurant industry talking to small
restaurant owners, talking to a guy named Randy Garutti who is
the owner of Shake Shack. There are 40 Shake Shack locations
here and across the country and across the globe. He has
demonstrated that you can have the burger industry, pay your
workers a fair wage, and make a buck.
The bottom line is this, Mr. Chairman. Americans deserve a
raise, a raise in the Federal minimum wage from $7.25 to $10.10
an hour. It would make a difference in the lives of more than
28 million workers, giving them a little more breathing room
and peace of mind. It would help lift 2 million people out of
poverty. It would help 12 million people who are in poverty,
and it would stimulate the economy by putting money in people's
pockets.
Also, your legislation would take the long overdue step of
increasing the minimum wage for tipped workers, which has been
frozen at $2.13 an hour since 1991. Tipped workers are
disproportionately women and are three times as likely as other
workers to be living in poverty. They really need a raise.
Your indexing proposal is also critical as we cannot
continue to allow the minimum wage to lose its purchasing
power.
President Obama has laid out an agenda based on the
principle of opportunity for all and the belief that our
destinies are not predetermined by the circumstances of our
birth. Everyone should have a chance to succeed and that means
honoring the dignity of work with a wage that pays some
security and a chance to provide a better life for families.
For millions of Americans, Mr. Chairman, the opportunity quilt
is fraying because they are working harder and falling behind.
This bill will permit them to get access to the fair wages that
they need and enable them to lift themselves out of poverty and
get a decent wage.
Thank you, Mr. Chairman. I think I almost made my time.
[The prepared statement of Secretary Perez follows:]
Prepared Statement of Thomas E. Perez
Good morning Chairman Harkin, Ranking Member Alexander, and members
of the committee. It's an honor to appear before this committee as I
did last April for my confirmation hearing. In nearly 8 months as
Secretary of Labor, I've benefited greatly from the counsel of members
of this panel. And I look forward to a strong and constructive
partnership with you in the years ahead.
In his State of the Union address, President Obama laid out an
agenda based on the principle of opportunity for all. What's always set
America apart is the belief that our destinies shouldn't be pre-
determined by the circumstances of our birth. Everyone, through hard
work and personal responsibility, should have the chance to succeed and
create a better life for themselves and their families.
To realize that vision, we have to continue to grow the economy and
the availability of jobs with good wages--jobs in construction, in
manufacturing, in energy and throughout the economy. We also need to
provide training opportunities to empower our workers with the skills
and credentials that enable them to get those jobs--that is, in fact,
one of the linchpins of our work at the U.S. Department of Labor. It
all has to start with a world-class education, beginning when a child
is 4 years old. It includes access to affordable health care that is
always there when you need it. And it includes the opportunity to build
a nest egg and save for retirement.
This vision is embedded in the American social contract. It is
consistent with the idea that we don't leave anyone behind. That, when
times are tough, Americans don't say everyone is on their own to fend
for themselves. We say that we're all in this together.
And at the heart of it all is the belief that hard work must pay
off, that Americans deserve a wage they can live on. That is why
President Obama believes we must raise the Federal minimum wage from
the current level of $7.25 to $10.10 per hour. Many members of this
committee have been strong supporters of this increase; but none more
so than Chairman Harkin, as the sponsor of S. 460 and a relentless
champion for working families throughout nearly four decades of service
in the House and the Senate.
Americans deserve a raise. Increasing the Federal minimum wage to
$10.10 would make a powerful difference in millions of lives. Based on
tabulations from the Council of Economic Advisers (CEA), it would
benefit 28 million workers, giving them a little bit more breathing
room and peace of mind. It would raise incomes for an estimated 12
million people now in poverty, lifting about 2 million of them out of
poverty.
The Federal minimum wage has been frozen at $7.25 an hour since
2009. Meanwhile, the price of almost everything a working family needs
to live their lives is going up. A gallon of milk, a gallon of gas, a
month's rent, a pair of children's shoes--of course, they all cost more
than they did in 2009. In fact, the purchasing power of the minimum
wage has been on a steady decline for many decades. It's worth about 20
percent less than it was when President Reagan took office. Adjusting
for inflation, the minimum wage peaked in the 1960s at $10.69 in
today's dollars, 47 percent more than its current value.
That diminishing value is undermining the economic security of
millions of families. It has contributed to deepening inequality and a
lack of upward mobility throughout the country, because, despite the
myth that's been propagated, minimum wage workers are not just
teenagers looking to earn a little extra to supplement their
allowances. In fact, according to CEA, 88 percent of those who would
benefit from an increase to $10.10 an hour are age 20 or over and more
than 50 percent are women, many of whom have children.
Why do we expect her to take home less even though she's producing
more? According to data from the Bureau of Labor Statistics (BLS),
since 1979, worker productivity has increased more than 90 percent but
real average hourly earnings of production and non-supervisory workers
have barely budged--up only 1.3 percent.
I've visited with these hard-working Americans and heard their
stories, heartbreaking stories about what it's like to live at or near
the minimum wage: The wrenching decisions you have to make. The daily
grind and struggle. The apprehension and anxiety. The exhaustion and
sense of futility. But these are also people with immense pride,
dignity and self-respect. They don't want a handout; they just want a
fair day's pay for a fair day's work.
I met with one woman from Durham, NC who, despite 16 years working
in the fast food industry, can't even afford a place of her own. She's
staying with her adult children and can barely afford the life-
sustaining medicine she needs. ``We work hard,'' she told me. ``We just
want to be treated fair. We want to help ourselves.'' She knows what
it's like to go without. ``It's a sad day in America,'' she said, when
you can feed your kids but you can't eat yourself.
In Louisville, I talked with a woman named Honey Dozier who is
trying to raise four children on the $7.25 an hour she earns working
concessions at a bowling alley. As she put it: ``I feel like I have to
choose either providing food and necessities for my family or health
care, because I can't afford both this month.'' She also expressed
sorrow at the fact that,
``when you work a low-paying job, you don't earn enough to be a
good mother. I don't mind giving 100 percent to my employer,
but I should also give 100 percent to my family, and a $7.25
wage doesn't allow that.''
Another man from New York talked about having his gas and
electricity cutoff for 2 months. He told me: ``My mom recently got laid
off . . . we had an eviction notice . . . and my mom took out a loan,
which I don't think she can pay back.''
One St. Louis man is trying hard to climb into the middle class but
as he described it: ``I'm working 70 hours a week . . . my day starts
at 6 a.m. . . . I want to go to college, [but] I don't have time [and]
I can't afford it.'' He added:
``I shouldn't have to decide: am I going to pay the electric
bill or do I pay the heat? I'm a thousand dollars behind in
rent now . . . where is this money going to come from?''
He has goals and ambition--we ought to ensure that he has the
opportunity to make the most of his abilities and live out his dreams.
He also added that he has burn marks on his arm from working in a
commercial kitchen. He can't afford to take a day off from work, even
when he has the flu. And this is someone who handles food for a living.
It's startling to learn just how many of these workers are forced
to go on food stamps and other forms of public assistance just to make
ends meet. A recent study from the University of California-Berkeley
concluded that workers in the fast food industry are relying on safety
net programs to the tune of a staggering $7 billion a year. A young
fast food worker from Milwaukee understands the implications. All that
money in public assistance, he explained, ``could be used on something
else to better the community,'' if only businesses paid higher than
poverty wages.
Not every low-wage worker is in the food services industry,
however. From farm workers to motion picture projectionists, there are
people struggling at or near the minimum wage. If you work in ski
patrol or in the gaming industry or in animal care, you stand to gain
from an increase in the minimum wage. Even jobs we associate with a
white-collar environment, like bank tellers, are struggling at the very
bottom of the wage scale. According to an analysis by a group called
the Committee for Better Banks, one-third of bank tellers are depending
on government programs to get by--$105 million in food stamps, $250
million through the Earned Income Tax Credit, and $534 million in
Medicaid and the Children's Health Insurance Program each year.
I think we're better than this. I don't think a country as great as
ours should pay people so little that they need help from the State
just to survive. What that amounts to is billions of dollars in
taxpayer subsidies for very profitable companies. The American people
are filling the gap and stepping in for employers who refuse to pay a
wage that their workers can survive on. A recent study from the Center
for American Progress concluded that if the Harkin-Miller legislation
becomes law, it would mean as many as 3.8 million fewer people enrolled
in the Supplemental Nutrition Assistance Program (SNAP), thus reducing
spending by nearly $4.6 billion a year.
But it's not just workers themselves who are making the case for a
higher minimum wage. Contrary to the conventional wisdom, businesses of
all sizes are increasingly embracing the idea too. I've met with them
as well, and it's clear that they want to do right by their employees,
that they want to take the high road, that they aren't interested in
running a race to the bottom.
In fact, just last week Small Business Majority released the
findings of a new poll demonstrating that 57 percent of entrepreneurs
support raising the minimum wage to $10.10 per hour.
The morning after the State of the Union, I joined the President on
a visit to a Costco store just down the road in Prince George's County,
MD. Costco has built a wildly successful business based on the idea
that you can pay good wages while selling quality products at
affordable prices. They've rejected the false choice that says you can
serve the interests of your shareholders, or you can serve the
interests of your employees, but not both.
I saw the same approach the next day on a visit to an Ace Hardware
store just a few blocks away from here. Most of the employees there
make $10 per hour. The owner, Gina Schaeffer, talks about how a better
wage sends the message that ``we value our employees . . . as assets to
the business because we know they are the people who are on the front
lines with our customers.'' Better-paid employees are also longer-
serving employees, she explained. That translates into ``robust
knowledge of the products we sell and the services we provide,'' which
means the kind of excellent customer service that has helped Gina
build, in just over a decade, a thriving business of nine stores
employing 185 people.
But she's not an outlier or an aberration. I talk to employers
large and small who understand that raising wages is in their own self-
interest and part of a successful business model. It keeps employees
loyal and productive. It increases morale and reduces absenteeism.
I spoke to a group of restaurant owners recently and what I heard
from them over and over again is that training costs as a result of
high turnover rates are one of their biggest business expenses. One of
them, a bistro-owner from Brooklyn, told me he used to lose dishwashers
every few months, back when he paid them $8.59 per hour. Once he bumped
their pay to $11 per hour, he's had great success retaining them--he
had the same four dishwashers for all of 2013, which is a pretty big
deal when you're running a restaurant.
Many of the restaurant owners I met also feel strongly that we have
to do something about the paltry minimum cash wage for tipped workers,
which hasn't increased in more than 20 years. The law allows the
employer to pay an unconscionable rate of just $2.13 per hour, and to
use tips to meet the full minimum wage. Every time in recent history
that the minimum wage has been debated, it seems, the interests of
tipped workers get left on the cutting room floor.
They work exceedingly hard, under great pressure, at irregular
hours. But according to a 2012 study by the National Employment Law
Project, restaurant servers--70 percent of whom are women--are three
times more likely to be below the poverty line than the overall
workforce and twice as likely to be on food stamps. As the report puts
it: ``Essentially, many of the workers who serve America its food
cannot afford to eat.'' That's why it's so vitally important that the
Harkin-Miller legislation raises the minimum cash wage for tipped
workers to 70 percent of the full minimum wage.
Businesses cite a lot of reasons for paying well. One gentleman who
runs a record store in St. Louis talked to me about it in terms of an
investment in his neighborhood:
``If you think about having a relationship with your
community and a relationship with your customers, it starts
with your relationship to your employees.''
They also very much like the idea of indexing the minimum wage to
inflation over time, as the Harkin-Miller bill does. That kind of
certainty and predictability is what they need to run their businesses
effectively.
What I heard over and over again was the ways that higher wages
provide a shot in the arm to the economy by boosting consumer demand.
One man who owns a small wholesale nursery in Maryland explained that
his workers,
``are spending 100 percent of their take home pay in the local
economy. It's recirculating. They're spending it on rent,
groceries, cars, new tires--all the things you need to live.''
Workers also understand the larger economic impact. The fast food
worker from Durham I met said: ``If they would pay us what we need, we
could put money back into the economy and pay for what we need. And
that strengthens all of us.''
This isn't a new or original idea. And no less of a capitalist than
Henry Ford understood it. Exactly one hundred years ago, faced with
high attrition rates that were damaging his business, he took the
unusual step of doubling the wages of his assembly line workers.
Because he believed that would reverberate throughout the economy.
Here's how he explained his decision:
``If we can distribute high wages, then that money is going
to be spent and it will serve to make storekeepers and
distributors and manufacturers and workers in other lines more
prosperous and their prosperity will be reflected in our sales.
Countrywide high wages spell countrywide prosperity.''
Henry Ford was as cunning a businessman as there has ever been. He
believed higher wages were key to the Nation's economic vitality. It's
as true now as it was then--raising the minimum wage isn't just pro-
worker; it's also pro-business. It isn't just the right thing to do;
it's the smart thing to do.
The minimum wage is now 75 years old, having been established with
President Roosevelt's signing of the Fair Labor Standards Act in 1938.
And for as long as a wage floor has even been under consideration, it
has been opposed by those who have claimed it would cripple the
national economy.
We hear the argument that the consumers will bear the cost of a
higher minimum wage, as it will lead to higher prices, particularly on
food. But a recent study by the Food Chain Workers Alliance and its
partners debunks that myth. It concludes that American households,
between eating in and eating out, will spend all of 10 cents more a day
on food--just 10 cents--if the Miller-Harkin legislation becomes law.
All of the naysaying reminds me a little bit of when I served on
the Montgomery County Council, and we wrestled with the issue of a
smoking ban in local restaurants. There was a lot of dramatic testimony
about how no one would eat out anymore and it would be the ruin of the
local food and beverage industry. Well, we passed the smoking ban, and
I can assure you that the Montgomery County restaurants continue to do
quite well.
When it comes to the minimum wage, the doomsday scenarios have
never come to pass and the opponents have consistently been on the
wrong side of history. The sky did not fall because we guaranteed
workers a minimum level of basic economic security. The U.S. economy
has continued to grow--and businesses have continued to thrive--even as
the minimum wage has gone up 22 times over the last three quarters of a
century. In fact, an analysis of 64 studies of minimum wage increases
found ``no evidence of a meaningful negative impact on job creation.''
\1\
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\1\ Doucouliagos, Hristos and T.D. Stanley. 2009. ``Publication
Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis.''
British Journal of Industrial Relations, vol. 47, no. 2, 406-28 at 422.
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Both Democratic and Republican lawmakers throughout the last
several decades have understood this. Raising the minimum wage has
historically been a bipartisan exercise, often without great
contentiousness or controversy.
President George H.W. Bush and a Democratic Congress did it in
1989. President Clinton and a Republican Congress did it in 1996.
President George W. Bush and a Democratic Congress did it again in
2007. There's no reason to believe we can't and shouldn't do it in
2014.
Momentum is gathering in favor of a higher minimum wage, and it is
coming from the grass roots. Throughout the country, broad coalitions
are coming together to raise State and local minimum wages, either
through legislative action or ballot measure. On the first of the year,
in fact, an increase went into effect in 13 different States. Twenty-
two States and the District of Columbia all have passed a minimum wage
higher than the Federal level--from Vermont to Colorado, from
Connecticut to Alaska, from Massachusetts to Washington State.
Also, 24 States and the District of Columbia already have a higher
cash wage for tipped workers than the Federal level. Another seven
States require tipped employees receive the full State minimum wage.
For example, California and Oregon, both with quite successful
restaurant industries, give their tipped workers full State minimum
wage.
The game has changed and the ground has shifted. A sense of urgency
has begun to set in. Part of that is because workers are standing up
for themselves. Fast food workers in particular have been speaking out
and taking action, demanding that their hard work be rewarded with a
fair wage. And their voices are resonating. More than three-quarters of
the American people believe we should increase the minimum wage,
according to a recent Gallup poll.
The President is doing everything he can under his authority to
respond to that surge, making sure our Federal procurement process
reflects that emerging consensus. Last month, he made good on his State
of the Union promise to sign an Executive Order mandating that Federal
contractors pay their federally funded employees working on new and
replacement Federal service, construction, and concession contracts at
least $10.10 an hour. As he put it: ``If you cook our troops' meals or
wash their dishes, you shouldn't have to live in poverty.''
The only thing left is for action to come from these halls. The
Congress is lagging behind the States, behind public opinion, behind
workers who want more opportunity, behind forward-looking business
leaders who want to do well by doing good. Even the conservative party
in Great Britain recently embraced a higher minimum wage across the
Atlantic.
It is time for the Congress to lead on this urgent issue of
economic security and fundamental fairness. It's time for the Congress
to say that yes, it will give America a raise.
Thanks to the grit and resilience of the American people, we've
come a long way toward our goal of being an opportunity society, a
place where anyone can make it if they try, a place where everyone has
a fair shot at getting ahead.
I am very optimistic about the direction of our economy. We've
gradually emerged from the worst economic crisis of our lifetimes, and
now, according to BLS, the private sector has created more than 8.7
million jobs over the last 48 months. The manufacturing sector is
resurgent. The housing market has rebounded. We've made strong
investments in our citizens and their potential even as we've cut our
deficits by more than half.
But too many Americans aren't experiencing this recovery or sharing
in this prosperity. They are working harder and harder but falling
further and further behind. They are falling short of their dreams
through no fault of their own. They are finding the rungs on the ladder
of opportunity beyond their reach.
People who work full-time in the wealthiest nation on earth should
not live in poverty. That is, in my view, a fundamental article of
faith in our country. And yet, that's exactly what our current law
mandates, with a full-time minimum wage worker earning an annual income
of $14,500 a year.
That's not what a country built on opportunity does. That's no way
to honor the dignity of work, or to build an economy powered by a
thriving middle class. When hard-working Americans are undervalued and
underpaid, then the American social contract is being breached and we
are not truly living up to our values.
But when hard work and responsibility are rewarded, when every
American working full-time is able to provide for their family, it
makes the whole Nation stronger. The Congress has the power to do that,
by taking the long-overdue step of increasing the minimum wage.
The time has come to give the American people a raise. It's a raise
they need, a raise they've earned, a raise they deserve. The President
and I stand ready to work with you in any way on this important matter.
Thank you very much, and I look forward to taking your questions.
The Chairman. Thank you very much, Mr. Secretary.
We will do a round of 3-minute questions here and then if
we have time, we will do some more.
Mr. Secretary, it has been said that $10.10 is too high. It
is a 39 percent increase over the last one. They say that is
too much.
I have a chart here that shows that going clear back to
1938, the original Fair Labor Standards Act when it set a
minimum wage, that the average from 1939 to 2009 was 41
percent. The last increase was 41 percent, and in the 1990s we
had two back-to-back increases that amounted to 48 percent. The
time before that was 46 percent. The time before that 44.
So is this not sort of in line with what we have had in the
past?
Secretary Perez. Absolutely, Mr. Chairman.
The Chairman. So it is not out of line.
I am not going to get into whether we even need a minimum
wage or not. Some of my friends on this side believe there
should not even be any minimum wage.
But again, as you pointed out in your testimony, a recent
study from the Center for American Progress concluded that if
our bill becomes law, it would mean as many as 3.8 million
fewer people enrolled in the Supplemental Nutrition Assistance
Program--that is food stamps--reducing taxpayer spending by
$4.6 billion a year. Is that not what we are looking at, Mr.
Secretary? We are either going to take it out of taxpayers'
dollars and give TANF, SNAP, EITC--some people say we have to
raise the Earned Income Tax Credit again. Well, that is taking
revenues out. Or child care, development block grants, things
like that. We either do it on a welfare side or we do it by
increasing the wages that they make at work. Is that not sort
of the balance that we are trying to look at there?
Secretary Perez. Yes, it is, Mr. Chairman. When I speak to
low-wage workers, the most frequent thing I hear from them is I
do not want to be on food stamps. I want to be self-sufficient.
I met a person in Jersey City recently, works at the airport
handling bags. The only raise he has gotten in the last 8 years
was when the voters increased the minimum wage last November. I
hear that time and time again. I want to be self-sufficient. I
do not want to rely on food stamps but I have no choice.
And I was on a television program recently and the person
who came on after me was a gentleman named Ron Unz from
California, a conservative activist who is leading a ballot
initiative in California to raise the minimum wage from $10 an
hour to $12 an hour. And the principal point that he is making
is that we are subsidizing the business model of many
businesses, by the way, including bankers. A recent study
showed that 30 percent of bank tellers are on some form of
public assistance to the tune of $900 million a year. You saw
the other study, $7 billion in the fast food industry. People
on the conservative side of the aisle like Ron Unz think that
does not make a lot of sense.
For me, I am about self-sufficiency and I am listening to
the individuals that I meet who say I want to be able to feed
my family and not have to rely on these programs. And I think
we should help facilitate that by paying a fair wage because
wages have been flat, even though productivity has been going
up.
The Chairman. Thank you, Mr. Secretary.
My time is out.
Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman.
Mr. Secretary, welcome.
Secretary Perez. Good morning. Thank you for having me.
Senator Alexander. Mr. Secretary, you said in your
confirmation hearing the words ``creating jobs'' 22 times. The
issue is jobs.
I only have one question which I will ask you in a moment,
but before I get to that question, if the issue is jobs, then
could we not come up with a better proposal, with all respect
to my friend, the chairman, than one that the Congressional
Budget Office said would cost 500,000 jobs? Could we not come
up with a proposal to help low-income Americans better than a
proposal that the Congressional Budget Office says would
provide 80 percent of the benefits to workers who live in
families above the poverty level, not below the poverty level?
And could we not come up with a better proposal than one which
would make it harder for the only group of people in America
who can solve the jobs problem? Those are the job creators.
I would like to put in the record a statement of Laurie
Palmer of Waterville, ME who owns four Burger King franchises
with 140 employees who says this bill would raise her costs by
more than $200,000 a year. She made $35,000 last year net
income as an owner and it will cause her very likely to close
her business.
[The prepared statement of Ms. Palmer may be found in
additional material.]
Republicans believe there is a better way than this and we
would like to offer those ideas. This is the third hearing on
what I consider a stale, bankrupt, ineffective proposal. So why
not allow us to have amendments? But my friend, the chairman,
has been quoted as saying we do not have time for a markup to
offer amendments. And he was quoted as saying there might be
embarrassing amendments. What might those amendments be?
We could talk about the Earned Income Tax Credit which
could be more effective.
We could talk about the bipartisan proposal to change the
30-hour work week definition in Obamacare to 40 hours. That
would encourage full-time work for millions of Americans.
We could talk about my proposal and Senator Scott's to
create a $2,100 scholarship for children of low-income
families.
We could talk about Senator Scott's proposal passed by the
House, the SKILLS Act.
We could talk about several pro-growth amendments, for
which there would be bipartisan support such as the President's
recommendation that we pass the Trade Promotion Act, such as
building the Keystone Pipeline, which had 62 votes in the
Senate, such as having a National Labor Relations Board that is
more of an umpire than an advocate.
The only thing embarrassing about these amendments would be
to vote against them. We are bound to be able to do better than
come up with a proposal on jobs for low-income people than one
that costs 500,000 jobs and gives most of the benefits, 80
percent, to workers who live in families above the poverty
level.
So here is my question, Mr. Secretary. Senator Heller asked
Janet Yellen, the President's Federal Reserve Board Chairman,
her opinion of the Congressional Budget Office and its ability
to study the impact of the minimum wage on American workers and
the economy. She said they are as qualified as anyone to
evaluate that literature.
Do you agree with Chairman Yellen that the Congressional
Budget Office is as qualified as anyone to make a judgment
about the impact of the minimum wage on the American economy
and the American worker?
Secretary Perez. Mr. Chairman, I look forward to talking to
you about all of the points that you mentioned. The skills
agenda is something I spend a lot of time on. The President has
a proposal to enhance the EITC, which I think is a great
proposal. It is not an either/or, EITC or minimum wage. The
President has proposals to invest in our infrastructure which
creates good jobs.
Senator Alexander. That was not my question. All I need is
a yes or no.
Secretary Perez. No. Actually your question had a lot of--
--
Senator Alexander. I had one question. Do you agree with
Chairman Yellen that the CBO is as qualified as anyone to issue
an assessment of the impact of the minimum wage on the American
worker?
Secretary Perez. Senator, I have a lot of respect for the
CBO, as does the President and as does everyone else.
Senator Alexander. My question is do you agree that they
are as qualified as anyone----
The Chairman. Senator Alexander.
Senator Alexander. I am entitled to an answer, am I not,
Mr. Chairman?
The Chairman. We had a 3-minute time limit, and you came to
the 3 minutes and then asked a question after you gave a
speech. And I want to be respectful, but I want to also be
respectful that the Secretary can answer as he sees fit. He
does not have to answer----
Senator Alexander. Is a Senator not entitled to an answer
to a question?
The Chairman. The Secretary can answer it as he wants to
answer it, not as you direct him to answer it. You cannot force
him to say one thing or another. If he wants to answer that
question, then he can answer that question.
Senator Alexander. So a Senator is not entitled to a yes or
no answer to a specific question?
The Chairman. The Senator is entitled to ask the question
and the Secretary can give the answer as he sees fit.
Senator Alexander. That is not much congressional oversight
in my book.
The Chairman. Well, it is being respectful of people who
want to respond in the way that they feel is best suited to
answering the question.
Senator Alexander. Then we might as well not ask questions
if we cannot get answers, Mr. Chairman.
Secretary Perez. Senator, I am trying to answer the
question if you would give me an opportunity to do so.
Senator Alexander. I will be glad to as long as it ends up
with a yes or a no.
Secretary Perez. It will be an honest and full answer to
your question, sir. And again, it starts with I have great
respect for the Congressional Budget Office, and their report
on the minimum wage actually helps us in a number of ways to
understand issues. For instance, the Congressional Budget
Office indicates that 25 million people will benefit from an
increase in the minimum wage. We believe it is 28. So we can
agree that somewhere between 25 million and 30 million people
are going to benefit from the minimum wage.
The Congressional Budget Office agrees that there are
roughly 12 percent of people, our teenagers, who will benefit
from the minimum wage. So we can put to rest once and for all
this myth that raising the minimum wage only helps teenagers. I
hear that time and time again. It is wrong. The average age of
a minimum wage worker is 35 years old. And the Congressional
Budget Office has again affirmed what we have been saying for
some time, that the minimum wage is not simply a wage for
teenagers.
The Congressional Budget Office has again confirmed that
they believe that it is roughly a million people who will get
lifted out of poverty. We believe it is 2 million. Others
believe it is 4 million who get lifted out of poverty. So we
have a conversation about 1 million to 5 million or 4.5 million
people who get lifted out of poverty. We know that that is a
lot of people.
There are 12 million other people in poverty who would
benefit from an increase in the minimum wage. We understand
that. So we can now agree that there are millions and millions
of other people who may not be lifted out of poverty but would
benefit from the minimum wage.
The Congressional Budget Office agrees that raising the
minimum wage would have a stimulative effect because it puts
money in people's pockets, and when people get money in their
pockets, they spend it, and when they spend it, businesses have
to hire more people.
The Congressional Budget Office has done a very helpful
service by again affirming what Henry Ford knew 100 years ago
when he doubled the wages of the workers on the assembly line,
that when you put money in people's pockets, they spend it.
The Congressional Budget Office has indicated in their
report, in terms of whether it would result in the reduction of
jobs, that there is a range, and the range could go from no
effect whatsoever to an effect of possibly a million jobs.
What is interesting about that, Senator, is to look at the
experience of other States. Washington State is an interesting
State, Mr. Chairman, because if in fact the hypothesis that the
minimum wage reduces jobs were correct, then you would expect
that Washington State, which has the highest minimum wage in
the country, would have experienced job loss. In fact, the
opposite has happened. And there was a story in Bloomberg the
other day noting that the minimum wage--and the Washington
experience so demonstrates and 600 other economists, including
seven Nobel Laureates, have looked at this issue and concluded
that raising the minimum wage has little or no impact on
employment.
So I think the bulk of the evidence of economists that have
actually studied this issue and done those surveys of towns
where you have a minimum wage raise in New Jersey and the same
wage across the river in Pennsylvania, when they do those
studies, they show that it has no impact. So we have a lot of
evidence that demonstrates that in fact the experience of
Washington State is the experience across America, which is
that you can raise the minimum wage and not have a harmful
impact on employment.
Senator Alexander. Mr. Chairman, is that 6-minute answer to
my 3-minute question a yes?
The Chairman. I noted that this whole exchange took 9
minutes, of which the Senator from Tennessee took 4 minutes and
the Secretary took 5 minutes. Again, I adhered to the 3-minute
question on mine. In fact, I cut mine short. And if we are
going to go on this path, then we are going to be here this
afternoon. We will be here this afternoon with Mr. Elmendorf.
Now, I have Senator Franken, Senator Isakson, Senator
Casey, Senator Scott, Senator Roberts. So next would be Senator
Franken.
Statement of Senator Franken
Senator Franken. Thank you, Chairman Harkin, for holding
this hearing, for your leadership, and sponsoring the Minimum
Wage Fairness Act, of which I am a proud cosponsor.
Last year, both houses of the Minnesota State legislature
passed legislation to raise our State's minimum wage, and right
now they are working to reconcile those two bills so that
Minnesota can join the 21 States that have minimum wages higher
than the current Federal minimum wage.
Minnesotans support raising the minimum wage because they
believe, as the Secretary does and as the chairman does, that
if you work full-time, you should be able to put food on the
table and put a roof over your family's head. I think the
Ranking Member does believe that as well.
Minnesotans do not mind having to work hard. On the
contrary, Minnesotans are incredibly hard-working people. But
what they do mind is if they are working full-time 52 weeks a
year and they still do not see a way to get ahead to move up
into the middle class or even to move out of poverty.
Businesses in Minnesota get it too. Last week I spoke with
Danny Schwartzman, owner of Common Roots Cafe and Catering.
Danny pays his employees a minimum of $11.00 per hour, plus
benefits like paid time off and health insurance. Danny says--
and this is a quote,
``Over time other businesses will see what I have
seen, that paying people more yields more for the
bottom line. It is easier to recruit and retain people.
Happier employees are more likely to provide better
customer service. Lower turnover means dramatically
lower training costs and better employee performance.''
Danny understands that his business will do better if his
workers are doing better.
Raising the minimum wage is about making sure that work
pays. It is about the American dream. If you work hard and take
responsibility, you can put a roof over your head and provide a
good life for your children and help them get ready for the
future.
Secretary Perez, thank you for your testimony. Thank you
for trying to get out to Minnesota. We have had a couple
cancellations. I know you want to talk about this and other
things.
Now, in your testimony, you discuss the purchasing power of
the minimum wage has been on a steady decline for decades and
that if we had kept up with inflation from its peak in the
1960s, it would be $10.69 in today's dollars. Can you talk
about indexing the minimum wage to inflation and how that would
impact its effectiveness as a policy going forward?
Secretary Perez. I think indexing is a critical component,
Senator Franken, of making sure that the purchasing power is
not lost. I have spoken to a number of business owners who have
indicated they want to see indexing because, as they plan each
year, it is easier to plan when you know, OK, there is a 2-
percent increase in the minimum wage next year or a 4-percent
increase in the minimum wage. It gives them that certainty of
moving forward.
So not only does it help address the erosion--we have seen
a 90 percent increase in productivity since the early 1990s and
we have seen a 3-percent increase in real wages. So workers
have not shared in the benefits of productivity and prosperity,
and that is why indexing is one critical element of this bill
that will prevent that future erosion.
Senator Franken. Thank you.
Thank you, Mr. Chairman.
The Chairman. Thank you.
Again, that is only 45 seconds over, but if we are going to
give 3-minute speeches, then we are going to give up our
questions.
Senator Isakson.
Statement of Senator Isakson
Senator Isakson. Thank you, Mr. Chairman.
Thank you, Secretary Perez.
Secretary Perez. Good morning, Senator.
Senator Isakson. I will be brief in my question if you will
be brief in your answer because I have two questions I want to
be sure and ask.
In your printed testimony, you say one of the core missions
of the Department of Labor is to provide an opportunity for
workers to build a nest egg and save for retirement.
When you were here for your confirmation hearing, we talked
about the then-pending definition of ``fiduciary'' by the
Department of Labor. You were questioned by Democrats and
Republicans about your interpretation of that, and you
promised--and I quote--that you would look into it and get back
to us with an answer.
What have you done since then to examine the fiduciary rule
and the previous position of the Department of Labor to change
it so it does not limit the access to investment information or
access to low-cost savings and retirement plans?
Secretary Perez. We slowed the process down considerably.
Senator Isakson. I noticed that but it has not stopped I
know.
Secretary Perez. That is also correct, sir. We slowed the
process down considerably so that we could listen to all the
stakeholders. I spoke to a Republican Member of the House
yesterday because he had some really good points to make on
that. We are reaching out to external stakeholders. We are in
very frequent discussions with the SEC. My goal is to make sure
that we have the benefit of everybody's input. And I will say
to you, Senator, if anybody calls you and says I am trying to
get a hold of the Department of Labor to talk about this and I
am having trouble, please let me know because we have let it be
known that we want to listen to everybody and that is a
critical component of addressing this.
Senator Isakson. If you will do one thing for me. I, first,
will acknowledge the lovely lady sitting behind you in the
first row was at the American Benefits Council meeting with me
about a week ago in Florida. So I know you are attending these
meetings and engaging with people in the private sector.
But when you listen, listen less to bureaucrats and more to
people who are actually out there doing it. I think that will
really help in terms of framing that definition. And the
American Benefits Council by way of example is one. I was glad
to see your Department represented.
The second question is this. Labor unions appear to be
having buyers remorse with regard to the Affordable Care Act.
There was a printed study done by one of the bigger unions in
the country that said that Obamacare and the Affordable Care
Act is actually making income inequality worse for organized
labor. Could you address that? Or do you believe that is true?
Secretary Perez. I have actually spoken to a number of
labor unions who are making great use of the Affordable Care
Act, and I will give you one very quick example. In Oregon,
home health workers were able to get on the exchange, negotiate
a more favorable rate for their workers, cover more workers,
and still get a raise because they were able to take the
savings from the lower health insurance premiums and share that
with the employer. So workers got, I think, $1.50 raise. More
people were covered and it was a win-win situation. So there
are a number of examples like that that I have seen.
Senator Isakson. I would call your attention to the study
released by a 250,000-member union just I think on Monday.
Sixty-thousand of their members, culinary workers in Las Vegas
whose take-home pay has gone down because of the effects and
the cost of the coverage under the Affordable Care Act.
Thank you for your time.
Secretary Perez. Thank you, Senator.
The Chairman. Thank you, Senator. Thank you, Mr. Secretary,
both for your succinctness.
Senator Scott.
Statement of Senator Scott
Senator Scott. Thank you, Mr. Chairman. I will try my best
to give you a 2-minute and 30-second speech and then ask a 30-
second question.
A couple points I think are interesting. We seem to be
insinuating or assuming that employers need the permission of
the Government to raise the minimum wages in their companies.
This is a ridiculous concept that we seem to continue to
discuss and reinforce with the notion of listening to employers
say that we need a higher minimum wage when in fact they can
just raise the minimum wage in their companies whenever they
want to. I was an employer. I owned a company for the last 13
years before coming to Congress. And it is very simple to raise
the minimum wage in your companies.
And when you think about the impact, the obvious impact, of
raising the minimum wage, there are at least three and perhaps
more.
One is that you are going to destroy jobs. We have all
heard a couple of times the fact that between 500,000 and
900,000 jobs will be destroyed.
We also know that automation is perhaps one of the other
impacts of raising the minimum wage. I remember when I was a
kid working at a movie theater selling movie tickets. Today you
now have kiosks that you buy your tickets from because when you
price out of the economy the entry level jobs, the unintended
consequences are obviously fewer of those jobs.
And finally, if you are paying $7.25 an hour to a person to
make five widgets, you raise that to $10.10 an hour for the
same five widgets, the cost of widgets increases, which then
erodes the actual increase in the minimum wage.
But perhaps a more interesting part of that which causes me
to think about what we are doing here today is the very title
itself, ``From Poverty to Opportunity'' for working families.
When we look at the numbers--I wish we were having a longer
discussion about single parents who need a higher wage and we
can give that higher wage through education and the SKILLS Act.
But what we do notice is that only 4 percent--4 percent--of
minimum wage workers are single parents working full-time. And
then when we look at the numbers from the BLS, only 2 percent
of folks working full-time make the minimum wage.
To reinforce what Senator Alexander said that 77 percent of
minimum wage earners are above the poverty line living in
middle class households, for us to have a specific conversation
about how the minimum wage is going to increase opportunities
while it destroys jobs seems to me to be a rabbit trail that we
should not be a part of.
I would only ask you, Secretary Perez, why are we not
spending more time talking about creating jobs when in fact we
know statistically without question that raising the minimum
wage, when you have 10.5 million Americans unemployed, when the
unemployment rate for black teenagers is 38 percent, to
eliminate nearly, on the high side, 900,000 jobs in this
environment seems to me to be inconsistent with the reality
that we are trying to create?
Secretary Perez. Senator, the President has put forth a
very robust agenda of job creation that includes the passage of
comprehensive immigration reform, investing in infrastructure,
investing in skills. And an equally important part of
opportunity is making sure that people are rewarded for work
with a fair wage, and increasing the minimum wage is an
important part of that quilt.
And I would note that the average age of a minimum wage
worker, again, is 35. It is not all teenagers out there. It is
people like the woman I met from Oakland who said I am
supporting my two children on a minimum wage job. And in fact,
a quarter of minimum wage workers are heading households and
supporting families. The average minimum wage worker earns half
of his or her family's total income. If somebody is making
$25,000, so they are just above the poverty line, with all due
respect, I would hardly call that a middle-class existence. And
there are so many people who are in those situations right now,
and that is one of many reasons why we need to increase the
minimum wage.
I will not speak for the CBO, but they did not conclude, as
I read their report, that 500,000 to 900,000 jobs will be
destroyed. They in fact said it is a range and the range
includes zero. And I have noted the other studies that are
voluminous demonstrating, as the State of Washington's
experience was, that you can increase the minimum wage and have
no adverse employment effects because you would put money in
people's pockets, people spend it, and employers hire more
people. There is an overwhelming evidence----
Senator Scott. Secretary Perez, I do not want to have
Senator Harkin tell me what he told the previous Senator,
Senator Alexander, about the amount of time that it took for us
to get through this because your answer is longer than my
question.
I would simply say this. Most of my numbers come from the
Department of Labor, No. 1.
No. 2, I would say that you did not dispute the fact that
ultimately, according to most experts, we are going to lose
jobs when we raise----
Secretary Perez. I absolutely dispute that, Senator----
Senator Scott. And No. 2, I would suggest there is little
doubt that----
Secretary Perez [continuing]. With all due respect.
Senator Scott. If you do not mind me finishing my comment,
I would appreciate that.
The fact is without question that 3 percent of hourly
workers--3 percent of hourly workers over the age of 25--make
the minimum wage.
Thank you.
The Chairman. That was 5 minutes. Thank you.
OK, Senator Warren.
Statement of Senator Warren
Senator Warren. Thank you, Mr. Chairman.
Thank you for being here, Secretary Perez.
When we talk about poverty and the minimum wage, we often
forget about what happens to tipped workers. For more than 20
years, the minimum wage for tipped workers has been frozen at
$2.13. The National Employment Law Project concluded that
inflation has eroded more than a third of the tipped minimum
wage's purchasing power. The Economic Policy Institute has
found that today the purchasing power of a tipped minimum wage
worker is at an all-time low.
And in case anyone thinks a tipped minimum wage is not
necessary because the 3.3 million Americans who work in tipped
jobs will get by on tips, the reality, according to the
Economic Policy Institute, is that these workers are twice as
likely as other workers to be in poverty, with restaurant
servers, the largest group of tipped workers, are three times
more likely to be in poverty.
Forty-five percent of tipped workers are over the age of
30, and about 70 percent are women. One in three tipped minimum
wage workers is a parent. These are the Americans who serve our
meals, pour our drinks, staff our hotels, cut our hair, and
wash our cars. They deserve better.
Chairman Harkin's legislation would address this problem by
increasing tipped minimum wage up to 70 percent of the regular
minimum wage. That is a modest change.
But, Secretary Perez, what I wanted to ask you about is
based on the experiences of the seven States that do not treat
tipped wage workers any differently--that is, they have the
same minimum wage--what do you believe would be the impact of
increasing the tipped minimum wage.
Secretary Perez. You are correct, Senator. Tipped workers
have taken it on the chin, and they are all too frequently left
on the cutting room floor at the end of negotiations on
increases in the minimum wage.
Let me look at the example again. Let me bring us back to
Washington. There are seven States where there is no tipped
credit. So minimum wage tipped workers are making the same as
every other worker. And I noted before Washington State. They
have had for a long time--they voted in 1998 to raise their
State minimum wage and link it to the cost of living so it
would index, just like you are trying to do, Mr. Chairman. And
in the 15 years that followed, the State's minimum wage climbed
to $9.32. Meanwhile, job growth continued at an average of 0.8
percent annual pace, which was 0.3 percent above the national
average. Payrolls at Washington's restaurants and bars,
portrayed as vulnerable to higher wage costs, expanded by 21
percent. Poverty has trailed the U.S. level for at least 7
years. By the way, this is a Bloomberg article that I am
quoting from. That has been the experience. This can be done.
California is another State that now has no tipped credit.
And what an employer in Washington told me in this context
is that it is a level playing field, and when everybody has a
level playing field, you can continue to thrive. And the
evidence bears that out.
Senator Warren. Thank you very much.
Thank you, Mr. Chairman. We need a level playing field and
that includes our tipped workers.
The Chairman. Thank you, Senator Warren.
Senator Roberts.
Statement of Senator Roberts
Senator Roberts. Thank you, Mr. Chairman.
Mr. Secretary, this hearing is focused on raising the
minimum wage. Your testimony talked about how through hard work
and personal responsibility everyone should have the chance to
succeed and create a better life for themselves. I could not
agree more.
I am very concerned by the lack of context in statements
like this. In order to receive a paycheck that will include a
39 percent raise, first, one would have to have a job, and yet
I think this increase would cost jobs.
I am sure you are aware, after all the testimony here and
the questions by my colleagues, the CBO estimate with regard to
this mandated increase would cost 500,000 jobs.
The question is, is a policy that reduces small business
jobs a way to benefit the country? The same office, CBO, who
initially reported Obamacare, the Affordable Health Care Act,
cost $1 trillion, now 5 years later that is $2 trillion. That
will cost 2.5 million full-time jobs. Now we are talking about
three million jobs lost. I really think we should be focusing
on Senator Scott's bill and others to really create jobs and
opportunity, not ordering a small business to pay an increased
flat fee in addition to the higher premiums they have to pay
because of either Obamacare or a mandated increase in the
minimum wage.
I am also concerned about Obamacare reducing hours below 30
per week. In order to stay in business, we need to raise that
to 40.
Now, this is not Oakland. This is a small community in
Kansas. I had a town hall meeting. And I spoke to a small
business owner, a lady, last night who spoke of this exact
concern. She has 10 employees. She has crunched the numbers on
both Obamacare and your proposal to increase the minimum wage.
And she said, Senator Roberts, I will have to close my doors.
Now, you and I are in her small business. We are having a
cup of coffee. And she says, ``Mr. Secretary, I am going to
have to close my doors--I have 10 employees--because of your
increase in the minimum wage.'' What do you tell her?
Secretary Perez. I would tell her what I have heard from
other small business owners, which is that when you pay a fair
wage, when you treat your employees by paying them a fair wage,
they become loyal. You become more efficient.
Senator Roberts. Wait a minute. You are saying that that
small business owner in a small community in Kansas that I
talked to last night who has been in business there for 30
years, has 10 employees--and you are saying she is not paying a
fair wage?
Secretary Perez. No.
Senator Roberts. She is trying to keep the doors open.
Secretary Perez. And I very much appreciate that, which is
why I have spent so much time talking to small business owners
to hear their perspective. When I was a local-elected official,
Senator, we debated a bill to increase--to have a smoking ban,
and I heard----
Senator Roberts. I want to know what to tell her.
Secretary Perez. And I heard from people that they were
going to close their doors if we had a smoking ban, and
restaurants have thrived.
Senator Roberts. A smoking ban.
Secretary Perez. Because it will shut restaurants down.
Senator Roberts. We are not talking about smoking bans. I
am over time. I did not get an answer. Thank you.
Secretary Perez. Yes, I did, sir. I tried to answer your
question by noting----
Senator Roberts. No, you did not. You did not tell me what
you would tell that lady. You talked about smoking bans.
Secretary Perez. No, sir.
Senator Roberts. Let us do not go any farther with this.
The Chairman. You know, I am not Darrell Issa. I am not
going to cutoff anybody's mic at any time. But I do intend to
move this hearing along, and I do intend to respect the
witnesses who have come a long distance. We are running out of
time because of the votes this morning, but we are going to
make sure that we hear these witnesses who have come here. I
will say right now, just so you people can plan, I have a
person here from Iowa with three children. The church is taking
care of her children while she came here to testify. She has a
plane to catch this afternoon to go home to be with her
children. I intend to have her at this witness table and to
hear from her. I have another person who took a red-eye all the
way from California just to be here for this hearing. I intend
to hear from her too.
So as soon as the Secretary is done, I am calling that
panel up, and we are hearing from that panel. And then we will
call on Mr. Elmendorf.
Senator Alexander. Mr. Chairman, if I may say, that is not
our agreement. Our agreement was you would excuse Secretary
Perez after 30 minutes and then you would call Mr. Elmendorf
after 40 minutes so that he could be heard.
The Chairman. That was my plan, but everybody--I want to be
respectful----
Senator Alexander. That was our agreement. We agreed to
move the hearing up 1 hour.
The Chairman. If everyone could ask 3-minute questions and
be out of here, we would do that. But as you can see, the
Senator himself took 9 minutes.
Senator Alexander. I took 4 minutes.
The Chairman. You took four. He took five.
Senator Alexander. He took five.
The Chairman. That is right.
Senator Alexander. We had an agreement last night, which I
agreed to, which you would excuse him after 30 minutes and
bring Mr. Elmendorf up--I agree with you--so that those from
Iowa could be heard this morning.
The Chairman. I hate to cut people off but I intend to hear
the second panel. I am not going to be abusive. Mr. Elmendorf--
I respect him, but he is nearby. He works in Washington. He has
a good job and he can come back or he can be here later. We can
hear from him after we hear this panel. But I am not going to
abuse those people that came a great distance to be here.
Senator Alexander. Mr. Chairman, why can you not do today
what you said you would do yesterday, which is excuse the
Secretary after 30 minutes and bring Mr. Elmendorf up and then
we can hear those people from Iowa? We look forward to hearing
them.
The Chairman. Because then I have to cut people off from
asking the Secretary questions.
Senator Alexander. That would have been true yesterday.
The Chairman. If we had had 3-minute questions and if
people would abide by that, we could have done that.
All right. Mr. Secretary, we will excuse you. We will
excuse you, Mr. Secretary. Thank you very much for your
leadership. I appreciate it very much. And I do not abide by
people badgering witnesses whether they are on our side or the
other side.
OK. We will call Mr. Elmendorf, but I will tell you what.
At exactly 10:10 or 10:15 Mr. Elmendorf will be excused
regardless of how many questions we have to ask. Like I said, I
do not want to be Darrell Issa and cut people off. But we have
got a lot of hearings and I do not want to abuse the people who
came a long distance to be here, Mr. Alexander. Agreement or no
agreement.
Mr. Elmendorf, you are up. Mr. Elmendorf, welcome. Thank
you for being here. Again, your statement will be part of the
record in its entirety. I would ask if you could sum it up in 5
minutes.
STATEMENT OF DOUGLAS W. ELMENDORF, DIRECTOR, CONGRESSIONAL
BUDGET OFFICE, WASHINGTON, DC
Mr. Elmendorf. I will do that. Thank you very much.
Mr. Chairman, Ranking Member Alexander, to all the members
of the committee, I appreciate the opportunity to present CBO's
analysis of the effects of increasing the minimum wage. Our
work on that analysis spanned several months and drew on dozens
of studies from an extensive research literature, as well as a
detailed examination ourselves of data from the Census Bureau's
current population survey.
Increasing the minimum wage would have two principal
effects on low-wage workers. Most of them would receive higher
pay that would increase their family's income, and some of
those families would see their income rise above the Federal
poverty threshold. But some jobs for low-wage workers would
probably be eliminated as well.
The magnitude of those effects would vary with the amount
of the increase in the minimum wage. So CBO examined the
effects of two options, a $9.00 option and a $10.10 option. We
focused on the effects of the options in the second half of
2016 after they would be fully implemented.
In the $9.00 option we studied, the minimum wage would rise
from the current $7.25 per hour to $9.00 per hour in two steps
in 2015 and 2016. We estimate that this option would reduce
employment by about 100,000 workers, or less than .1 percent.
That estimate is quite uncertain, and the actual effect could
be smaller or larger. In our assessment, there is about a two-
thirds chance the effect would be between a very slight
increase in employment and a reduction in employment to 200,000
workers.
Many more low-wage workers would see an increase in their
earnings. Of those workers who will earn up to $9.00 per hour
under current law, most, about 7.5 million according to our
estimates, would have higher earnings. And some people who are
earning more than $9.00 per hour would have higher earnings as
well. The increased earnings for low-wage workers resulting
from the higher minimum wage would total $9 billion we
estimate.
However, those earnings would go not only to low-income
families because many low-wage workers are not members of low-
income families. By our estimates, about a fifth of that sum
would accrue to families with income below the Federal poverty
threshold, nearly half to families with income between one and
three times the poverty threshold, and about a third to
families earning more than three times the poverty threshold.
Moreover, the increased earnings for some workers will be
accompanied by reductions in inflation-adjusted income for the
people who became jobless, for business owners, and for
consumers facing slightly higher prices. We estimate that
income for families whose income would be below the poverty
threshold under current law would increase on net by about a
billion dollars, moving about 300,000 people on net above the
poverty threshold.
The other option we studied would increase the minimum wage
to $10.10 per hour in three steps in 2014, 2015, and 2016.
After reaching $10.10 in 2016, the minimum wage would be
adjusted annually for inflation. The $10.10 would have
substantially larger effects on employment and income than the
$9.00 option because many more workers would see their wages
rise, because the change in their wages would be greater and,
we expect, because employment would be more responsive to a
minimum wage increase that was larger and was subsequently
adjusted for inflation.
We estimate that in the second half of 2016, the $10.10
would reduce total employment by about 500,000 workers, or .3
percent. That estimate is also quite uncertain. In our
assessment, there was about a two-thirds chance that the effect
would be in the range between a very slight reduction in
employment and reduction in employment of a million workers.
Once again, many more low-wage workers would see an
increase in their earnings. Of those workers who will earn up
to $10.10 under current law, most, about 16.5 million according
to our estimates, would have higher earnings, and some people
earning more than $10.10 would also have higher earnings.
The increased earnings for low-wage workers resulting from
the higher minimum wage would total $31 billion by our
estimate. Again, about a fifth of that sum would accrue to
families with income below the poverty threshold, about half to
families with income between one and three times the poverty
threshold, and almost a third to families with income more than
three times the poverty threshold. We estimate that income for
families whose income will be below the poverty threshold under
current law would increase on net by about $5 billion, moving
about 900,000 people on net above the poverty threshold.
Thank you. I am happy to answer your questions.
[The prepared statement of Mr. Elmendorf follows:]
Prepared Statement of Douglas W. Elmendorf *
Chairman Harkin, Ranking Member Alexander, and members of the
committee, thank you for inviting me to testify on the Congressional
Budget Office's (CBO's) recent report The Effects of a Minimum-Wage
Increase on Employment and Family Income. My statement today reprises
that report.
---------------------------------------------------------------------------
*Note: This testimony reprises a recent Congressional Budget Office
(CBO) report about the effects of increasing the minimum wage. However,
that report includes an appendix describing the basis of CBO's findings
that is not included in this testimony. See Congressional Budget
Office, The Effects of a Minimum-Wage Increase on Employment and Family
Income (February 2014), www.cbo.gov/publication/44995.
Estimates of the effect on employment of the options to increase
the minimum wage are rounded to the nearest 100,000 workers.
Numbers in the text, tables, and figures may not add up to totals
because of rounding.
---------------------------------------------------------------------------
______
summary
Increasing the minimum wage would have two principal effects on
low-wage workers. Most of them would receive higher pay that would
increase their family's income, and some of those families would see
their income rise above the Federal poverty threshold. But some jobs
for low-wage workers would probably be eliminated, the income of most
workers who became jobless would fall substantially, and the share of
low-wage workers who were employed would probably fall slightly.
What Options for Increasing the Minimum Wage Did CBO Examine?
For this analysis, the Congressional Budget Office examined the
effects on employment and family income of two options for increasing
the Federal minimum wage:
A ``$10.10 option'' would increase the Federal minimum
wage from its current rate of $7.25 per hour to $10.10 per hour in
three steps--in 2014, 2015, and 2016. After reaching $10.10 in 2016,
the minimum wage would be adjusted annually for inflation as measured
by the consumer price index.
A ``$9.00 option'' would raise the Federal minimum wage
from $7.25 per hour to $9.00 per hour in two steps--in 2015 and 2016.
After reaching $9.00 in 2016, the minimum wage would not be
subsequently adjusted for inflation.
What Effects Would Those Options Have?
The $10.10 option would have substantially larger effects on
employment and income than the $9.00 option would--because more workers
would see their wages rise; the change in their wages would be greater;
and, CBO expects, employment would be more responsive to a minimum-wage
increase that was larger and was subsequently adjusted for inflation.
The net effect of either option on the Federal budget would probably be
small.
Effects of the $10.10 Option on Employment and Income. Once fully
implemented in the second half of 2016, the $10.10 option would reduce
total employment by about 500,000 workers, or 0.3 percent, CBO
projects. As with any such estimates, however, the actual losses could
be smaller or larger; in CBO's assessment, there is about a two-thirds
chance that the effect would be in the range between a very slight
reduction in employment and a reduction in employment of 1.0 million
workers (see Table 1).
Many more low-wage workers would see an increase in their earnings.
Of those workers who will earn up to $10.10 under current law, most--
about 16.5 million, according to CBO's estimates--would have higher
earnings during an average week in the second half of 2016 if the
$10.10 option was implemented.\1\ Some of the people earning slightly
more than $10.10 would also have higher earnings under that option, for
reasons discussed below. Further, a few higher-wage workers would owe
their jobs and increased earnings to the heightened demand for goods
and services that would result from the minimum-wage increase.
---------------------------------------------------------------------------
\1\ In addition to the people who became jobless, some workers
earning less than $10.10 per hour and not covered by minimum-wage laws
would also not have increased earnings.
---------------------------------------------------------------------------
The increased earnings for low-wage workers resulting from the
higher minimum wage would total $31 billion, by CBO's estimate.\2\
However, those earnings would not go only to low-income families,
because many low-wage workers are not members of low-income families.
Just 19 percent of the $31 billion would accrue to families with
earnings below the poverty threshold, whereas 29 percent would accrue
to families earning more than three times the poverty threshold, CBO
estimates.\3\
---------------------------------------------------------------------------
\2\ All effects on income are reported for the second half of 2016;
annualized (that is, multiplied by two); and presented in 2013 dollars.
\3\ Poverty thresholds vary with family size and composition; CBO
projects that in 2016, the poverty threshold (in 2013 dollars) will be
about $18,700 for a family of three and $24,100 for a family of four.
---------------------------------------------------------------------------
Moreover, the increased earnings for some workers would be
accompanied by reductions in real (inflation-adjusted) income for the
people who became jobless because of the minimum-wage increase, for
business owners, and for consumers facing higher prices. CBO examined
family income overall and for various income groups, reaching the
following conclusions:
Once the increases and decreases in income for all workers
are taken into account, overall real income would rise by $2 billion.
Real income would increase, on net, by $5 billion for
families whose income will be below the poverty threshold under current
law, boosting their average family income by about 3 percent and moving
about 900,000 people, on net, above the poverty threshold (out of the
roughly 45 million people who are projected to be below that threshold
under current law).
Table 1.--Estimated Effects on Employment, Income, and Poverty of an
Increase in the Federal Minimum Wage, Second Half of 2016
------------------------------------------------------------------------
$10.10 Option \1\ $9.00 Option \2\
------------------------------------------------------------------------
Change in Employment:
Central estimate \3\.......... ^500,000 workers.. ^100,000 workers
Likely range \4\.............. Very slight Very slight
decrease to ^1.0 increase to
million workers. ^200,000 workers.
Number of Workers With Hourly
Wages Less Than the Proposed:
Minimum Whose Earnings Would 16.5 million...... 7.6 million
Increase in an Average Week
\5\.
Change in Real Income (2013
dollars, annualized) \6\:
Families whose income is below $5 billion........ $1 billion
the poverty threshold.
Families whose income is $12 billion....... $3 billion
between one and three times
the poverty threshold.
Families whose income is $2 billion........ $1 billion
between three and six times
the poverty threshold.
Families whose income is six ^$17 billion...... ^$4 billion
times the poverty threshold
or more.
Change in the Number of People ^900,000.......... ^300,000
Below the Poverty Threshold \7\
------------------------------------------------------------------------
Source: Congressional Budget Office based on monthly and annual data
from the Census Bureau's Current Population Survey.
\1\ The minimum wage would rise (in three steps, starting in 2014) to
$10.10 by July 1, 2016, and then be indexed to inflation.
\2\ The minimum wage would rise (in two steps, starting in 2015) to
$9.00 by July 1, 2016, and would not be subsequently indexed to
inflation.
\3\ Uses values at or near the midpoints of estimated ranges for key
inputs.
\4\ In CBO's assessment, there is a two-thirds chance that the actual
effect would be within this range.
\5\ Some of the people with hourly wages slightly above the proposed
minimum wage would also have increased earnings under the options.
\6\ Changes in real (inflation-adjusted) income include increases in
earnings for workers who would receive a higher wage, decreases in
earnings for workers who would be jobless because of the minimum-wage
increase, losses in income for business owners, decreases in income
because of increases in prices, and increases in income generated by
higher demand for goods and services.
\7\ Calculated using before-tax family cash income. Poverty thresholds
vary with family size and composition. The definitions of income and
of poverty thresholds are those used to determine the official poverty
rate and are as defined by the Census Bureau. CBO projects that in
2016, the poverty threshold (in 2013 dollars) will be about $18,700
for a family of three and $24,100 for a family of four.
Families whose income would have been between one and
three times the poverty threshold would receive, on net, $12 billion in
additional real income. About $2 billion, on net, would go to families
whose income would have been between three and six times the poverty
threshold.
Real income would decrease, on net, by $17 billion for
families whose income would otherwise have been six times the poverty
threshold or more, lowering their average family income by 0.4 percent.
Effects of the $9.00 Option on Employment and Income. The $9.00
option would reduce employment by about 100,000 workers, or by less
than 0.1 percent, CBO projects. There is about a two-thirds chance that
the effect would be in the range between a very slight increase in
employment and a reduction in employment of 200,000 workers, in CBO's
assessment. Roughly 7.6 million workers who will earn up to $9.00 per
hour under current law would have higher earnings during an average
week in the second half of 2016 if this option was implemented, CBO
estimates, and some people earning more than $9.00 would have higher
earnings as well.
The increased earnings for low-wage workers resulting from the
higher minimum wage would total $9 billion; 22 percent of that sum
would accrue to families with income below the poverty threshold,
whereas 33 percent would accrue to families earning more than three
times the poverty threshold, CBO estimates.
For family income overall and for various income groups, CBO
estimates the following:
Once the increases and decreases in income for all workers
are taken into account, overall real income would rise by $1 billion.
Real income would increase, on net, by about $1 billion
for families whose income will be below the poverty threshold under
current law, boosting their average family income by about 1 percent
and moving about 300,000 people, on net, above the poverty threshold.
Families whose income would have been between one and
three times the poverty threshold would receive, on net, $3 billion in
additional real income. About $1 billion, on net, would go to families
whose income would have been between three and six times the poverty
threshold.
Real income would decrease, on net, by $4 billion for
families whose income would otherwise have been six times the poverty
threshold or more, lowering their average family income by about 0.1
percent.
Effects of a Minimum-Wage Increase on the Federal Budget. In
addition to affecting employment and family income, increasing the
Federal minimum wage would affect the Federal budget directly by
increasing the wages that the Federal Government paid to a small number
of hourly employees and indirectly by boosting the prices of some goods
and services purchased by the government. Most of those costs would
need to be covered by discretionary appropriations, which are capped
through 2021 under current law.
Federal spending and taxes would also be indirectly affected by the
increases in real income for some people and the reduction in real
income for others. As a group, workers with increased earnings would
pay more in taxes and receive less in Federal benefits of certain types
than they would have otherwise. However, people who became jobless
because of the minimum-wage increase, business owners, and consumers
facing higher prices would see a reduction in real income and would
collectively pay less in taxes and receive more in Federal benefits
than they would have otherwise. CBO concludes that the net effect on
the Federal budget of raising the minimum wage would probably be a
small decrease in budget deficits for several years but a small
increase in budget deficits thereafter. It is unclear whether the
effect for the coming decade as a whole would be a small increase or a
small decrease in budget deficits.
the current federal minimum wage
The Federal minimum wage was established by the Fair Labor
Standards Act of 1938 (FLSA) and currently applies to about two-thirds
of workers in the public and private sectors. Workers whose
compensation depends heavily on tips (such as waiters and bartenders)
are subject to a special arrangement: The regular minimum wage applies
to their compensation including tips, and a lower cash minimum wage
applies to their compensation excluding tips. The FLSA also has
exceptions for workers and employers of certain types, including a
provision permitting employers to pay teenage workers $4.25 per hour
during their first 90 days of employment.\4\
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\4\ For details about the FLSA's minimum-wage requirements, see
Fair Labor Standards Act of 1938, as amended, 29 U.S.C. Sec. 201 et
seq. (2012). See also Department of Labor, ``Minimum Wage and Overtime
Pay'' (accessed January 8, 2014), www.dol.gov/compliance/guide/
minwage.htm.
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The nominal Federal minimum wage has risen over the years. The most
recent changes, which took effect in July 2007, raised the minimum wage
in three steps from $5.15 per hour (in nominal dollars) to $7.25 in
July 2009, where it stands today.\5\ However, the real value of the
minimum wage has both risen and fallen, as the nominal increases have
subsequently been eroded by inflation (see Figure 1).\6\ That erosion
was most pronounced between January 1981 and April 1990 and between
September 1997 and July 2007--each a period of nearly 10 years during
which the nominal value of the minimum wage was unchanged.
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\5\ After CBO completed its analysis of increasing the Federal
minimum wage, the President issued an Executive order, entitled
``Minimum Wage for Contractors,'' that established a minimum wage of
$10.10 per hour for certain individuals working under new contracts
with the Federal Government, beginning on January 1, 2015. That order
slightly reduces the number of workers who would be affected by
increasing the Federal minimum wage and thus slightly reduces the
estimated effects presented in this analysis.
\6\ Adjusted for inflation, the Federal minimum wage reached its
historical peak in 1968. In that year, its value in 1968 dollars was
$1.60, which is equal to $8.41 in 2013 dollars if the conversion is
done with the price index for personal consumption expenditures
published by the Bureau of Economic Analysis. CBO generally uses that
index when adjusting labor market data for inflation, considering it a
more accurate measure than a common alternative--the consumer price
index for all urban consumers (CPI-U), which is published by the Bureau
of Labor Statistics (BLS). According to many analysts, the CPI-U
overstates increases in the cost of living because it does not fully
account for the fact that consumers generally adjust their spending
patterns as some prices change relative to other prices and because of
a statistical bias related to the limited amount of price data that BLS
can collect. The value of $1.60 in 1968 dollars is equal to $10.71 in
2013 dollars if the conversion is done with the CPI-U.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Many States and localities have minimum-wage laws that apply, along
with Federal law, to employers within their jurisdiction. In recent
years, States and localities have been particularly active in boosting
their minimum wage; as of January 2014, 21 States and the District of
Columbia had a minimum wage that was higher than the Federal one. In 11
of those States, the minimum wage is adjusted automatically each year
with inflation, and in four more, plus the District of Columbia, future
increases have already been legislated. In California, for example, the
minimum wage is scheduled to increase from $8.00 to $9.00 in July 2014
and to $10.00 in January 2016. Some localities also have minimum wages
that are higher than the applicable State or Federal minimum wage; in
San Francisco, for instance, the minimum wage is $10.74 per hour.
Another 20 States have minimum wages equal to the Federal minimum wage
(and linked to it, in some cases). In some of those States, the State
laws apply to some workers and employers who are not covered by the
FLSA. At the moment, about half of all workers in the United States
live in States where the applicable minimum wage is more than $7.25 per
hour. The applicable minimum wage in those States ranges from $7.40 to
$9.32 per hour (see Figure 2).
Minimum-wage workers are sometimes thought of primarily as
teenagers from nonpoor families who are working part-time, but that is
not the case now. Of the 5.5 million workers who earned within 25 cents
of the minimum wage in 2013, three-quarters were at least 20 years old
and two-fifths worked full-time. Their median family income was about
$30,000, CBO estimates. (Some of the family incomes within that group
of workers were substantially higher or lower than that amount, in part
because the number of working adults in their families varied.)
two options for increasing the federal minimum wage
Lawmakers have proposed various options for increasing the Federal
minimum wage, including several that would increase it to $10.10 per
hour and subsequently index it for inflation.\7\ CBO has assessed the
impact of such an option, as well as the impact of a smaller increase
that would boost the minimum wage to $9.00 per hour and would not link
future increases to inflation. The options that CBO analyzed would not
change other provisions of the FLSA, such as the one that applies to
wages for teenage workers during their first 90 days of employment.
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\7\ See, for example, S. 460, the Fair Minimum Wage Act of 2013; S.
1737, the Minimum Wage Fairness Act; and H.R. 3939, the Invest in
United States Act of 2014. Another proposal (H.R. 3746, the Fair
Minimum Wage Act of 2013) would increase the minimum wage to $11.00 and
subsequently index it for inflation.
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A $10.10 Option
CBO examined an option that would increase the Federal minimum wage
from $7.25 per hour to $8.20 on July 1, 2014; to $9.15 1 year after
that; and to $10.10 after another year. The increase in the minimum
wage between 2014 and 2016 under this option would be about 40 percent,
roughly the same percentage as the total increase from 2007 to 2009 but
larger than several earlier increases. Each year after that, the
minimum wage would rise with the consumer price index.\8\
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\8\ The $10.10 option is based on the provisions of S. 460, the
Fair Minimum Wage Act of 2013. (The FLSA and S. 460 also apply to
Puerto Rico and certain other U.S. territories, but because of
limitations in available data, CBO's analysis is limited to the effects
of minimum-wage increases on employment and family income in the 50
States and the District of Columbia.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
In addition, this option would raise the minimum cash wage for
tipped workers from $2.13 per hour to $4.90 in three steps timed to
coincide with the changes in the minimum wage. Then, starting in 2017,
the minimum cash wage for tipped workers would rise by 95 cents each
year until it reached 70 percent of the minimum wage (which would occur
in 2019, by CBO's estimate); in subsequent years, it would be tied to
inflation.
A $9.00 Option
CBO also examined a smaller change that would increase the Federal
minimum wage from $7.25 per hour to $8.10 on July 1, 2015, and to $9.00
on July 1, 2016. The minimum cash wage for tipped workers would
increase when the minimum wage increased, and by the same percentage.
The increase in the minimum wage would start 1 year later than it would
under the $10.10 option. Like previous minimum-wage increases, this one
would not be indexed to subsequent inflation. This $9.00 option is more
similar than the $10.10 option to minimum-wage increases studied in the
economics literature in a number of respects: the size of the increase,
the portion of the workforce that it would affect, and the fact that
its real value would be eroded over time.
how increases in the minimum wage affect employment and family income
In general, increases in the minimum wage probably reduce
employment for some low-wage workers. At the same time, however, they
increase family income for many more low-wage workers.
Employment
According to conventional economic analysis, increasing the minimum
wage reduces employment in two ways. First, higher wages increase the
cost to employers of producing goods and services. The employers pass
some of those increased costs on to consumers in the form of higher
prices, and those higher prices, in turn, lead the consumers to
purchase fewer of the goods and services. The employers consequently
produce fewer goods and services, so they hire fewer workers. That is
known as a scale effect, and it reduces employment among both low-wage
workers and higher-wage workers.
Second, a minimum-wage increase raises the cost of low-wage workers
relative to other inputs that employers use to produce goods and
services, such as machines, technology, and more productive higher-wage
workers. Some employers respond by reducing their use of low-wage
workers and shifting toward those other inputs. That is known as a
substitution effect, and it reduces employment among low-wage workers
but increases it among higher-wage workers.
However, conventional economic analysis might not apply in certain
circumstances. For example, when a firm is hiring more workers and
needs to boost pay for existing workers doing the same work--to match
what it needs to pay to recruit the new workers--hiring a new worker
costs the company not only that new worker's wages but also the
additional wages paid to retain other workers. Under those
circumstances, which arise more often when finding a new job is time-
consuming and costly for workers, increasing the minimum wage means
that businesses have to pay the existing workers more, whether or not a
new employee was hired; as a result, it lowers the additional cost of
hiring a new employee, leading to increased employment. There is a wide
range of views among economists about the merits of the conventional
analysis and of this alternative.
The low-wage workers whose wages are affected by increases in the
minimum wage include not only those workers who would otherwise have
earned less than the minimum but also, in some cases, workers who would
have earned slightly more than the minimum. After a minimum-wage
increase, some employers try to preserve differentials in pay that
existed before--for example, so that supervisors continue to be paid
more than the people they supervise--by raising the wages of people who
previously earned a little more than the new minimum. Also, some wages
determined by collective bargaining agreements are tied to the Federal
minimum wage and could therefore increase. As a result, an increase in
the minimum wage causes some workers who would otherwise have earned
slightly more than the new minimum wage to become jobless, for the same
reasons that lower-wage workers do; at the same time, some firms hire
more of those workers as substitutes for the workers whose wages were
required to be increased.
The change in employment of low-wage workers caused by a minimum-
wage increase differs substantially from firm to firm. Employment falls
more at firms whose customers are very sensitive to price increases,
because demand for their products or services declines more as prices
rise, so those firms cut production more than other firms do.
Employment also falls more at firms that can readily substitute other
inputs for low-wage workers and at firms where low-wage workers
constitute a large fraction of input costs. However, when low-wage
workers have fewer employment alternatives overall, employment can fall
less at firms that offset some of the increased costs with higher
productivity from employees' working harder to keep their better-paying
jobs and with the lower cost of filling vacant positions that results
from higher wages' attracting more applicants and reducing turnover.
Some firms, particularly those that do not employ many low-wage workers
but that compete with firms that do, might see demand rise for their
goods and services as their competitors' costs rise; such firms would
tend to hire more low-wage workers as a result.
The change in employment of low-wage workers also differs over
time. At first, when the minimum wage rises, some firms employ fewer
low-wage workers, while other firms do not; the reduced employment is
concentrated in businesses and industries where higher prices result in
larger reductions in demand. Over a longer timeframe, however, more
firms replace low-wage workers with inputs that are relatively less
expensive, such as more productive higher-wage workers. Thus, the
percentage reduction in employment of low-wage workers is generally
greater in the long term than in the short term, in CBO's assessment.
(However, the total reduction in employment might be smaller in the
long term; that total depends not only on the percentage reduction in
employment of low-wage workers but also on the number of such workers,
which could decline over time if wage growth for low-wage workers
exceeded any increase in the minimum wage, all else being equal.)
Employers might respond to an increase in the minimum wage in ways
other than boosting prices or substituting other inputs for low-wage
workers. For example, they might partly offset a minimum-wage increase
by reducing other costs, including workers' fringe benefits (such as
health insurance or pensions) and job perks (such as free meals). As a
result, a higher minimum wage might increase total compensation (which
includes benefits and perks) less than it increased cash wages alone.
That, in turn, would give employers a smaller incentive to reduce their
employment of low-wage workers. However, such benefit reductions would
probably be modest, in part because low-wage workers generally receive
few benefits related to pensions or health insurance. In addition, tax
rules specify that employers who reduce low-wage workers' nonwage
benefits can face unfavorable tax treatment for higher-wage workers'
nonwage benefits. Employers can also partly offset higher wages for
low-wage workers by reducing either formal training or informal
mentoring and coaching. The evidence on how much employers reduce
benefits, training, or other costs is mixed.
An increase in the minimum wage also affects the employment of low-
wage workers in the short term through changes in the economywide
demand for goods and services. A higher minimum wage shifts income from
higher-wage consumers and business owners to low-wage workers. Because
those low-wage workers tend to spend a larger fraction of their
earnings, some firms see increased demand for their goods and services,
boosting the employment of low-wage workers and higher-wage workers
alike. That effect is larger when the economy is weaker, and it is
larger in regions of the country where the economy is weaker.
Low-wage workers are not the only ones whose employment can be
affected by a minimum-wage increase; the employment of higher-wage
workers can be affected as well, in several ways. Firms that cut back
on production tend to reduce the number of both higher-wage workers and
low-wage workers. But once a minimum-wage increase makes higher-wage
workers relatively less expensive, firms sometimes hire more of them to
replace a larger number of less productive low-wage workers. Another
factor affecting higher-wage workers is the increase in the economywide
demand for goods and services. All in all, a higher minimum wage tends
to increase the employment of higher-wage workers slightly, according
to CBO's analysis.
Family Income
For most families with low-wage workers, a higher minimum wage
boosts family income, because of the increase in earnings that many of
those workers (including those whose wages were slightly above the new
minimum) receive. A much smaller number of low-wage workers become
jobless and therefore experience a decline in earnings because of the
higher minimum wage.
For families with low-wage workers, the effect of a higher minimum
wage depends on how many such workers are in a family, whether those
workers become jobless (and, if so, for how long), and whether there
are other changes in family income. For instance, the decline in income
from losing a job can be offset in part by increases in nonlabor
income, such as unemployment compensation, or by increases in the work
of other family members.
For business owners, family income (including income for
shareholders) falls to the extent that firms' profits are reduced. In
addition, real family income for many people tends to fall a bit,
because the increase in prices of goods and services reduces families'
purchasing power.
The effects on total national income of an increase in the minimum
wage differ in the long term and in the short term. In the long term,
the key determinant of the Nation's output and income is the size and
quality of the workforce, the stock of productive capital (such as
factories and computers), and the efficiency with which workers and
capital are used to produce goods and services (known as total factor
productivity). Raising the minimum wage probably reduces employment, in
CBO's assessment. In the long term, that reduction in the workforce
lowers the Nation's output and income a little, which means that the
income losses of some people are slightly larger than the income gains
of others. In the short term, by contrast, the Nation's output and
income can deviate from the amounts that would typically arise from a
given workforce, capital stock, and productivity in response to changes
in the economywide demand for goods and services. Raising the minimum
wage increases that demand, in CBO's assessment, because the families
that experience increases in income tend to raise their consumption
more than the families that experience decreases in income--who tend to
reduce their consumption. In the short term, that increase in demand
raises the Nation's output and income slightly, which means that the
income losses of some people are slightly smaller than the income gains
of others.
cbo's findings about employment and family income
CBO estimated the effects on employment and family income of both
the $10.10 option and the $9.00 option for raising the Federal minimum
wage.\9\ CBO's estimates are for the second half of 2016 because that
would be the point at which the minimum wage reached $10.10 under the
first option and $9.00 under the second. In either case, the increase
in the minimum wage would have two principal effects on low-wage
workers: The large majority would have higher wages and family income,
but a much smaller group would be jobless and have much lower family
income. Once the other changes in income were taken into account,
families whose income would be below six times the poverty threshold
under current law would see a small increase in income, on net, and
families whose income would be higher under current law would see
reductions in income, on net. In addition, in either case, higher-wage
workers would see a small increase in the number of jobs.
---------------------------------------------------------------------------
\9\ For an estimate of the effect on employment of a previous
proposal to increase the minimum wage, see Congressional Budget Office,
private-sector mandate statement for S. 277, the Fair Minimum Wage Act
of 2001 (May 9, 2001), www.cbo.gov/ publication/13043.
---------------------------------------------------------------------------
Increases in the minimum wage would raise the wages not only for
many workers who would otherwise have earned less than the new minimum
but also for some workers who would otherwise have earned slightly more
than the new minimum, as discussed above. CBO's analysis focused on
workers who are projected to earn less than $11.50 per hour in 2016
under current law (who, in this analysis, are generally referred to as
low-wage workers). People with certain characteristics are more likely
to be in that group and are therefore more likely to be affected by
increases in the minimum wage like those that CBO examined. For
example, in 2016, 88 percent of the people earning such wages will be
at least 20 years old, 56 percent will be female, and 91 percent will
not have attained a bachelor's degree, CBO estimates (see Table 2).
Effects of the Options on Employment
According to CBO's central estimate, implementing the $10.10 option
would reduce employment by roughly 500,000 workers in the second half
of 2016, relative to what would happen under current law.\10\ That
decrease would be the net result of two effects: a slightly larger
decrease in jobs for low-wage workers (because of their higher cost)
and an increase of a few tens of thousands of jobs for other workers
(because of greater demand for goods and services).\11\ By CBO's
estimate, about 1\1/2\ percent of the 33 million workers who otherwise
would have earned less than $11.50 per hour would be jobless--either
because they lost a job or because they could not find a job--as a
result of the increase in the minimum wage.
---------------------------------------------------------------------------
\10\ A central estimate is one that uses values at or near the
midpoints of estimated ranges for key inputs.
\11\ In this analysis, phrases referring to changes in the number
of jobs are used interchangeably with phrases referring to changes in
employment. Technically, however, if a low-wage worker holds multiple
jobs and loses one of them, that would represent a reduction of one job
but no change in employment (because the worker would remain employed).
About 5 percent of low-wage workers will hold more than one job under
current law, CBO projects. Therefore, for any given reduction in
employment, the reduction in the number of jobs will be slightly
larger.
Table 2.--Projected Characteristics of Low-Wage Workers, Second Half of
2016
------------------------------------------------------------------------
Percentage of
all workers Percentage of
with low-wage
Characteristic characteristic workers with
who will be characteristic
low-wage
------------------------------------------------------------------------
Age:
16 to 19.............................. 87 12
20 and older.......................... 22 88
---------------
All................................. 24 100
Sex:
Female................................ 28 56
Male.................................. 21 44
---------------
All................................. 24 100
Educational Attainment:
Less than high school................. 58 20
High school graduate or some college.. 30 70
Bachelor's degree..................... 7 10
---------------
All................................. 24 100
Hours Worked per Week:
Fewer than 35......................... 58 47
35 or more............................ 16 53
---------------
All................................. 24 100
Number of Employees in Firm:
Fewer than 50......................... 30 48
50 or more............................ 19 52
---------------
All................................. 24 100
------------------------------------------------------------------------
Source: Congressional Budget Office based on monthly and annual data
from the Census Bureau's Current Population Survey.
Note: Low-wage workers are people who are projected, under current law
in the second half of 2016, to be paid less than $11.50 per hour.
Those job losses among low-wage workers would be concentrated among
people who are projected to earn less than $10.10 an hour under current
law. Some workers who would otherwise have earned between $10.10 and
$11.50 per hour would also see an increase in their wages, which would
tend to reduce their employment as well, CBO estimates. However, some
firms might hire more of those workers as substitutes for the lower-
paid workers whose wages had been increased. Those two factors would
probably be roughly offsetting, CBO anticipates, so the number of such
workers who were employed would probably not change significantly.
The overall reduction in employment could be smaller or larger than
CBO's central estimate. In CBO's assessment, there is about a two-
thirds chance that the effect of the $10.10 option would be in the
range between a very slight decrease in employment and a decrease of
1.0 million workers; thus, there is a one-third chance that the effect
would be either above or below that range. The most important factors
contributing to the width of the range are uncertainty about the growth
of wages over the next 3 years (which influences the number of workers
who would be affected by the minimum-wage increase, as well as the
extent to which the increase would raise their wages) and uncertainty
about the responsiveness of employment to an increase in wages. For
example, if wage growth under current law was slower than CBO projects,
implementing the increase would result in more people with increased
wages and a greater reduction in employment than CBO's central estimate
suggests.
Under the $9.00 option, employment would decline by about 100,000
workers in the second half of 2016, relative to what it would be under
current law, according to CBO's central estimate. That estimate is much
smaller than the central estimate for the $10.10 option for three
reasons: Fewer workers would be affected; the change in their wages
would be smaller; and four aspects of the $9.00 option would make
employment in 2016 less responsive to a minimum-wage increase, CBO
expects.\12\ The first of those four aspects is that the $9.00 option
is not indexed to inflation, so some employers would probably refrain
from reducing employment, knowing that inflation would erode the cost
of paying higher wages. Second, under the $9.00 option, the second half
of 2016 arrives 1 year after the initial increase in the minimum wage--
rather than 2 years, as under the $10.10 option--and employers would be
less likely to reduce employment soon after an increase in the minimum
wage than they would be over a longer period. Third, because the cost
of paying higher wages under the $9.00 option is smaller than that of
the $10.10 option, CBO expects that fewer employers would find it
desirable to incur the adjustment costs of reducing employment (such as
installation of new equipment). Fourth, the $9.00 option would apply to
a smaller share of the workforce. Four percent of the labor hours in
the economy will be worked by people who will earn up to $9.00 per hour
under current law and who would either receive a wage increase or be
jobless if the $9.00 option was implemented, CBO estimates. In
contrast, about 10 percent of labor hours will be worked by people who
will earn up to $10.10 per hour under current law and who would either
receive a wage increase or be jobless if the $10.10 option was
implemented. Thus, the $9.00 option would cause a correspondingly
smaller increase in costs, which employers would be likely to absorb
less through reductions in employment and more in other ways.
---------------------------------------------------------------------------
\12\ Under the $9.00 option, the central estimate of the
responsiveness of employment to a change in the applicable minimum wage
is^0.075 for teenagers, for example, which means that the employment of
teenagers would be reduced by three-quarters of 1 percent after a 10
percent change in the minimum wage. The equivalent estimate under the
$10.10 option is^0.10.
---------------------------------------------------------------------------
In CBO's assessment, there is a two-thirds chance that the effect
of the $9.00 option would be in the range between a very slight
increase in the number of jobs and a loss of 200,000 jobs.\13\ If
employment increased under either option, in CBO's judgment, it would
probably be because increased demand for goods and services (resulting
from the shift of income from higher-income to lower-income people) had
boosted economic activity and generated more jobs than were lost as a
direct result of the increase in the cost of hiring low-wage workers.
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\13\ In a recent survey, leading economists were asked whether they
agreed with the statement that ``raising the Federal minimum wage to $9
per hour would make it noticeably harder for low-skilled workers to
find employment.'' When the results were weighted by the respondents'
confidence, 40 percent of the economists agreed with the statement, 38
percent disagreed, and 22 percent were uncertain. However, the survey
did not specify how large a drop in employment was meant by
``noticeably harder . . . to find employment.'' See University of
Chicago Booth School of Business, ``Minimum Wage'' (published February
26, 2013; accessed January 8, 2014), http://tinyurl.com/aa52pfo.
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CBO has not analyzed the effects of either option on the number of
hours worked by people who would remain employed or on the decision to
search actively for work and join the labor force by people who would
not otherwise be working. Therefore, the agency has not reported the
effects of the options on full-time-equivalent employment or on the
unemployment rate.
Effects of the Options on Family Income
Among the 33 million low-wage workers earning less than $11.50 per
hour in the second half of 2016 under current law, CBO estimates, real
earnings would increase by $31 billion as a result of higher wages if
the $10.10 option was implemented. (All amounts of income reported for
that period are annualized--that is, multiplied by two--and reported in
2013 dollars.) About 16.5 million workers who will earn less than
$10.10 per hour under current law would receive higher wages, CBO
estimates, and some workers who will earn between $10.10 and $11.50 per
hour under current law would receive higher wages as well.\14\ Most of
the additional income would accrue to families with fairly low income,
but a substantial portion would also be received by low-wage workers in
higher-income families--29 percent and 6 percent by families who would
otherwise have had income greater than three and six times the Federal
poverty threshold, respectively.
---------------------------------------------------------------------------
\14\ CBO did not estimate the number of workers in the latter group
who would receive higher wages as a result of the increase in the
minimum wage; instead, it applied an estimated average percentage
increase in wages to all workers in that group.
---------------------------------------------------------------------------
That increase in income resulting from higher wages would be
accompanied by reductions of a similar amount in real income from
several other sources: decreases in earnings for workers who would be
jobless because of the minimum-wage increase; losses in income for
business owners; and increases in prices of goods and services, which
would reduce people's purchasing power. In addition, a few higher-wage
workers would be employed and earn more because of increased demand for
goods and services resulting from the minimum-wage increase.
Once all those factors are taken into account, CBO estimates that
the net changes in real income would be an increase of about $5 billion
for families whose income would have been below the poverty threshold
under current law; an increase of $12 billion for families whose income
would have been between one and three times the poverty threshold; an
increase of $2 billion for families whose income would have been
between three and six times the poverty threshold; and a decrease of
$17 billion for families whose income would have been greater than that
(see Figure 3). (In 2016, six times the poverty threshold will be
roughly $120,000 for a family of three and $150,000 for a family of
four, CBO projects.) According to CBO's estimates, the increase in
earnings for the few low-wage workers living in that last group of
families would be more than offset by income reductions, in part
because the losses in business income and in real income from price
increases would be concentrated in those families (see Table 3).
Families whose income will be below the poverty threshold in 2016
under current law will have an average income of $10,700, CBO projects
(see Table 4). The agency estimates that the $10.10 option would raise
their average real income by about $300, or 2.8 percent. For families
whose income would otherwise have been between the poverty threshold
and 1.5 times that amount, average real income would increase by about
$300, or 1.1 percent. The increase in average income would be smaller,
both in dollar amounts and as a share of family income, for families
whose income would have been between 1.5 times and six times the
poverty threshold. And for families whose income would otherwise have
been greater than six times the poverty threshold, the total effect of
the $10.10 option would be a reduction in average real income of about
$700, or 0.4 percent. But the effects of a minimum-wage increase on
family income would vary even among families with similar incomes under
current law. For example, many families with income less than six times
the poverty threshold would see their income rise; but income for a
smaller set of those families would decline, because some low-wage
workers would lose jobs that they would otherwise have.
Under current law, CBO projects, there will be roughly 45 million
people in families whose income is below the poverty threshold in 2016.
The $10.10 option would reduce that number by about 900,000, or 2
percent, according to CBO's estimate. That estimate takes into account
both families whose income would increase and move them out of poverty
and families whose income would fall and move them into poverty. The
estimate uses a measure of family income called cash income, which is
used to determine the official poverty rate. Cash income includes
earnings and cash transfers from the government, such as Supplemental
Security Income benefits. It excludes noncash transfers, such as
benefits from Medicaid and the Supplemental Nutrition Assistance
Program (SNAP, formerly known as the Food Stamp program); taxes; and
tax credits, such as the earned income tax credit (EITC). (Because the
EITC provides cash to many lower-income families, it is sometimes
compared with the Federal minimum wage in discussions about how to
boost lower-income families' resources.)
Implementing the $9.00 option would have a smaller effect on family
income and on the number of people in poverty than implementing the
$10.10 option would. About 7.6 million workers who will earn less than
$9.00 per hour under current law would receive higher wages, CBO
estimates, and so would some workers who will earn more than $9.00 per
hour under current law. Once all factors are taken into account, CBO
estimates that the net changes in total real income would be an
increase of about $1 billion for families whose income would otherwise
have been below the poverty threshold; increases totaling $4 billion
for families whose income would have been between one and six times the
poverty threshold; and a decrease of about $4 billion for families with
higher income, as the declines in income for business owners and the
loss of purchasing power would more than offset the increases in
earnings for low-wage workers in that group. The agency estimates that
average real family income would increase by about $100, or 0.9
percent, for families whose income would have been below the poverty
threshold, and that the number of people living in such families would
decline by about 300,000, or two-thirds of 1 percent. That is one-third
of the decline in the number of people in poverty that would occur
under the $10.10 option, CBO projects. For families whose income would
otherwise have been six times the poverty threshold or more, average
real family income would be lower by 0.1 percent.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The effects of the two options on average family income and on the
number of people living in poverty are difficult to project accurately.
Those effects depend on many things, including the extent to which the
higher minimum wage would reduce employment, the length of time that
people are not working, and the rate at which wages will grow over time
under current law. The larger the reduction in employment for a given
increase in the minimum wage, the less effective the policy would be at
raising families out of poverty. And if wages grew more quickly under
current law than CBO projects, fewer workers would have their wages
increased under the options, and the effect on poverty would be
smaller. (If those wages grew less quickly than CBO projects, the
effect would be larger.)
Table 3.--Projected Shares of Workers, by Family Income Group, Second
Half of 2016
------------------------------------------------------------------------
Percentage Percentage
Ratio of family income to the poverty threshold of all of low-wage
workers workers \1\
------------------------------------------------------------------------
Less than 1.0.................................. 6 20
1.0 to 1.49.................................... 6 16
1.5 to 1.99.................................... 7 14
2.0 to 2.99.................................... 16 18
3.0 to 5.99.................................... 39 24
6.0 or More.................................... 26 9
------------------------
Total........................................ 100 100
------------------------------------------------------------------------
Source: Congressional Budget Office based on annual data from the Census
Bureau's Current Population Survey.
Note: Calculated using before-tax family cash income. Poverty thresholds
vary with family size and composition. The definitions of income and
of poverty thresholds are those used to determine the official poverty
rate and are as defined by the Census Bureau. CBO projects that in
2016, the poverty threshold (in 2013 dollars) will be about $18,700
for a family of three and $24,100 for a family of four.
\1\ Low-wage workers are people who are projected, under current law in
the second half of 2016, to be paid less than $11.50 per hour.
the effect of an increase in the minimum wage on the federal budget
An increase in the Federal minimum wage would directly affect the
Federal budget by requiring the government to increase wages for a
small number of hourly Federal employees. A minimum-wage increase would
also indirectly affect the budget by boosting the prices of some goods
and services purchased by the government. Most of those added costs for
wages, goods, and services would need to be covered by discretionary
appropriations, which are capped through 2021 under current law. If the
caps were not adjusted, Federal budget deficits would not be affected
by the higher costs, but the benefits and government services that
could be provided under the existing caps would be reduced. If,
instead, lawmakers adjusted the caps to cover the higher costs, and if
future appropriations equaled those higher caps, then deficits would be
larger.
In addition, an increase in the Federal minimum wage would
indirectly affect the Federal budget by changing people's income--
raising real income for some workers while reducing the real income of
people who would be jobless because of the minimum-wage increase, of
business owners, and of consumers facing higher prices. As a group, the
workers receiving an earnings increase would pay more in taxes and
receive less in benefits than they would have otherwise, reducing the
Federal budget deficit; however, the workers, business owners, and
consumers with reduced income would pay less in taxes and receive more
in benefits, increasing the deficit.
CBO anticipates that the increases in income would be larger than
the decreases in income for a few years after an increase in the
minimum wage but would be smaller thereafter, as discussed earlier.
Further, for reasons discussed below, CBO anticipates that the
effective marginal tax rate--that is, the combination of increased
taxes and decreased benefits for each additional dollar of income--for
the increases in income would probably be slightly larger than the
effective marginal tax rate for the decreases in income. Combining
those factors, CBO concludes that the net effect on the Federal budget
of raising the minimum wage would probably be a small decrease in
budget deficits for several years but a small increase in budget
deficits thereafter. It is unclear whether the effect for the coming
decade as a whole would be a small increase or a small decrease in
budget deficits.\15\
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\15\ Cost estimates produced by CBO and the staff of the Joint
Committee on Taxation (JCT) typically reflect the convention that
macroeconomic variables, such as nominal output and the average price
level, remain fixed at the values that they are projected to reach
under current law. That is a long-standing convention--one that has
been followed in the congressional budget process since it was
established in 1974 and by JCT since the early 1960s. Therefore, in
producing a cost estimate for legislation that would increase the
minimum wage, CBO and JCT would not incorporate some of the effects
that such an increase would probably have on the economy. CBO was not
able to assess how that approach might affect the estimated budgetary
impact of increasing the minimum wage.
Table 4.--Estimates Effects on Average Real Family Income of an Increase
in the Federal Minimum Wage, Second Half of 2016
------------------------------------------------------------------------
Average Change in average real
real family family income
income ---------------------------
Ratio of family income to the before the
poverty threshold wage change
(2013 2013 Dollars, Percent
dollars, annualized
annualized)
------------------------------------------------------------------------
$10.10 Option \1\
Less Than 1.0.................. 10,700 300.............. 2.8
1.0 to 1.49.................... 26,300 300.............. 1.1
1.5 to 1.99.................... 36,300 200.............. 0.6
2.0 to 2.99.................... 51,400 200.............. 0.4
3.0 to 5.99.................... 86,600 *................ **
6.0 or More.................... 182,200 ^700............. ^0.4
$9.00 Option \2\
Less Than 1.0.................. 10,700 100.............. 0.9
1.0 to 1.49.................... 26,300 100.............. 0.4
1.5 to 1.99.................... 36,300 100.............. 0.3
2.0 to 2.99.................... 51,400 100.............. 0.2
3.0 to 5.99.................... 86,600 *................ **
6.0 or More.................... 182,200 ^200............. ^0.1
------------------------------------------------------------------------
Source: Congressional Budget Office based on annual data from the Census
Bureau's Current Population Survey.
Notes: Changes in real (inflation-adjusted) income include increases in
earnings for workers who would receive a higher wage, decreases in
earnings for workers who would be jobless because of the minimum-wage
increase, losses in income for business owners, decreases in income
because of increases in prices, and increases in income generated by
higher demand for goods and services. Results are weighted by the
number of people in the family; for example, when CBO calculated the
averages, a family of three would be represented three times.
Calculated using before-tax family cash income. Poverty thresholds vary
with family size and composition. The definitions of income and of
poverty thresholds are those used to determine the official poverty
rate and are as defined by the Census Bureau. CBO projects that in
2016, the poverty threshold (in 2013 dollars) will be about $18,700
for a family of three and $24,100 for a family of four.
* = between zero and $50; ** = between zero and 0.05 percent.
\1\ The minimum wage would rise (in three steps, starting in 2014) to
$10.10 by July 1, 2016, and then be indexed to inflation.
\2\ The minimum wage would rise (in two steps, starting in 2015) to
$9.00 by July 1, 2016, and would not be subsequently indexed to
inflation.
Effects for People Whose Income Would Rise
As a group, the workers whose income rose because of a minimum-wage
increase would consequently pay more in taxes and receive less in
benefits.\16\ CBO has previously estimated that the effective Federal
marginal tax rate on earnings for low- and moderate-income workers is
32 percent, on average; that is, the combination of increased taxes and
decreased benefits equals, on average, about one-third of such a
worker's added earnings.\17\ CBO expects that workers receiving an
increase in earnings from a boost to the minimum wage would face a
similar rate, on average. Therefore, CBO expects that the reduction in
the deficit associated with people whose earnings would rise would be
about 32 percent of the increase in earnings for those workers.
---------------------------------------------------------------------------
\16\ In the short term, some people would also see an increase in
income because, as discussed earlier, an increase in the minimum wage
would boost economywide demand for goods and services and thereby
generate an increase in the Nation's total output and income. That
additional income would raise Federal taxes and lower benefits. By
contrast, in the long term, and also as discussed earlier, an increase
in the minimum wage would generate a decrease in total output and
income. That loss in income would lower Federal taxes and raise
benefits; those effects are incorporated in the discussion in the
following section.
\17\ Congressional Budget Office, Effective Marginal Tax Rates for
Low- and Moderate-Income Workers (November 2012), www.cbo.gov/
publication/43709. Table 6 in that report shows an aggregate marginal
rate for 2014 of 34.8 percent. Subtracting the marginal rate
attributable to State income taxes yields a Federal marginal rate of
32.2 percent. That rate includes the effects of Federal income and
payroll taxes and of refundable earned income, child, and premium
assistance tax credits for health insurance purchased through
exchanges. It also includes changes in benefits under SNAP and cost-
sharing subsidies provided to some participants in health insurance
exchanges. That report was published before the enactment of the
American Taxpayer Relief Act of 2012, but CBO estimates that the
average Federal marginal rate for 2014 would remain at about 32 percent
after incorporating the effects of that act.
---------------------------------------------------------------------------
Part of that deficit reduction would result from increased tax
payments for the workers who were earning more. The largest part of
that increase would consist of payroll taxes assessed for Social
Security and Medicare, which are paid at a combined rate of 15.3
percent by most employees and employers.\18\ The increase in earnings
for some workers would also increase the amount that they owed in
income taxes before refundable tax credits were taken into account,
although almost all of them would owe no tax or be in one of the two
lowest Federal income tax brackets. In addition, benefits from the EITC
would fall for workers whose annual income was in the range where the
credits decrease with income. (However, those benefits would rise for
workers whose annual income remained in the income range where the
credits increase with income, and some workers with increased earnings
would qualify for a larger child tax credit.)
---------------------------------------------------------------------------
\18\ The 12.4 percent Social Security portion of that tax is paid
on earnings up to a threshold ($117,000 in 2014).
---------------------------------------------------------------------------
The rest of the deficit reduction would result from less Federal
spending (aside from the effects on refundable earned income and child
tax credits) for the workers receiving an increase in earnings.
Spending on cash and near-cash transfer programs (such as SNAP and
Supplemental Security Income) would decline for those workers, because
the amount of those benefits generally falls as income rises.\19\ In
addition, spending for premium assistance tax credits and cost-sharing
subsidies for health insurance purchased through exchanges would
decline for people who will be receiving such support under current
law, because the amount of that support also generally falls as income
rises.\20\
---------------------------------------------------------------------------
\19\ Some researchers have examined the change in cash and near-
cash transfer payments that would result from a minimum-wage increase.
See Linda Giannarelli, Kye Lippold, and Michael Martinez-Schiferl,
Reducing Poverty in Wisconsin: Analysis of the Community Advocates
Public Policy Institute Policy Package (Urban Institute, June 2012),
http://tinyurl.com/q7jb8v6 (PDF, 2.1 MB); and Linda Giannarelli, Joyce
Morton, and Laura Wheaton, Estimating the Anti-Poverty Effects of
Changes in Taxes and Benefits with the TRIM3 Microsimulation Model
(Urban Institute, April 2007), http://tinyurl.com/p75lejh (PDF, 2.9
MB). The authors estimate that the reduction in transfer payments for
those receiving an increase in earnings would be roughly 4 percent of
that increase in earnings.
\20\ A small portion of the premium assistance tax credits
represents a reduction in revenues.
---------------------------------------------------------------------------
The estimated effective Federal marginal tax rate of 32 percent
does not include the budgetary effects of some people's moving out of
Medicaid coverage or into subsidized insurance coverage through
exchanges because their earnings had increased.\21\ Some of those
effects would raise Federal costs and others would lower them. In
particular, some people who will be eligible for Medicaid under current
law and would receive higher earnings because of a minimum-wage
increase would lose eligibility for Medicaid. Some of those people
would gain eligibility for subsidized coverage through exchanges and
would choose to take up that coverage; for those people, Federal costs
would rise. However, some of the people who would lose eligibility for
Medicaid would not gain eligibility for subsidized coverage through
exchanges (because their income would still be too low) or would gain
eligibility but would choose not to take up that coverage (in part
because they would have to pay a portion of their premiums themselves);
for those people, Federal costs would fall. Moreover, some people who,
under current law, will not be eligible either for Medicaid or for
subsidized coverage through exchanges (because they live in a State
that has not expanded Medicaid coverage under the Affordable Care Act
but will have too little income to qualify for the subsidies) would
gain eligibility for subsidized coverage through exchanges and would
choose to take up that coverage; for those people, Federal costs would
rise. The net Federal cost of those various shifts would be small, CBO
expects.
---------------------------------------------------------------------------
\21\ There would also be budgetary effects of some people's moving
between eligibility categories for Medicaid and some people's moving
between Medicaid and the Children's Health Insurance Program.
---------------------------------------------------------------------------
Effects for People Whose Income Would Fall
Apart from the group of workers whose earnings rose because of a
minimum-wage increase, other people would generally see a reduction in
real income, CBO estimates. Some of the reduction would consist of
lower earnings for workers who became jobless for at least part of a
year because of the change in policy. Some would consist of lower
profits for business owners. The remainder would come from higher
prices, which would reduce real income. However, it is unclear how much
of the total reduction in income would come from each of those sources,
and that allocation would affect the impact of a minimum-wage increase
on the Federal budget. CBO has not estimated the effective Federal
marginal tax rate for that collection of reductions in income, but the
agency anticipates that it would probably be slightly smaller than the
effective Federal marginal tax rate for the people who would receive
higher income.
CBO estimates that workers who were jobless for at least part of a
year because of the minimum-wage increase would suffer a loss of real
income. As a result, those workers would pay less in taxes and receive
more in benefits. The effective Federal marginal tax rate for those
workers would be similar in magnitude to the rate for workers whose
earnings rose.
CBO estimates that profits would also be lower. The lower profits
would mean less in personal and corporate income tax receipts. CBO
expects that some of the reduction in profits would be for businesses
subject to the corporate tax, which would lower corporate tax receipts;
the reduction in profits would also indirectly reduce personal income
tax receipts, because stockholders' dividend income and realized
capital gains on corporate stock would be lower. For those firms, CBO
estimates that the decline in corporate and personal tax payments would
amount to roughly one-third of the decline in profits. However, some of
the reduction in profits would be for firms not subject to the
corporate tax, most of whose income is directly subject to the
individual income tax. For those firms, the resulting reduction in
individual income tax payments could be somewhat lower, as a share of
the reduction in profits, than the estimated one-third decline for
firms subject to the corporate tax.
Prices would rise as a result of a minimum-wage increase, according
to CBO's analysis. That increase in prices would raise Federal transfer
payments, because some of those payments, such as Social Security, are
automatically indexed to changes in the price level. An increase in
prices would also reduce Federal personal income taxes, because many
parameters of the tax system change automatically when the price level
rises. Federal spending that is not subject to statutory caps and is
not indexed to changes in the price level might also increase, although
the extent of that increase would depend on the concentration of
minimum-wage workers in the sectors of the economy in which the Federal
Government was doing such spending. CBO was not able to estimate the
effective marginal tax rate from the collection of changes in taxes and
spending that would take place because of price changes.
The Chairman. Thank you very much, Mr. Elmendorf.
We will do 3-minute questions.
Mr. Elmendorf, CBO says this is going to cost 500,000 to
900,000 jobs. It is going to cost 500,000 jobs. We keep hearing
it all the time. However, I just want to confirm with you that
there was substantial uncertainty around that estimate.
For example, most of the literature out there and the
economists agree with you that raising the minimum wage will
give raises to tens of millions of workers, put billions of
dollars into their pockets, lift many out of poverty. But that
one issue of causing job loss seems to be kind of an outlier, a
little bit, from the general literature that is out there in
economic writings. I just want to confirm with you: did CBO
actually say that there would be a 500,000-job loss if we went
to $10.10 an hour.
Mr. Elmendorf. Mr. Chairman, the central estimate that we
produced for the effects of an increase to $10.10 is a
reduction in employment of 500,000 workers. That is the central
estimate in a wide range.
The Chairman. What is the range?
Mr. Elmendorf. We think the likely range, the range with a
two-thirds probability, goes from a very slight decrease to a
decrease of about a million, and the 500,000 loss is
essentially in the middle of that range. And we think that is
consistent with a balanced reading of the literature.
The Chairman. So you just picked the middle of that. You
just said 500,000. It could be 100,000 job loss.
Mr. Elmendorf. It could be smaller job loss or it could be
larger job loss, Mr. Chairman.
The Chairman. You do not know.
But the other facts you are pretty certain about, and that
is, that it will raise tens of millions of workers' salaries
and wages, that it will put billions of dollars in their
pockets, lift millions of people out of poverty.
Mr. Elmendorf. The effects, as you describe them
qualitatively, Mr. Chairman, I think we are pretty sure of, but
the quantitative estimates of those increases are also
uncertain. So the precise numbers of people, numbers of
families, and so on--those are uncertain estimates as well.
The Chairman. There are some studies showing that the
minimum wage has a positive effect on employment growth, such
as we heard in Washington State. Did you consider any of those
studies?
Mr. Elmendorf. Yes, Mr. Chairman, there are some studies
that show that, but there are also studies that show
considerably larger losses in employment than our central
estimate. And that is why we think our estimate is consistent
with a balanced reading of the evidence, but the evidence, as
you say, covers a wide range of possibilities.
The Chairman. Are you aware of any other policy that would
directly provide such a big income boost to such a large
proportion of low-wage workers or a large reduction in poverty
without increasing the Federal deficit?
Mr. Elmendorf. No, I am not, Mr. Chairman. As you know,
other policies often discussed in this context will be an
expansion of the Earned Income Tax Credit, and that would have
a Federal budgetary cost.
The Chairman. Or increasing in TANF or food stamps or
things like that.
Mr. Elmendorf. Yes, that is right. I do not want to rule
out other possibilities, but nothing comes to my mind.
The Chairman. Thank you very much, Mr. Elmendorf.
Senator Alexander.
Senator Alexander. Thank you, Mr. Chairman.
Mr. Elmendorf, a pretty good economist, the Chairman of the
Federal Reserve, said what you said, that the minimum wage has
two main effects. One is higher wages for those who have jobs,
and the second would be some amount of unemployment as a
consequence and that the CBO is as qualified as anyone to
evaluate that literature.
The Congressional Budget Office is nonpartisan. Correct?
Mr. Elmendorf. Absolutely, Senator.
Senator Alexander. And did you not say in your report that,
yes, it would raise the wages of those affected, but once fully
implemented in the second half of 2016, the $10.10 option, the
chairman's proposal, would reduce total employment by about
500,000 workers?
Mr. Elmendorf. That is our central estimate, Senator, yes.
Senator Alexander. Your central estimate, which is within
the range of a slight reduction in employment or as high as a
million reduction.
Mr. Elmendorf. Yes, that is right, Senator.
Senator Alexander. And that is the result, as I understood
you to say, of a balanced reading of the literature.
Mr. Elmendorf. Yes, in our view, Senator, that is right.
Senator Alexander. And Chairman Yellen said that you are as
good as anybody to review the literature in her comment.
Did you not also say in your report that the benefits of
this higher wage increase would go to--just 19 percent of this
would accrue to families with earnings below the poverty level,
in other words, about one in five of those who received the
benefits of this higher wage live in families below the poverty
level?
Mr. Elmendorf. Yes, that is right, Senator.
Senator Alexander. Did you not say that 29 percent, nearly
a third, of the benefits would accrue to families earning more
than three times the poverty level?
Mr. Elmendorf. Yes, that is our estimate, Senator.
Senator Alexander. Did you not also say that under the
current law, you would project that there will be roughly 45
million people in families whose income is below the poverty
level in 2016 and that this proposal would reduce that number
by 2 percent?
Mr. Elmendorf. Yes, that is our estimate, Senator.
Senator Alexander. Mr. Chairman, my hope would be that if
we are going to continue to consider this proposal about jobs
that we would be allowed to have amendments that would do
better than cause a loss of 500,000 jobs, according to a
balanced view by the Congressional Budget Office, would provide
benefits to a larger number of people below the poverty level
than 20 percent, according to the Congressional Budget Office,
and that would not make it more expensive to create jobs, which
would seem to me to be exactly the opposite of what we ought to
try to be doing in a period of time when we have had such
longstanding unemployment among so many people.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator Alexander.
Senator Casey.
Statement of Senator Casey
Senator Casey. Thank you very much, Mr. Chairman.
I wanted to say preliminarily that I am a supporter of the
increase in the minimum wage, and part of the reason for that
is some of the data that we have seen in Pennsylvania just in
terms of the impact on lifting workers out of poverty, for
example, 127,000 workers out of poverty nationwide and the
impact on children.
Mr. Elmendorf, I just want to make some of the data
correct. You said in the report that 900,000 Americans would be
lifted out of poverty based upon the minimum wage increase to
$10.10. Is that correct?
Mr. Elmendorf. Yes, that is right, Senator.
Senator Casey. And is it not true as well that you found
that 71 percent of the income gains would go to families with
incomes less than three times the poverty level, which would be
about $56,000 for a family of three? Is that right?
Mr. Elmendorf. Yes, Senator.
Senator Casey. So the impact of the minimum wage on
families is rather substantial.
And I would ask you, do you know of any--or I should say,
have you analyzed, has CBO analyzed any other policy initiative
or legislation in, say, the last 6 months that would have those
effects, 71 percent of the income gains would go to families
less than three times the poverty level, 900,000 Americans
would be lifted out of poverty?
Mr. Elmendorf. No, Senator. We analyzed no other policies
that would have those effects.
Senator Casey. Thank you very much.
I want to give back some time.
The Chairman. Thank you very much, Senator Casey.
Senator Hatch.
Statement of Senator Hatch
Senator Hatch. Dr. Elmendorf, I appreciate the work you are
doing.
Mr. Elmendorf. Thank you, Senator.
Senator Hatch. I think you try very, very hard to get it
right, and I for one am a fan.
In 2010 and again in 2012, President Obama signed
legislation to postpone increasing the minimum wage in American
Samoa toward the Federal minimum. Now, his actions were partly
in response to the findings of possibly severe negative labor
market effects by the Government Accounting Office, or GAO, as
I recall. In the case of American Samoa, the President's
actions appeared to be an explicit acknowledgement of
differences across regions, particularly with regard to the
purchasing power of a dollar, meaning that a one-size-fits-all
approach to the minimum wage just is not suitable or equitable,
I guess I should say. Nonetheless, the Administration is
advocating an eventual 39 percent increase in a single
federally mandated minimum wage to apply to all States
independent of purchasing power variations across States and
regions.
Now, Mr. Director, can you acknowledge that the negative
labor market effects from imposing a national one-size-fits-all
increase in the Federal minimum wage will differ from State to
State with greater negative effects in places like my home
State of Utah, Iowa, Idaho, or South Dakota where the cost-of-
living is below the national average?
Mr. Elmendorf. Senator, you are right that the effects of
this sort of increase would vary substantially across States.
We have not done the analysis at a State level. I think the
effects on both employment and family income would tend to be
much larger in States that had lower wages and thus the
increase in the Federal minimum wage would have bigger effects.
The effects would be smaller in States where the wages were
higher to start with or where there already is a State minimum
wage that is higher than the Federal minimum wage.
Senator Hatch. My experience is that these small businesses
in Utah, in particular, and I think smaller States, unlike the
blue States on the west coast, the east coast--that they try to
get by with less. They actually cut employment rather than have
employment. And then am I right also in what I have always
found to be the case and have been always led to believe that a
lot of these entry-level jobs, once they take them and prove
that they can do them, they generally progress out of them into
better jobs? Is that a fair comment?
Mr. Elmendorf. I think that is fair, Senator. I do not have
any numbers at hand to that effect, but I think you are right
that people, in many cases, with greater experience and as they
build their skills move up in the nature of the job they are
asked to do and move up in the wages that they are paid.
Senator Hatch. So to have a one-size-fits-all for all
States does not make quite good sense. This should be a
determination made by the States, it seems to me.
My time is up, Mr. Chairman, but I am concerned about that,
and just because New York costs more, should every other State
have to be meeting these demands? And I am not sure New York
meets them.
The Chairman. Thank you, Senator.
Senator Baldwin.
Statement of Senator Baldwin
Senator Baldwin. Thank you, Mr. Chairman.
Director Elmendorf, I wanted to start off on a question
regarding the age group that would benefit from an increase in
the minimum wage. And I am looking at Table 2 from your
testimony. Is it correct to assume that the vast majority of
low-wage workers who would see an increase in wages are
actually adults and not teenagers?
Mr. Elmendorf. Yes, that is right, Senator. As we show in
the table, of low-wage workers, 88 percent, we estimate, will
be aged 20 or older, and only 12 percent would be teenagers.
Senator Baldwin. OK.
Additionally in your testimony you say that while there may
be a belief among some that minimum wage workers are primarily
teenagers, that that is not actually the case. Can you give me
a description of the characteristics of people who earn within
25 cents of the minimum wage in that age distribution?
Mr. Elmendorf. Senator, the table I have in front of me is
this table that you referred to where we are looking at the set
of workers who would be paid less than $11.50 an hour under
current law in the second half of 2016. These are the people we
think would be affected by the increase in the minimum wage.
And as we indicated, they are very heavily adults, more women
than men, tend to be people with less rather than more
education. Obviously, there are some teenagers in that group,
but they are not just the image people sometimes have in mind
of being solely or predominantly even teenagers.
Senator Baldwin. Is there anything you can tell me about
household income of families that contain these minimum wage
workers?
Mr. Elmendorf. Yes. Of all the low-wage workers, again
these people earning up to $11.50 an hour, about a fifth of
them are in families earning--with a total income less than the
Federal poverty threshold. Another 30 percent are in families
with income between one and two times the Federal poverty
threshold. So about half of low-wage workers are in families
whose income is below two times the Federal poverty threshold.
Senator Baldwin. I thank you for helping clear up an issue
because we certainly hear a lot of commentary about most of
these workers being minors.
Just one final question on teen employment. When we are
talking about a teenager who is perhaps working in their first
or second summer job, is it not correct that an employer could
pay below the minimum wage for their first 90 days of
employment?
Mr. Elmendorf. Yes, that is right, Senator. Very few
employers seem to do that, but it is an option they have under
the law.
Senator Baldwin. Can you just remind me of what law permits
that?
Mr. Elmendorf. This is the Fair Labor Standards Act, I
believe. I think we write about this in our report.
Senator Baldwin. Thank you.
The Chairman. Thank you.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman.
Thank you, Mr. Elmendorf.
Your report has been cited to suggest that a minimum wage
increase will lead to job losses. So I want to dig just a
little bit more into what we actually know about the effects of
this proposal.
Now, as I understand it, you did not conduct any original
research into the relationship between employment and minimum
wage increases. You just collected the existing studies on that
relationship, weighted the findings, and then made an overall
estimate of the impact. Is that right?
Mr. Elmendorf. That is exactly right, Senator.
Senator Warren. OK. I just wanted to make sure.
Some of the studies that were in the pool of those you
examined said there would be little or no job loss as a result
of an increase in the minimum wage. Is that right?
Mr. Elmendorf. Yes, that is right, Senator.
Senator Warren. Good.
What you did in effect is a meta-study. You did a study of
studies. I understand that has also been done by other
economists where they have done the same thing that the CBO
did, only perhaps because they weighed the studies somewhat
differently, they came to a different conclusion.
Just last year, the Center for Economic and Policy Research
examined every study since 2000 and concluded that, ``there was
little or no employment response to increases in the minimum
wage.'' In other words, increasing the minimum wage according
to all of the studies since 2000 did not cause any job loss.
A 2009 literature review that examined 64 studies and 1,500
estimates concluded that any adverse employment effect would
be, ``of a small and policy irrelevant magnitude.'' In other
words, they do not see that it has a job effect.
An empirical study by Dube, Lester, and Reich compared 288
pairs of neighboring U.S. counties in States with different
minimum wages from 1990 to 2006, and found in these matched
pairs there was no adverse employment effect from wage
differences.
Now, my point is not whether the CBO is right or wrong. I
understand that estimates sometimes come out differently. That
is why they are called estimates. But I do understand that
others have looked at these studies, and with somewhat
different weightings, they have come to the conclusion that
there is no impact on jobs.
But there is another number that I want to focus on for
just a minute, and that is a single mother with one child
working full-time at today's minimum wage. Does she earn below
the poverty level?
Mr. Elmendorf. Yes, Senator, she does.
Senator Warren. And if we raise the minimum wage to $10.10,
will she be above the poverty level?
Mr. Elmendorf. I have not done that calculation, Senator.
Senator Warren. I will tell you. She will be making $21,000
a year. Will that put her above the poverty level?
Mr. Elmendorf. This year, Senator? I am not sure, Senator.
Senator Warren. We will go back and look at the numbers
again, but I think the answer is yes.
So that is where I will conclude.
Thank you very much, Mr. Chairman. This is really about the
fact that no one should work full-time and live in poverty, and
raising the minimum wage will at least fix that fact. Thank
you.
The Chairman. Thank you, Senator. Thank you very much.
Mr. Elmendorf, thank you for your conciseness and your
succinctness in this and for being here this morning. We will
excuse you.
Mr. Elmendorf. Thank you, Mr. Chairman. We are very happy
to be here.
The Chairman. We will call our third panel, and that is Dr.
Heather Boushey, director of the Washington Center for
Equitable Growth. Dr. Boushey is an economist, policy expert.
She most recently served as the senior economist at the Center
of American Progress.
Then we have Sister Simone Campbell, executive director of
NETWORK, a national Catholic social justice lobby. Sister
Simone is a faith leader and a leading advocate against
poverty, relying on the social justice tradition of Catholic
social teaching to call for protecting the poor. She is a
Catholic nun and a member of the religious order of Sisters of
Social Service.
Then we have Alicia McCrary, a fast food worker from
Northwood, IA, a single mother of four boys. I said three
earlier, but four boys, ages 11, 10-year-old twins, and a 5-
year-old. She works for $7.65 an hour 20 to 25 hours a week,
travels 20 miles by bus to work in Mason City, and the lack of
an evening bus prevents her from working full-time. She relies
on Medicaid, public housing, TANF, food stamps, and LIHEAP, and
gets the Earned Income Tax Credit and child care assistance for
the 5-year-old. She is participating in a program run by the
North Iowa Community Action Agency.
Again, welcome. Your statements will be made part of the
record. I ask you to sum up in about 3 minutes. Dr. Boushey, we
will start with you.
STATEMENT OF HEATHER BOUSHEY, Ph.D., B.A., EXECUTIVE DIRECTOR
AND CHIEF ECONOMIST, WASHINGTON CENTER FOR EQUITABLE GROWTH,
WASHINGTON, DC
Ms. Boushey. Thank you. Thank you, Chairman Harkin and
Ranking Member Alexander and the rest of the committee, for
inviting me here to testify today.
My name is Heather Boushey. I am executive director and
chief economist at the Washington Center for Equitable Growth.
At our center, we are devoted to understanding what grows our
economy, with an emphasis on understanding whether and how high
and rising levels of inequality affect the economy. It is an
honor to be here today to discuss how a fair minimum wage will
help families succeed and support broad-based economic growth
in our society.
Let me be very clear. One of the best ways to fight poverty
is to ensure people have jobs with decent wages that put them
above the poverty line. Raising the minimum wage and keeping
its value at a reasonable level through indexing it to
inflation will establish a stronger first rung on the ladder to
economic security. The minimum wage is a cornerstone of a set
of policies, including the Earned Income Tax Credit, the
Affordable Care Act, paid sick days, and paid family medical
leave that provide the foundation for economic security for
workers and their families.
There are three main conclusions from my testimony.
First, raising the minimum wage will reduce poverty.
According to estimates, raising the minimum wage to $10.10 an
hour will reduce the poverty rate for non-elderly Americans to
15.8 percent by 2016 from today's rate of 17.5 percent. This
increase would bring about 6.8 million people out of poverty.
Second, raising the minimum wage will help family
breadwinners support their children. The typical minimum wage
earner brings in half their family's income, and raising the
minimum wage will help them.
Third, raising the minimum wage will have a positive
economic effect above and beyond lowering the poverty rate. The
consensus of the economic research points to the conclusion
that a higher minimum wage does not reduce employment. The CBO
report, while an important report, is outside of the mainstream
in terms of its estimate of employment. And it is worth noting
that at a 90 percent confidence interval, it does include a
zero impact on employment. The minimum wage increase would
boost productivity and address the growing problem of rising
income inequality.
The Fair Minimum Wage Act is necessary because Congress has
allowed the value of the minimum wage to decline sharply in
recent years, leaving too many workers toiling full-time but
still in poverty. The purchasing power of the minimum wage hit
a high in 1968 and has declined by 23 percent since then. At
the same time, the overall economy has grown considerably as
gross domestic product grew by 245 percent between 1968 and
2013. We can afford to raise the minimum wage.
Twenty-one States and the District of Columbia have already
acted and have minimum wages higher than the Federal minimum.
We know from experience that raising the minimum wage
delivers positive results in the fight against poverty and
efforts to grow the middle class.
An overwhelming majority of recent economic research has
found that raising the minimum wage has little to no effect on
unemployment. Even during recessions and periods of high
unemployment, raising the minimum wage does not cause job
losses. Economists John Addison, McKinley, Blackburn, and Chad
Cotti find no evidence that minimum wage hikes reduce
employment generally or during recessions. This is also a fact
that is supported by the CBO report that was just discussed.
What a higher minimum wage does is increase earnings.
According to the Congressional Budget Office, increasing the
minimum wage to $10.10 would directly increase earnings for
16.5 million workers. And economist Arin Dube estimates that
the proposed minimum wage would lift about 4.6 million people
out of poverty, or about 6.8 million if longer-term effects are
accounted for.
Nearly a quarter of the workers who would benefit from the
Fair Minimum Wage Act earn below $20,000 a year and half earn
below $40,000 a year.
Now, of course, the minimum wage works in tandem with other
income supports and basic labor standards. For example, at the
current minimum wage level, a full-time single earner with two
dependents could receive over $5,000 from the Earned Income Tax
Credit for a total income of over $20,000 after Federal taxes.
However, one concern with the EITC is that it subsidizes
low-wage employers. According to economist Jesse Rothstein's
estimates, employers capture about 27 percent of the value of
the Earned Income Tax Credit. So those raises do not all go to
workers differently than when we raise the minimum wage. A
higher minimum wage would reduce the portion of the subsidy
that goes to employers.
Further, there is a significant amount of economic evidence
that shows the higher minimum wage can boost productivity and
reduce turnover, and this, in fact, are the reasons why raising
the minimum wage does not, in general, reduce employment.
The anti-poverty effects of the minimum wage are
significant, especially when they are combined with other anti-
poverty policies. Any effort to reduce poverty and increase
mobility at the bottom rungs of the income ladder should begin
by increasing the minimum wage.
Thank you.
[The prepared statement of Ms. Boushey follows:]
Prepared Statement of Heather Boushey, Ph.D., B.A.
introduction
I would like to thank Chairman Harkin, Ranking Member Alexander,
and the rest of the committee for inviting me here today to testify.
My name is Heather Boushey and I am executive director and chief
economist of the Washington Center for Equitable Growth. The center is
a new project devoted to understanding what grows our economy, with a
particular emphasis on understanding whether and how high and rising
levels of economic inequality affect economic growth in our Nation.
By training, I am a labor economist. I have spent my career seeking
to understand the American labor market and the effects of public
policy on family economic well-being and the economy more generally. It
is an honor to be invited here today to discuss how a fair minimum wage
will help families succeed and support broad-based income growth in our
society.
The best way to fight poverty is to make sure people have jobs with
decent wages that put them above the poverty line. Raising the minimum
wage and ensuring that its value stays at a reasonable level over time
through indexing it to the cost-of-living will establish a stronger
first rung on the ladder to economic security. The minimum wage is the
cornerstone of a set of policies, including the Earned Income Tax
Credit, the Affordable Care Act, as well as some yet to be implemented
nationwide, such as paid sick days and paid family and medical leave
that provide the foundation for economic security for workers and their
families.
There are three key conclusions from my testimony:
Raising the minimum wage will reduce poverty. According to
economic estimates, raising the minimum wage to $10.10 an hour will
reduce the poverty rate for non-elderly Americans to 15.8 percent by
2016 from current 17.5 percent levels. This increase would bring about
6.8 million people out of poverty.
Raising the minimum wage will help family breadwinners
support their children. The typical minimum wage earner brings in half
of their family's income. Congress should also take care to make sure
that other benefits for low-wage workers provide a full package for
low-wage workers and their families as families will also need help
with access to affordable and quality health care, childcare, and
housing, even at a higher minimum wage.
Raising the minimum wage will have positive economic
effects above and beyond lowering the poverty rate. Economic research
points to the conclusion that a higher minimum wage does not cause
greater unemployment, boosts productivity, and addresses the growing
problem of rising income inequality.
The rest of my testimony will focus on the facts about the minimum
wage, a review of the academic literature on the impact on poverty of
raising the minimum wage, and a consideration of how the minimum wage
interacts with other poverty-fighting programs to help low-wage workers
enter the middle class.
the state of the minimum wage
The Federal minimum wage is currently $7.25 an hour, where it's
been since July 2009. Raising the minimum wage to $10.10 would be in
line with its value in the past. The minimum wage has been raised 22
times since first enacted into law in 1938, most recently in three
steps between 2007 and 2009.\1\
The Fair Minimum Wage Act of 2013 would raise the minimum wage to
$10.10 in three steps, beginning 3 months after passage of the bill and
ending 2 years after the first increase. The law will then index the
minimum wage to the rate of inflation, ensuring that its value does not
erode over time. It will also raise the minimum wage for workers who
earn tips, such as food service workers, to $7.10 an hour.
The Fair Minimum Wage Act is necessary because Congress has allowed
the purchasing power of the minimum wage to decline sharply in recent
years, leaving too many workers toiling full-time, but not able to rise
above poverty. The purchasing power of the minimum wage hit a high in
1968 and has declined by 23 percent since then in inflation-adjusted
dollars, using the Bureau of Labor Statistics Consumer Price Index for
all Urban Consumers Research Series.\2\
The value of the minimum wage also has declined relative to the
earnings of other wage earners. In 1968, the minimum wage was equal to
just over half (53 percent) of the average wage for production and non-
supervisory workers. In 2013, the minimum wage had fallen to just over
a third (36 percent) of the average wage. (See Figure 1.)
The Fair Minimum Wage Act sets the minimum wage at a level that
will help workers and their families, be good for the economy, and is
consistent with past levels of the minimum wage. If the minimum wage
had been indexed to inflation starting in 1968, it would currently be
$9.39. And if the minimum wage were indexed to be 50 percent of the
average wage, roughly where it was in 1968, it would currently be
$10.08. In inflation-adjusted dollars, by 2016 when the Fair Minimum
Wage Act would be fully implemented, the minimum wage would equal about
$9.45 in today's dollars, consistent with past values.\3\ (See Figure
1.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
This proposed increase in the minimum wage is consistent with what
the economy can provide. While the minimum wage has lost value in
inflation-adjusted dollars, the overall economy has grown considerably.
Between 1968 and 2013, U.S. gross domestic product grew by an
inflation-adjusted 245 percent, to $15.8 trillion from $4.6 trillion
while the inflation-adjusted value of the minimum wage fell by 23
percent over the same period. Or consider another means of comparison,
from 1968 to 2012, the average pre-tax, pre-transfer income of the top
1 percent of households grew by 187 percent.\4\ In contrast, over the
course of those same years, the share of U.S. families living under the
poverty line has risen from 10 percent to 11.8 percent.\5\
Even after the increase proposed in this law, the Federal minimum
wage will remain a floor. Individual States and municipalities have
minimum wages above the Federal minimum of $7.25. Twenty-one States and
the District of Columbia have higher minimum wages, with the State of
Washington having the highest in the country at $9.32 per hour.\6\ We
have learned from these experiences of these States that raising the
minimum wage overall delivers positive results in the fight against
poverty and efforts to grow the middle class from the bottom up.\7\
earnings of minimum-wage workers and poverty thresholds
Raising the minimum wage is an important anti-poverty tool, but the
current minimum wage leaves too many families in poverty. Earning the
current Federal minimum wage, a minimum-wage earner working 40 hours a
week every week of the year would earn $15,080 over the year. This
amount of earnings puts a single adult just barely above poverty. But
if that worker has to support any other people--such as a child--then
this family would be living below the U.S. poverty threshold. The
poverty line for a family with one non-elderly adult and one child was
$16,057 in 2013.\8\ Therefore, a full-time minimum-wage earner with one
child and no spouse would come up short by $977 each year.
Increasing the minimum wage to $10.10 by 2016, which would equal
$9.45 in 2013 dollars, would boost the earnings of low-wage workers and
reduce poverty. At that minimum wage, a full-time, full-year worker
would earn $19,656 in 2013 dollars over the course of the year,
assuming they never take a day off without pay, and be able to support
two children as a single earner and be above the official poverty
threshold.
Nearly a quarter (23 percent) of the workers who will benefit from
the Fair Minimum Wage Act currently live in a family earning less than
$20,000 in a year, just above the poverty threshold of $18,769 for a
family of one adult and two children. Just under 52 percent of workers
who will benefit live in a family making below $40,000 a year, which is
closer to what many surveys show is what people believe is a basic
standard of living for a family of four.\9\
Economists have also explored what the likely effects of raising
the minimum wage would be on poverty. Economist Arindrajit Dube, from
the University of Massachusetts, Amherst, estimates that a 10 percent
increase in the minimum wage would immediately decrease the poverty
rate by 2.4 percent and lead to an overall reduction of 3.6 percent in
the longer run.\10\ According to his estimates, which in my view are
empirically sound and conform with the economics literature, the Fair
Minimum Wage Act will reduce the poverty rate for non-elderly Americans
from 17.5 percent to 15.8 percent. On a longer timeframe, past 1 year
after the minimum wage increase, the rate would decrease to 15 percent,
according to Dube.\11\
In more concrete numbers, the increase would translate to around
4.6 million Americans no longer in poverty (or around 6.8 million if
longer term effects are accounted for). Another way to contextualize
these numbers is to note that the poverty rate for the non-elderly
increased by as much as 3.4 percentage points during the Great
Recession. So the proposed minimum wage increase could reverse about
half of that increase. Other recent research shows that an increase in
the minimum wage would reduce spending on anti-poverty programs like
the Supplemental Nutrition Assistance Program.\12\
making work pay
The anti-poverty effects of the minimum wage are significant, but
to pull workers and their families up and out of poverty, the minimum
wage must work in tandem with income support policies. One of the most
important policy interactions is with the Earned Income Tax Credit. The
EITC is a refundable tax credit for low-income families that is larger
for those with more dependent children. The EITC is an effective anti-
poverty policy that lifts millions of Americans out of poverty. In
2012, the EITC lifted 6.5 million people out of poverty, according to
the Center Budget and Policy Priorities.\13\
For example, the minimum wage and the EITC are designed to work
together. As economists David Lee, of Princeton University and Emmanuel
Saez of University of California, Berkeley, argue the optimal minimum
wage should be paired with a wage subsidy, such as the EITC.\14\ This
wage subsidy encourages workers to enter the labor force and the
minimum wage helps ensures they receive an adequate wage to escape
poverty. Looking at the data, we can see how the minimum wage and the
EITC work together to pull families out of poverty. At the current
minimum-wage level, a single earner (full-time, full-year) with two
dependents would receive $5,372 from the EITC for a total after-Federal
income of $20,452 (although workers may need to pay State income taxes
and will owe payroll taxes). With a minimum wage of $9.45 in 2013
dollars, a single earner would see a $4,920 boost from the EITC for a
total after-Federal income tax of $24,576.
A major concern with the EITC, however, is that it is a subsidy to
employers who pay very low wages. According to UC-Berkeley economist
Jesse Rothstein's estimates, employers capture 27 percent of the value
of the EITC. The EITC induces more workers into the labor market and
makes it easier for them to take lower wages, since they can get the
EITC subsidy. Part of this result is because EITC-eligible workers who
can afford a lower wage compete against non-eligible workers. The
result is that employers get labor at a cheaper rate than they would
otherwise.
One very important reason to focus on raising the minimum wage is
that a higher minimum wage reduces this capture by reducing the
reduction in wages caused by the increase in the supply of labor.
Making more workers eligible for the EITC would also help benefit
workers. The end result is both greater employment and more of the EITC
subsidy going to the intended recipients, low-wage workers and their
families.
Low-wage workers are eligible for a variety of benefits aimed at
boosting incomes or helping them afford basics, such as housing, health
care, or childcare. This is important since many basics, especially
health care, childcare, and housing, are too expensive at market rates
for low-income workers and their families. Childcare alone can eat up a
large portion of a minimum wage workers' income. It is imperative that
these programs work in tandem and that Congress--and State
policymakers--consider the interaction effects of changing any of these
policies. In many cases, the States set the rules for program
eligibility, with some guidelines from the Federal Government, so
engaging them in this conversation is a must.
In the mid-1990s when Congress implemented welfare reform, Congress
did a very good job putting all these pieces together by looking at the
benefits and income supports for low-wage workers and their families as
a package. Within a short span of time, Congress implemented welfare
reform, while also raising the minimum wage, expanding the EITC,
expanding access to children's health through the State Children's
Health Insurance Program, and expanding childcare subsidies. Only by
putting a full basket of policies together will low-wage workers be
able to rise out of poverty and into the middle class. The minimum wage
is a core piece of this puzzle, but it is not the only piece. (See
Figure 2.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Congress could do more to ensure that minimum wage workers earn a
fair day's pay by making sure that when they or their child gets sick
they have the right to job-protected paid sick days, as proposed in the
Healthy Families Act and is now the law in a number of municipalities
and the State of Connecticut.\15\ Further, most minimum wage workers do
not have the right to vacation time or paid family and medical leave,
making it difficult for them to care for their families while working
full-time.
economic effects of raising the minimum wage
Raising the minimum wage is not only an effective anti-poverty tool
but also a proven way to boost our economy more generally. The
economics evidence shows that raising the minimum wage does not lead to
higher unemployment overall but rather boosts productivity and
addresses a growing issue in our economy of rising inequality.
Careful studies of the economics literature find that increases in
the minimum wage have little to no effect on employment.\16\ Economists
David Card, of the University of California, Berkeley, and Alan
Krueger, of Princeton University, looked at the effects of a minimum
wage hike in New Jersey by comparing fast food restaurant employment in
the State to fast food employment in Pennsylvania which did not
increase its minimum wage.\17\ Card and Krueger found that the increase
in the minimum wage did not reduce employment. Their approach has been
generalized in later research. Research by Arindrajit Dube, T. William
Lester of the University of North Carolina--Chapel Hill, and Michael
Reich of the University of California, Berkeley looked at all of the
bordering counties that have different minimum wages between 1990 and
2006.\18\ They too found that minimum wage did not have a significant
effect on employment.
One reason that employment has not been shown to fall due to
raising the minimum wage is because higher wages can make workers more
productive and therefore more valuable to their employer. Economists
call this the ``efficiency wages'' theory.\19\ There is an extensive
literature on efficiency wage theory, with notable contributions Nobel
Laureates Joseph Stiglitz \20\ and George Akerlof, \21\ which suggest
that paying more than the market-clearing wage can make firms more
productive.
As the White House pointed out last week, higher wages can ``boost
productivity, increase morale, reduce costs, and improve efficiency.''
Here are just two academic studies that prove these points. John
Schmitt, a Senior Economist at the Center for Economic and Policy
Research, finds empirical economics research suggesting efficiency
gains.\22\ And in a 2011 study, Georgia State University economists
Barry Hirsch and Bruce Kaufman, along with Tetyana Zelenska from
Innovations for Poverty Action, examined the effect of a Federal
increase in the minimum wage on 81 restaurants in Georgia and
Alabama.\23\ In their survey, managers reported that they could
identify possible non-wage savings and productivity improvements in
response to the minimum-wage regulations. It is possible that lower
costs stemming from these changes could outweigh the costs of paying a
higher minimum wage.
In addition, it's possible that a higher minimum wage could make
staying in one's job more attractive and thus reduce turnover costs. A
2013 working paper by UMass-Amherst economist Arindrajit Dube,
University of North Carolina, Chapel Hill economist William Lester, and
UC-Berkeley economist Michael Reich finds that a higher minimum wage
leads to fewer so called ``hires and separations,'' or worker
turnover.\24\ Other empirical studies suggesting that a higher minimum
wage--or a ``living wage'' covering basic needs--can reduce labor
turnover include studies of workers in San Francisco \25\ (including
airport \26\ and homecare workers \27\) and Los Angeles.\28\ Lower
turnover costs could potentially allow businesses to overcome the
increased cost of paying a higher wage.
Finally, the level of the minimum wage has a considerable effect on
the distribution of wages in the United States. As mentioned above, the
minimum wage used to be much closer to the average wage. But since
1968, the average wage grew as the purchasing power of the minimum wage
declined by 23 percent. At the same time, the distance between wage
earner at the 10th percentile and median wage earner, or the earner at
the 50th percentile, grew by 18 percent from 1979 to 2009.\29\
Economists have found that the declining inflation-adjusted value
of the minimum wage had a considerable effect on wage inequality for
those workers in the bottom half of the wage distribution. A 1996 paper
by economists John DiNardo, of the University of Michigan, Nicole
Fortin, of the University of British Columbia, and Thomas Lemieux, also
of the University of British Columbia, found that the decrease in the
minimum wage from 1979 to 1988 had a considerable effect on the wage
distribution.\30\ They found the decline over that time could explain
up to 25 percent of the change in the standard deviation in the
logarithm of male wages and up to 30 percent for female wages. In plain
English, this means the decline in the minimum wage explained up to a
fourth of increasing wage inequality for men and up to three-tenths of
increase wage inequality for women.
In more recent work, MIT economist David Autor, London School of
Economics economist Alan Manning, and Federal Reserve Board economist
Christopher Smith find that about 75 percent of the increase in low-end
inequality from 1979 to 1991 is due to the decline in the value of the
minimum wage, but the decline only explains 45 percent of the increase
from 1979 to 2009.
While the literature has not come to an agreement on the exact size
of the effect, the decline of the minimum wage was a significant factor
in the increase in inequality for lower half of the income
distribution.
Who would be affected by a minimum wage increase to $10.10?
According to calculations from the Economic Policy Institute,
approximately 28 million workers would see a raise if the minimum wage
were raised to $10.10 by July 2016.\31\ The affected workers would
include not only those making under $10.10 an hour, all of whom would
see their wages directly increased, but also those earning just above
$10.10. Due to a spillover effect, these workers would see their wages
indirectly increased as employers try to maintain the previous relative
status of workers in their firms.
The majority of affected workers, those directly and indirectly
affected, would be women. Fifty-five percent of the affected workers
would be women. For context, women represent 49.2 percent of total
employment.
One invalid criticism of the minimum wage as an antipoverty tool is
that the minimum wage would primarily benefit teenagers who are working
part-time and are supported by their parents. The data, however, do not
bear this story out. Contrary to stereotypes of minimum wage workers,
88 percent of affected workers would be adults. A plurality of affected
workers, 36.5 percent, would be between the ages of 20 and 29. In fact,
the average age of affected workers would be 35 years old.\32\
And the minimum wage increase would not flow mostly to part-time
workers. Fifty-three percent of affected workers would work full-time,
defined as at least 35 hours a week. And research finds that minimum
wage hikes do not result in significant decreases in working hours.\33\
(See Figure 3.)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Then there are tipped workers, who earn a subminimum wage. They are
similar to those who earn the minimum wage as they also are less-
educated, younger, and more likely to be female than the rest of the
workforce.\34\ The Harkin-Miller legislation would raise the tipped
minimum wage to 70 percent of the regular minimum wage. This increase
would give tipped workers a considerable raise from the current tipped
minimum wage of $2.13.
The families of minimum wage earners are also dependent upon the
earnings of those workers. On average, the earnings of minimum wage
earners are 50 percent of their family's incomes.\35\
comments on cbo's minimum wage report
Overall, the report by the Congressional Budget Office on the
proposed minimum wage increases is well done.\36\ And that's not a
shock considering that it is written by the Congressional Budget
Office. Their work is always high quality and a valuable contribution
to the policy debate. Yet my reading of the economics literature on the
minimum wage leads me to differ with CBO's conclusions. Overall, their
report overstates the cost and understates the benefits of increasing
the minimum wage, as demonstrated by my written testimony today.\37\
While CBO describes some of its thinking in its selection of
employment elasticities from the economics literature, their
methodology is relatively vague. They state they favor studies that use
a methodology that finds small to no employment effects of modest
increases in the minimum wage. They consider publication bias in
academic journals that would result in the publication of fewer studies
that find no effect. But their preferred elasticities appear to be
about halfway between the elasticities found by their stated favored
methodology and more negative estimates.\38\
costs
In several ways, the CBO report overstates the costs of raising the
minimum wage with regards to employment. First of all, the report
overstates the willingness of employers to substitute workers for
capital. Minimum wage jobs are concentrated in industries and
occupations where substitution is unlikely. You can't replace a janitor
with a Roomba.
The authors also don't account for possible productivity gains from
raising the minimum wage. Increased productivity increases wages, but
higher wages can boost productivity. Workers who are better paid may
become more productive according to the ``efficiency wage theory.''
About 90 percent of interviewed fast food managers, for example, said a
minimum wage increase would spur them to help improve the productivity
of workers.\39\ Worker productivity could also be boosted by reduced
turnover due to a minimum wage increase.\40\ As workers stay on the job
longer they become more familiar with work tasks and therefore more
productive.
Finally and perhaps most importantly, the CBO report also doesn't
appear to account for the fact that the most price sensitive consumers
are also the workers receiving the largest wage gains from an increase
in the minimum wage. The low-wage workers who often have the hardest
time dealing with price increases would be the ones receiving wage
increases. The net effect of a minimum wage increase would be a gain
for these workers.
benefits
The CBO report finds that raising the minimum wage to $10.10 would
reduce poverty by 900,000 people. Obviously a reduction in poverty is a
good thing, but the report's estimates are almost certainly on the low
end of estimates. To calculate the effect of raising the minimum wage
on family incomes, CBO uses a simulation to compare wages and incomes
after a minimum wage increase to a world where the standard isn't
raised.
This method isn't incorrect. But other methods, specifically using
historical data, find a much larger reduction in poverty. Simulation
methods require assumptions about specific phenomena--like the
spillover effect of raising the minimum wage--to be accurate and that
there are no measurement errors in the underlying data. A review of the
existing literature by University of Massachusetts--Amherst economist
Arindrajit Dube on the relationship between the minimum wage and
poverty found that the vast majority of the literature finds a negative
relationship.\41\ On average, these studies find a 10-percent increase
in the minimum wage reduces the poverty rate by 1.5 percent. Using this
conservative elasticity, raising the minimum wage to $10.10 would help
raise 2.4 million non-elderly Americans out of poverty. Under Dube's
preferred elasticity, the increase in the minimum wage would decrease
poverty by 4.6 million non-elderly Americans in the short-term and 6.8
million in the longer term.
conclusion
The minimum wage is not a silver bullet in the fight against
poverty. But any effort to reduce poverty and increase economic
mobility at the bottom rungs of the income ladder into the middle class
needs to include an increase in the minimum wage. The weight of
economic research shows that raising the minimum wage would reduce
poverty and work in tandem with other poverty-reducing programs to
promote income mobility from the bottom up. In the largest economy on
the planet, we need to work harder to reduce poverty. Increasing the
minimum wage needs to be part of that effort.
Endnotes
1. U.S. Department of Labor, ``History of Federal Minimum Wage
Rates Under the Fair Labor Standards Act, 1938-2009,'' United States
Department of Labor--Wage and Hour Division (WHD), accessed July 10,
2013, http://www.dol.gov/whd/minwage/chart.htm.
2. For all inflation-adjusted figures I use the Consumer Price
Index for all Urban Consumers Research Series. The research series
version of the CPI uses current methods to calculate the inflation
figures in the past to make sure the series is consistent over a long
period of time. If the Consumer Price Index for all Urban Consumers is
used instead, the minimum wage falls by 32 percent from its peak in
1968 and the value of the minimum wage would have been $10.71 in 2013.
3. For this projection, I assume that inflation over the next 3
years will average 2.25 percent, its average rate for the preceding 3
years.
4. Thomas Piketty and Emmanuel Saez, ``Income Inequality in the
United States, 1913-98,'' The Quarterly Journal of Economics 118, no. 1
(February 2003): 1-39.
5. U.S. Census Bureau, ``Historical Poverty Tables--Families,''
February 10, 2014, http://www.census.gov/hhes/www/poverty/data/
historical/families.html.
6. U.S. Wage and Hour Division, ``Minimum Wage Laws in the States--
January 1, 2014,'' U.S. Department of Labor, accessed February 8, 2014,
http://www.dol
.gov/whd/minwage/america.htm.
7. Arindrajit Dube, Minimum Wages and the Distribution of Family
Incomes, Working Paper (Amherst, MA, December 30, 2013), https://
dl.dropboxusercontent
.com/u/15038936/Dube_MinimumWagesFamilyIncomes.pdf.
8. U.S. Census Bureau, ``Poverty Thresholds,'' January 31, 2014,
https://www.census.gov/hhes/www/poverty/data/threshld/index.html.
9. David Cooper, Raising the Federal Minimum Wage to $10.10 Would
Lift Wages for Millions and Provide a Modest Economic Boost, Briefing
Paper (Washington, DC: Economic Policy Institute, December 19, 2013),
http://www.epi.org/publication/raising-Federal-minimum-wage-to-1010/.
Shawn Fremstad, ``Raising Minimum Wage to $9 Not Enough to Ensure That
Families with Full-time Workers Live Above Poverty Line'' (Washington,
DC: Center for Economic and Policy Research, February 14, 2013),
available at: http://www.cepr.net:8080/index.php/blogs/cepr-blog/
raising-minimum-wage-to-9-not-enough-to-ensure-that-families-with-
fulltime-workers-live-above-poverty-line; Economic Policy Institute,
``Family Budget Calculator'' available at: http://www.epi.org/
resources/budget/.
10. Dube, Minimum Wages and the Distribution of Family Incomes. In
Dube's review of the academic literature, he found that a simple
``average of averages'' of the findings of 54 studies suggests that a
10 percent increase in the minimum wage would result in a 1.5 percent
decrease in the poverty rate. Yet, he argues that this is too low due
to several flaws in the existing literature. Depending on the empirical
specification, Dube's own estimates find that the effect of raising the
minimum wage would reduce poverty by anywhere from 1.2 percent to 3.7
percent.
11. Ibid.
12. Rachel West and Michael Reich, The Effects of Minimum Wages on
SNAP Enrollments and Expenditures (Washington, DC: Center for American
Progress, March 5, 2014), http://www.americanprogress.org/issues/
economy/report/2014/03/05/85158/the-effects-of-minimum-wages-on-snap-
enrollments-and-expenditures/.
13. Center on Budget and Policy Priorities, The Earned Income Tax
Credit (Washington, DC: Center on Budget and Policy Priorities, January
30, 2014), http://www.cbpp.org/cms/?fa=view&id=2505.
14. David Lee and Emmanuel Saez, ``Optimal Minimum Wage Policy in
Competitive Labor Markets,'' Journal of Public Economics 96, no. 9-10
(October 2012): 739-49, doi:10.1016/j.jpubeco.2012.06.001.
15. See: Heather Boushey, John Schmitt, and Jane Farrell, Job
Protection Isn't Enough: Why America Needs Paid Parental Leave
(Washington, DC: Center for American Progress, December 2013). Places
that have paid sick days laws are: San Francisco as of 2007;
Washington, DC, as of 2008; Connecticut and Seattle as of 2011; and New
York City and Portland, OR, as of 2012; Jersey City, NJ in 2013; and
Newark, NJ in 2014. National Partnership for Women and Families,
``State and Local Action on Paid Sick Days'' (2012), available at:
http://paidsickdays.national
partnership.org/site/DocServer/NP_PSD_Tracking_Doc.pdf?docID=1922; The
Associated Press, ``Bill Requiring Sick Leave Is Approved in Jersey
City,'' (New York Times, September 26, 2013) available at:
www.nytimes.com/2013/09/27/nyregion/jersey-city-council-approves-paid-
sick-leave.html; Jennifer Ludden, ``Paid Leave Laws Catch On Across the
Nation,'' (National Public Radio, January 28, 2014) available at:
http://www.npr.org/2014/01/28/267488576/more-states-offer-paid-leave.
Voters in Milwaukee passed an earned sick time ballot initiative in
2008, but in 2011 the ordinance was nullified by a bill that created
uniform family and medical leave standards in Wisconsin. Joanne
Deschenaux, ``Wisconsin Governor Signs Bill Nullifying Milwaukee Paid
Sick Leave Ordinance,'' (Society for Human Research Management)
available at: http://www.shrm.org/legalissues/stateandlocalresources/
pages/wisconsingovernorsignsbillnullifying.aspx. And the Philadelphia
city council passed earned sick time legislation in 2011 that was
vetoed by the mayor, although an earned sick time provision was
included and enacted in a later living wage bill that applies to city
contractors. Philadelphia 21st Century Minimum Wage Standard, No.
110557, (2011); National Partnership for Women and Families, ``State
and Local Action on Paid Sick Days'' (National Partnership for Women
and Families, 2013 available at: http://
paidsickdays.nationalpartnership.org/site/DocServer/
NP_PSD_Tracking_Doc.pdf?docID=1922.
16. John Schmitt, Why Does the Minimum Wage Have No Discernible
Effect on Employment? (Washington, DC: Center for Economic and Policy
Research, February 2013), http://www.cepr.net/index.php/publications/
reports/why-does-the-minimum-wage-have-no-discernible-effect-on-
employment; Hristos Doucouliagos and T. D. Stanley, ``Publication
Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis,''
British Journal of Industrial Relations 47, no. 2 (2009): 406-28,
doi:10.1111/j.1467-8543.2009.00723.x.
17. David Card and Alan Krueger, ``Minimum Wage and Employment: A
Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,''
American Economic Review 84, no. 4 (September 1994): 772-93, http://
www.jstor.org/discover/10.2307/
2118030?uid=3739256&uid=2&uid=4&sid=21103411360827.
18. Arindrajit Dube, T. William Lester, and Michael Reich,
``Minimum Wage Effects Across State Borders: Estimates Using Contiguous
Counties,'' Review of Economics and Statistics 92, no. 4 (July 7,
2010): 945-64, doi:10.1162/REST_a_00039.
19. Daniel Raff and Lawrence Summers, ``Did Henry Ford Pay
Efficiency Wages?,'' Journal of Labor Economics 5, no. 4 (1987): S57-
S86, http://www.jstor.org/discover/10.2307/
2534911?uid=3739584&uid=2&uid=4&uid=3739256&sid=2110345
5575693; Barry T. Hirsch, Bruce E. Kuafman, and Tetyana Zelenska,
Minimum Wage Channels of Adjustment, Discussion Paper, IZA Discussion
Paper (Bonn, Germany: Institute for the Study of Labor, November 2011),
http://www2.gsu.edu/ ecobth/IZA_HKZ_MinWageCoA_dp6132.pdf.
20. Joseph E. Stiglitz, Theories of Wage Rigidity, Working Paper
(Cambridge, MA: National Bureau of Economic Research, 1984), http://
www.nber.org/papers/w1442.pdf.
21. George A. Akerlof, ``Labor Contracts as Partial Gift
Exchange,'' The Quarterly Journal of Economics 97, no. 4 (November
1982): 543, doi:10.2307/1885099.
22. Schmitt, Why Does the Minimum Wage Have No Discernible Effect
on Employment?.
23. Hirsch, Kuafman, and Zelenska, Minimum Wage Channels of
Adjustment.
24. Arindrajit Dube, T. William Lester, and Michael Reich, Minimum
Wage Shocks, Employment Flows and Labor Market Frictions (Amherst, MA,
2013), http://www.irle.berkeley.edu/workingpapers/149-13.pdf.
25. Arindrajit Dube, Suresh Naidu, and Michael Reich, ``The
Economic Effects of a Citywide Minimum Wage,'' Industrial and Labor
Relations Review 60 (2007): 522-43.
26. Michael Reich, Peter Hall, and Ken Jacobs, ``Living Wage
Policies at the San Francisco Airport: Impacts on Workers and
Businesses,'' Industrial Relations: A Journal of Economy and Society
44, no. 1 (2005): 106-38, doi:10.1111/j.0019-8676.2004.00375.x.
27. Candace Howes, ``Living Wages and Retention of Homecare Workers
in San Francisco,'' Industrial Relations: A Journal of Economy and
Society 44, no. 1 (2005): 139-63, doi:10.1111/j.0019-8676.2004.00376.x.
28. David Fairris, ``The Impact of Living Wages on Employers: A
Control Group Analysis of the Los Angeles Ordinance,'' Industrial
Relations 44, no. 1 (January 2005): 84-105, http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=639757.
29. Author's analysis using data from David H. Autor, Alan Manning,
and Christopher L. Smith, The Contribution of the Minimum Wage to U.S.
Wage Inequality Over Three Decades: A Reassessment, Working Paper
(Cambridge, MA: National Bureau of Economic Research, November 2010),
http://www.nber.org/papers/w16533.
30. John DiNardo, Nicole M. Fortin, and Thomas Lemieux, ``Labor
Market Institutions and the Distribution of Wages, 1973-92: A
Semiparametric Approach,'' Econometrica 64 (September 1996): 1001-44.
31. Cooper, Raising the Federal Minimum Wage to $10.10 Would Lift
Wages for Millions and Provide a Modest Economic Boost.
32. Ibid.
33. Dube, Lester, and Reich, ``Minimum Wage Effects Across State
Borders.''
34. Sylvia Allegretto and Kai Filion, Waiting for Change: The $2.13
Federal Subminimum Wage, Briefing Paper (Washington, DC: Economic
Policy Institute and Center on Wage and Employment Dynamics, February
23, 2011), http://www.epi.org/publication/
waiting_for_change_the_213_federal_subminimum
_wage/.
35. Cooper, Raising the Federal Minimum Wage to $10.10 Would Lift
Wages for Millions and Provide a Modest Economic Boost.
36. Congressional Budget Office, ``The Effects of a Minimum-Wage
Increase on Employment and Family Income,'' (Washington, DC:
Congressional Budget Office, 2014), http://www.cbo.gov/publication/
44995.
37. CBO's figures differ with mine in several places because they
use the price index for Personal Consumption Expenditures instead of
the CPI-U Research Series that I use in my calculations in this
testimony. The PCE is a chain-weighted price index calculated by the
Bureau of Economic Analysis that shows a slower rate of inflation than
the CPI-U-RS series. Using the PCE, the minimum wage had a purchasing
power of $6.76 in today's dollars in 1973. Using the CPI-U-RS, that
figure would be $7.50. I believe the CPI-U-RS to be a better measure to
use in this case because the PCE was not originally designed as a
deflator of cash income and includes prices not directly faced by
consumers. See Dean Baker, ``Deflators and the Purchasing Power of the
Minimum Wage,'' CEPR Blog, available at http://www.cepr.net/index.php/
blogs/cepr-blog/deflators-and-the-purchasing-power-of-the-minimum-wage.
38. Michael Reich, ``The Troubling Fine Print In The Claim That
Raising the Minimum Wage Will Cost Jobs,'' ThinkProgress, available at
http://thinkprogress.org/economy/2014/02/19/3307661/cbo-minimum-wage-
methodology/.
39. Hirsch, Kuafman, and Zelenska, Minimum Wage Channels of
Adjustment.
40. Dube, Lester, and Reich, Minimum Wage Shocks, Employment Flows
and Labor Market Frictions.
41. Dube, Minimum Wages and the Distribution of Family Incomes.
The Chairman. Thank you very much, Dr. Boushey.
Sister Campbell.
STATEMENT OF SISTER SIMONE CAMPBELL, EXECUTIVE DIRECTOR,
NETWORK, WASHINGTON, DC
Sister Campbell. Thank you so much, Mr. Chairman, Senator
Alexander and Senators.
I am Sister Simone Campbell, the executive director of
NETWORK, a national Catholic social justice lobby, and we for
42 years have worked with people at the margins to bring their
voices right here to Capitol Hill to help policy be shaped by
their lived reality.
It is, as our Pope Francis recently said, that as long as
the problems of the poor are not radically resolved by
rejecting the absolute autonomy of markets and financial
speculation and by attacking the structural causes of
inequality, no solution will be found for the world's problems
or, for that matter, to any problems. Inequality, he said, is
the root of social ills.
One of the reasons for this growing income inequality in
our Nation is the stagnation of wages, as evidenced by the
minimum wage. Progressives, moderates, conservatives, religious
people, nonreligious people, in fact, I imagine 100 percent of
us agree that employment is a key element in helping people
know their dignity, care for their families, and buildup
community. Work should pay. Yet, while we share this
consciousness on the meaning of work, we as a Nation have not
been providing wages to a large percentage of our people
sufficient to realize this goal.
Others have spoken of the economic reality, but let me just
introduce a few people who are key in understanding what is
going on. In Milwaukee, WI, I met Billy and his wife who are
both working for minimum wage, supporting themselves and their
two children. They were putting their salaries together to pay
rent in a tight housing market. They were using SNAP benefits
during the day to feed the boys, including a 14-year-old with a
voracious appetite, and going to St. Benedict the Moor dining
room for a free meal each night. Billy told me that his dream
was to be able to save up enough money to buy his kids a set of
new school clothes just once, but he had never been able to do
it because money was so tight with his low-wage job. The kids
always had hand-me-downs. Raising the minimum wage would give
Billy and his wife much-needed resources to support themselves
and their children.
In Missouri, I met Theresa who was returning to the
workforce after her husband's unexpected death and 28 years of
marriage. She was working just above minimum wage as a
receptionist trying to make ends meet. Her youngest daughter,
an adult, was still living with her while finishing college,
but they were having a very difficult time. Theresa was
scrambling to find her economic footing. Raising the minimum
wage would help her and millions of others working just above
minimum wage, not to mention the estimated 55 percent of
minimum wage workers who are women, to have the minimum they
need to live in dignity.
These are but two stories of hardworking people in our
country who are barely scraping by. It is a struggle to raise
your family on subsistence wages. But there is another aspect
to this.
In San Diego in February, I met Jason, a business owner,
who had as an ethical decision decided to pay his workers more
than minimum wage. He was paying above $10.10 an hour to his
lowest paid workers and was providing health benefits. He said
he did this as an ethical stance and he found it a good
investment in his people, but it annoyed him that many business
owners, his competitors that he knows, lament Government
spending on the safety net, while they themselves pay their
workers so little that their workers must rely on Government
benefits to survive. This business owner said that it did not
seem right to him to have Government subsidizing the business
of his competitors while he was doing the fair and ethical
thing.
Now, do not get me wrong. He was not for the elimination of
these critical programs. Rather, he believed that employers
should be responsible for paying the true cost of their
businesses and by paying their workers a living wage. He told
me that by paying an ethical wage, he had lower turnover in
employment, as well as greater productivity and employee
loyalty. He understands that wages are not just a cost of
business, but an investment. Paying a just wage is not only the
right thing to do. It is good for business.
So from our perspective, raising the minimum wage would
finally allow workers to benefit from their increase in
productivity over the years. It would reduce the demand on the
social safety net by making sure that work pays. It would
stimulate the economy by putting money in the hands of people
with pent-up demand. It would support conservative, moderate,
and progressive views that the dignity of people is realized
when all can contribute to their own support. Increasing the
minimum wage would allow working parents to realize simple
dreams of providing for their children. Raising the minimum
wage is the ethical way forward.
In the richest nation on earth, it is incumbent on us to
ensure justice for all who labor in our society. Raising the
minimum wage is one important way forward.
While I urge this action from my faith perspective, it is
also in keeping with our constitutional call to form a more
perfect union. Raising the minimum wage is a key step forward
to serve the common good and promote the general welfare of
these United States.
Thank you, Mr. Chairman.
[The prepared statement of Sister Campbell follows:]
Prepared Statement of Sister Simone Campbell, SSS
summary
Catholic popes have consistently supported just wages since 1891's
Rerum Novarum, including acknowledging the crucial role of the State in
ensuring wages are just.
Recent U.S. history indicates stagnant wages, increasing worker
productivity, and a shift of wealth to the top are working together to
increase income and wealth disparities in our society. This is a moral
issue we can address in part by raising the Federal minimum wage.
People across political and religious spectrums want the dignity of
work to be recognized. Raising the minimum wage and ensuring that wage
can provide a stable living for a full-time worker is a start.
This is truly an issue of supporting families. Minimum wage workers
are, on average, 35 years old; 55 percent are women; 27 percent have
children; more than half work full-time; and, on average, they earn 50
percent of their family's total income. Nearly one in five children in
this country has at least one parent who would receive a raise if
Congress increased the Federal minimum wage.
I have met struggling minimum wage earners in Wisconsin, Missouri
and other parts of our Nation representing millions of workers across
the country: they rely on government assistance to make ends meet, but
who want to support themselves and their families without the constant
anxiety of not having enough.
I met a business owner in California who pays all his employees at
least $10.10 an hour because he believes it is right that owners pay
wages that do not force employees to take government aid. He sees
higher employee retention, productivity, and loyalty. He understands
that wages are not just a business cost, but an investment--it is not
only the right thing to do, it's good for business.
Raising the minimum wage is a critical part of getting our anti-
poverty programs functioning as they are supposed to. Stagnant wages
and rising income inequality mean work is no longer the opportunity to
escape poverty these programs promise. The decline in real wages for
the lowest earning quintile of workers, for example, reduced the annual
exit rate from poverty by 15 percent between the early 1970s and the
mid-1990s.
In the richest nation on earth, it is incumbent on us to ensure
justice for all who labor in our society. Raising the minimum wage is
one important step in the right direction.
While I urge this action from my perspective of faith, it is also
in keeping with our Constitutional call to form the more perfect union.
Raising the minimum wage is a key step forward to serve the common good
and promote the general welfare.
______
Thank you for the invitation to testify today. I am Sister Simone
Campbell, executive director of NETWORK, a National Catholic Social
Justice Lobby, and the leader of Nuns on the Bus. Concerns about just
wages and working families resonate deeply for me as a Catholic sister
rooted in the Christian tradition.
Since 1891, the leaders of my Catholic faith have taught explicitly
that:
Before deciding whether wages are fair, many things have to
be considered; but wealthy owners and all masters of labor
should be mindful of this--that to exercise pressure upon the
indigent and the destitute for the sake of gain, and to gather
one's profit out of the need of another, is condemned by all
laws, human and divine. (Pope Leo XIII, Rerum Novarum 20)
Recent history in the United States indicates that stagnant wages,
increasing worker productivity, and a shift of wealth to the top are
working together to increase income and wealth disparities in our
society.\1\ This, in my view, is a moral issue that needs to be
addressed.
---------------------------------------------------------------------------
\1\ Boushey, Heather and Adam Hersh. ``Middle Class Series: The
American Middle Class, Income Inequality, and the Strength of Our
Economy.'' Center for American Progress. 17 May 2012. Web. 20 Feb.
2014.
---------------------------------------------------------------------------
In November 2013, Pope Francis wrote:
The need to resolve the structural causes of poverty cannot
be delayed, not only for the pragmatic reason of its urgency
for the good order of society, but because society needs to be
cured of a sickness which is weakening and frustrating it, and
which can only lead to new crises. Welfare projects, which meet
certain urgent needs, should be considered merely temporary
responses. As long as the problems of the poor are not
radically resolved by rejecting the absolute autonomy of
markets and financial speculation and by attacking the
structural causes of inequality, no solution will be found for
the world's problems or for that matter, to any problems.
Inequality is the root of social ills. (Pope Francis, Evangelii
Gaudium 202)
One key way to address the problem of structural inequality within
our Nation is through increasing the national minimum wage.
Progressives, moderates, and conservatives--religious people and
non-religious people--in fact, I imagine, 100 percent of us agree that
employment is key for helping people know their dignity, care for their
families, and buildup community. Pope Francis noted from our Catholic
perspective,
``Work is part of God's loving plan, we are called to
cultivate and care for all the goods of creation and in this
way share in the work of creation! Work is fundamental to the
dignity of a person. Work, 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 (cf. Jn 5:17); it
gives one the ability to maintain oneself, one's family, to
contribute to the growth of one's own nation.'' \2\
---------------------------------------------------------------------------
\2\ General Audience in Rome, May 1, 2013.
Yet, while we share this consensus on the meaning of work, we as a
nation have not been providing wages to a large percentage of our
people sufficient to realize this goal. Three million workers live in
poverty despite working year-round, full-time jobs; a third of families
with children living in poverty include a full-time worker; and nearly
60 percent of families living at 200 percent of the Federal poverty
line--which includes a family of four trying to get by on less than
$50,000 a year \3\--have at least one member of the household
working.\4\ Put another way, in 1968 the minimum wage was enough to
keep a family of three out of poverty; into the early 1980s, the
minimum wage was enough to keep a family of two out of poverty; but the
minimum wage can no longer keep even a family of two above the poverty
line.\5\
---------------------------------------------------------------------------
\3\ ``2013 Federal Poverty Guidelines.'' Families USA. Web. 20 Feb.
2014.
\4\ ``Workers and Poverty.'' Spotlight on Poverty and Opportunity:
The Source for News, Ideas, and Action. Web. 20. Feb. 2014.
\5\ Cooper, David. ``The Minimum Wage Used To Be Enough To Keep
Workers Out Of Poverty--It's Not Anymore.'' Economic Policy Institute.
4 Dec. 2013. Web. 7 Feb. 2014.
---------------------------------------------------------------------------
This demonstrates that work does not pay for many low-wage workers
and it is not paying for their families. Workers who would get a raise
if Congress increased the minimum wage earn, on average, half of their
family's income. Think particularly of the benefit for children living
in poverty: Nearly one in five children in this country has at least
one parent who would receive a raise if Congress increased the Federal
minimum wage.\6\ Raising the minimum wage would make a significant
difference for these struggling families.
---------------------------------------------------------------------------
\6\ Cooper, David. ``Raising the Federal Minimum Wage to $10.10
Would Lift Wages for Millions and Provide a Modest Economic Boost.''
Economic Policy Institute. 19 Dec. 2013. Web. 7 Feb. 2014.
---------------------------------------------------------------------------
In Milwaukee, WI, I met Billy and his wife who were both working at
minimum wage, supporting themselves and their two children. They were
putting their salaries together to pay rent in a tight housing market,
using SNAP benefits during the day to feed their boys (including a 14-
year-old with a voracious appetite), and going to St. Benedict the Moor
dining room at night. Billy told me that his dream was to be able to
save enough money to buy his kids a set of new school clothes just
once. But he had never been able to do it with his low-wage job. The
kids always had hand-me-downs. Raising the minimum wage would give
Billy and his wife much-needed resources to support themselves and
their children.
In Missouri, I met Theresa, who was returning to the workforce
after her husband's unexpected death and 28 years of marriage. She was
working just above minimum wage as a receptionist and trying to make
ends meet. Her youngest daughter, an adult, was still living with her
while finishing college, but they were having a very difficult time.
Theresa was scrambling to find her economic footing. Raising the
minimum wage would help her and millions of others working just above
the minimum wage, not to mention the estimated 55 percent of minimum-
wage workers who are women, have the minimum they need to live in
dignity.\7\
---------------------------------------------------------------------------
\7\ Ibid.
---------------------------------------------------------------------------
Lucy Johnson (alias) knows her job about as well as anyone could.
In 2012, she reported that she worked in the same Knoxville, TN
garment-manufacturing plant for more than 25 years, during which time
the operation has changed hands a few times. She makes military
uniforms for a clothing company that has received more than $200
million in Federal contracts since 2002. She starts her shift at 7
a.m., hoping the assembly line won't slow down so she can make her
production target and earn a little extra beyond minimum wage. But
nowadays, that almost never happens. Earning $7.25, Lucy finds she
barely has enough money to feed herself and keep her electricity and
phone service on. She's grateful that several family members live with
her now to pitch in. She says:
My niece helps out with the utilities and food, and she gets
food stamps and Tenncare [State-subsidized health insurance]
for her children, which helps too. Back before she moved in,
I'd just open up a can of soup and say to myself: Dinnertime!
I'm lucky that my house is paid for, even if it is falling down
around my ears.
Raising the minimum wage will greatly assist Lucy and others like
her to be able to meet their basic necessities. After years of hard
work, she should be able to live in dignity without the stress of basic
survival.\8\
---------------------------------------------------------------------------
\8\ Christman, Anastasia, Amy Masciola, Robert Masciola, Shelly
Sperry, and Paul Sonn. ``Taking the Low Road: How the Federal
Government Promotes Poverty-Wage Jobs Through its Contracting
Practices.'' National Employment Law Project. July 2013. Web. 6 Feb.
2013.
---------------------------------------------------------------------------
Ms. Jackie Valdes is 29-years-old, is married, and has a 2-year-old
son named Mauricio. She has worked as a janitor at Union Station here
in Washington for 8 years alongside her mother and her husband. Her
husband works a second job a few miles away from their home. Jackie and
her family live in a one-room apartment in DC. Because she and her
husband work so many hours, they must pay for child care for little
Mauricio. They often have trouble paying their rent and all of their
bills. Jackie says, ``I wish I could spend more time with my son,
especially when he is little, but I have to work or we cannot eat and
pay our rent.'' Raising the minimum wage would allow Jackie and her
family to have more time together and ease the constant worry about
being able to care for their family.\9\
---------------------------------------------------------------------------
\9\ Ibid.
---------------------------------------------------------------------------
These are but a few of the stories of hardworking people in our
country who are barely scraping by on minimum wage. It is undeniably a
struggle to raise a family on subsistence wages.
But there is another aspect to this. In San Diego last week, I
spoke with a business owner who had decided to pay his workers more
than the Federal minimum wage. He was paying above $10.10 an hour to
his lowest-paid worker and was providing benefits. He said he did it as
an ethical stance, but it annoyed him that many business owners he
knows lament government spending while they pay their workers so little
that those workers must rely on government benefits to survive. Their
workers are using the Earned Income Tax Credit, SNAP benefits, and
other subsidies. This business owner said that it did not seem right to
have the government subsidizing their businesses.
Now don't get me wrong, he was not for the elimination of these
critical programs; rather, he believed that employers should be
responsible for paying the true cost of their business by paying their
workers a living wage. He told me that by paying a just wage he had
lower turnover in employment and greater productivity and employee
loyalty. He understands that wages are not just a business cost, but an
investment--paying a just wage is not only the right thing to do, it's
good for business.
Not only do sub-poverty wages force businesses to rely on
government subsidy, but they undermine the potential success of those
very subsidies: raising the minimum wage is a critical part of getting
our anti-poverty programs functioning as they are supposed to. Welfare
programs are intended to create a path out of poverty, and welfare
reform in the 1990s made work requirements a cornerstone of following
that path. Unfortunately, stagnant wages and rising income inequality
mean work is no longer the opportunity to escape poverty these programs
promise.\10\ The decline in real wages for the lowest earning quintile
of workers, for example, reduced the annual exit rate from poverty by
15 percent between the early 1970s and the mid-1990s.\11\
---------------------------------------------------------------------------
\10\ ``Labor Markets and Poverty.'' UC Davis Center for Poverty
Research. Web. 7 Feb. 2014.
\11\ Stevens, Ann Huff. `` Transitions into & out of Poverty in the
United States.'' UC Davis Center for Poverty Research. Web. 7 Feb.
2014.
---------------------------------------------------------------------------
Raising the minimum wage would finally allow workers to benefit
from their increase in productivity. It would reduce demand on the
social safety net by helping work pay. It would stimulate the economy
by putting money in the hands of people with pent-up demand. It would
support conservative, moderate, and progressive views that the dignity
of people is realized when all can contribute to their own support.
Increasing the minimum wage would allow working parents to realize
simple dreams of providing for their children. It seems that it is the
ethical and pragmatic way forward.
In short, I agree with Pope John Paul II's statement in his
encyclical Centesimus Annus:
[S]ociety and the State must ensure wage levels adequate for
the maintenance of the worker and his family, including a
certain amount for savings. This requires a continuous effort
to improve workers' training and capability so that their work
will be more skilled and productive, as well as careful
controls and adequate legislative measures to block shameful
forms of exploitation, especially to the disadvantage of the
most vulnerable workers, of immigrants and of those on the
margins of society. (15)
This is the role of minimum wage legislation and an important way
forward.
Finally, I join with Pope Francis in saying, ``I beg the Lord to
grant us more politicians who are genuinely disturbed by the state of
society, the people, and the lives of the poor!'' (Evangelii Gaudium
205)
In the richest Nation on earth, it is incumbent on us to ensure
justice for all who labor in our society. Raising the minimum wage is
one important step in the right direction.
While I urge this action from my perspective of faith, it is also
in keeping with our Constitutional call to form the more perfect union.
Raising the minimum wage is a key step forward to serve the common good
and promote the general welfare.
The Chairman. Thank you very much, Sister. You left out one
important statement. You said I join with Pope Francis in
saying, ``I beg the Lord to grant us more politicians who are
generally disturbed by the state of society, the people, and
the lives of the poor.''
Sister Campbell. That is true. Thank you.
The Chairman. My constituent, Ms. McCrary. It is good to
meet you. I have not met you before. But welcome and I am glad
you are here, and please tell us your story.
STATEMENT OF ALICIA McCRARY, FAST FOOD WORKER, NORTHWOOD, IA
Ms. McCrary. Good morning. I want to begin by thanking my
Senator Harkin for the introduction and thanking the committee
for allowing me to speak today.
I am Alicia. I am the mother of four boys, ages 11, a set
of twins that are 10, and a 5-year-old. These boys are my
priority. I am the only parent in their lives right now, and I
am responsible for their emotional, spiritual, physical and
mental development. It is a big job and I love them so much.
We came to Iowa almost 2 years ago. I was in a shelter in
Illinois after leaving a domestically violent relationship. My
family needed to get a safe place, and it ended up being Iowa.
I am so grateful.
One of the organizations that I began working with, once I
got settled, was North Iowa Community Action. I enrolled in a
family development and self-sufficiency program. We called it
FaDSS. This program is about helping me get off the system and
become self-sufficient, which is exactly what I want to do. I
would prefer to get my money from a paycheck instead of from
the system.
I work usually around 20 to 25 hours a week in the fast
food industry. My job requires me to be quick, efficient, and
do what needs to be done, cooking, taking orders, cleaning. I
do it all, and it is hard work. I have been at my current job
just 1 year. I started at $7.25 an hour, and this month, after
my year anniversary, I got an increase to $7.65 an hour. With
this raise, came a slight increase in my rent, as we live in
subsidized housing, a cut in my food assistance, and in TANF. I
earn about $450 a month from my job, receive $256 in TANF, and
about $240 in food assistance, not even enough when raising
growing boys and hungry boys. My fixed expenses like rent,
utilities, and bus cost almost $600 a month. So you can see how
tight my budget is.
I have to make many hard choices every month. The boys are
like most kids. They want to fit in with their friends and
classmates. They want to participate in activities like sports
and band. One year, someone will get to play football. It is
$75. Another two participate in basketball, which is $18. My
oldest son does get to be in band, and he plays the drums
because that is the cheapest sport and it is like $5. So that
is OK. I have to pay $20 per child so they can bring home their
computers to do homework. We do not have one at home, so this
choice is the only one I can make.
I did get the Earned Income Tax Credit last year. I had
about $700. I used those dollars to buy school clothes for the
boys. So I have to guess about how much they would grow from
March to August for this next following school year. Even with
that help, I struggle with ongoing expenses.
For example, last month, the school had a ski trip planned
for the students, and my oldest son really, really wanted to
go. But in order to do that, I would have to not pay a bill or
any of the bills. So I had to tell him no again. It hurts so
bad to keep saying no and they do not understand. They ask me
why is there not enough money? You work. You work really hard.
I do not have a very good answer to tell them other than I do
not get paid enough. They can never all get a haircut in the
same month, and definitely you cannot buy shoes or clothes for
them all at the same time. I make promises that if you are not
the lucky one this time, I will get you next time.
Another decision I have made is that I do not own a
vehicle. I rely upon county transit to get me to and from work.
I get on the bus at 6:40 in the morning and ride it home after
I get off work at 2:30. At this point, I cannot work any
additional hours due to the limited transportation, but it is
the only choice I have.
If the minimum wage is increased to $10.10 per hour and
increases with the cost of living, it will be very helpful to
my family. I will see more reductions in TANF and food
assistance and will see another increase in my rent, but that
would be OK. I will have more money overall, and it would come
from my own hard work and my family will be better off. These
programs are supposed to be temporary, not permanent. I want to
work and stand on my own two feet. As I said before, I work
very hard doing my job, and I believe I am worth $10.10 an
hour.
Earning additional income from a $10.10 hourly wage will
not solve all my budget problems, but it would be very, very
helpful. I could do better at paying my bills on time. I would
love to save $20 a week and maybe, just maybe, the boys could
all play football at the same time, get haircuts at the same
time. That would be so wonderful.
I hope someday I will be able to work more hours and earn
more money so I can continue to improve my life and help my
boys grow up to be healthy, happy young men. If you can move
forward with increasing the minimum wage, my family will be
more successful in reaching our goal of a better life.
Thank you for listening to my story. I appreciate this
opportunity to share my life in hopes that you will understand
how important this issue is for me, my coworkers, and thousands
of other families in similar situations. Thank you.
The Chairman. Thank you very much, Ms. McCrary, for putting
a human face on this whole issue. We get tied up in this
minutiae and this number and that number and this study and
that study and who has the best study. It comes down to you and
millions of people like you in this country.
I oftentimes wish sometimes Senators and Congressmen could
just live for a few months like you live. We get $180,000 a
year. We are in the top 5 percent of income earners in this
country. This place is populated by people worth well over $1
million. I am not saying we do not sympathize, but sometimes it
is good to walk in the shoes. We probably cannot do that, and
that is why it is so important for us to have people like you
here to tell what is really happening out there.
Now, you left, as I understand it, a domestic violence
situation, took your kids, lived in a shelter for a while, came
to Iowa. So I am happy that you are safe now. You have a safe
environment and your kids have a safe home. But your story is
one that pervades our society. Millions and millions of people
around America are like you. They work hard. They get up at
5:30 a.m. to 6 a.m.. They have hard jobs. Gosh, I was in a
Subway sandwich shop this weekend in Iowa. I was just watching
the women. They are almost all women, working behind the
counter. They never stopped. And they are making just barely
above the minimum wage. But they are just working hard all the
time. I sense that is what you are doing too. You are working
hard.
Again, I just thank you for putting a human face on this
issue. You can parse this thing about what study is best and
what the incremental here and the increment there and dollars
here and how many jobs. I do not know where the range is on
jobs--and I think Senator Warren really succinctly encapsulated
this in terms of the studies on how these studies--I wanted to
talk to Dr. Boushey about that, but I am giving a speech and I
am running out of time.
Even if there are 100,000 people that lose their jobs or
10,000 people lose their jobs because we raise the minimum
wage, we have to answer that not with more welfare, but what do
we do to get them their jobs. Are we going to penalize millions
of Americans like you, not just those that live in poverty.
People say, ``Well, a lot of this goes to people above
poverty''. Sure it does. Right now, a single person--the
poverty line is $11,000. So if a large percentage of the
increase in minimum wage goes to people who live above the
poverty line, you are talking about someone making $12,000 a
year or $13,000 or $14,000 or $15,000 a year. A mom with two
kids, $18,700 a year. So if you are just a little bit above
that and you get a raise, you say, ``Oh, well,'' see a lot of
this is going to people above poverty level. Yes. They may be
above the poverty level, but they are still very poor and they
are struggling every single day to make ends meet.
So I did not get to ask a question. I guess I gave a
speech.
I yield to Senator Alexander.
Senator Alexander. Thanks, Mr. Chairman.
Ms. McCrary, Ms. Campbell, and Dr. Boushey, thank you for
coming today, particularly coming a long distance from Iowa.
I would like to use my 3 minutes to summarize my thinking
on this, if I could.
Before I came here, I had an early meeting with the public
transit people in Tennessee. They drive buses in all 95
counties who operate buses, and they take people three times a
week, 200,000 people, to Nashville for dialysis treatments and
back. Many of those drivers in the rural areas make the minimum
wage. They would like to have more, I suppose. But if they had
more, there would be fewer drivers, and there would be fewer
trips to Nashville for dialysis.
That is the point of talking about the Congressional Budget
Office findings. I mean the Congressional Budget Office said
that this proposal in its view would take 500,000 rungs off the
bottom of economic ladders that help people move up. It would
cost that many jobs, and that $4 or $5 in the benefits went to
people who make more than the poverty level, and then only 2
percent of those 45 million Americans who are below the poverty
level would be raised above the poverty level. Our feeling is
that we could do better than that, that we can come up with a
better idea after such a long period of time of unemployment to
help people have higher family incomes.
And as for subsidizing businesses, the taxpayers spend
about $700 billion, according to the Budget Committee, in
transferring money from taxpayers to people with lower incomes.
I do not think of that as subsidizing businesses. We were
talking about ethical responsibilities. I think that is part of
our ethical responsibility to help people who are in less
fortunate economic circumstances. But I do not think it is
ethical to force employers to be responsible for the ethical
responsibilities of all of us taxpayers. I mean, if it is
important to pay someone so that some would have more money in
their pocket, why should we just pick out the job creators in
America and say you have to do it? I think we all should do it
if that is our collective judgment.
Our view is that we would like to raise family incomes. We
would like to help people move up the economic ladders, but we
have a different philosophy. We would like to take the big, wet
blanket of rules and regulations off the economy that has been
put on in the last few years and offer amendments that would--
we have specific amendments that would create more growth in
our economy, more jobs, and we do not think a proposal that is
well-intentioned but that which a study that the Chairman of
the Federal Reserve Board said is as good as anybody's in
determining what the effect of this proposal would do--we think
we can come up with something that is better. She said CBO is
as qualified as anyone to evaluate that literature and I would
not argue with their assessment. That was her answer to Senator
Heller.
The Chairman. Thank you, Senator Alexander.
I have in order Senator Casey, Senator Warren, Senator
Baldwin, Senator Bennet.
Senator Casey.
Senator Casey. Mr. Chairman, thank you very much, and I
know we have a vote, so I will be probably under 3 minutes.
I want to thank our witnesses. Doctor, I think I have some
questions for you that I will submit for the record, if you do
not mind. Maybe it is better to answer some of them in writing.
You have more time to provide a fuller answer sometimes. But we
are grateful for your testimony.
Sister, thank you again for being here and for your travels
across the country. I have not had the chance to travel with
you or meet you, but I heard a lot about it through our State.
I am a resident of Scranton, PA in northeastern Pennsylvania,
and you had a great stop there not too long ago. We are
grateful for that and especially grateful for reminding us in
your testimony not only of the stories that are so significant
of Billy and Theresa and Lucy, Jackie, real people, but what
you said on the first page where you talked about--I think this
gets to the essence of what--part of the essence of why we are
fighting for an increase in the minimum wage. ``Helping people
know their dignity, care for the family, and buildup
community.'' It is a great summation of why this is so
important to families who really need this, and rarely can we
take an action which would help them on the question of caring
for their family or ensuring that they can be workers who have
a sense of dignity because they are doing a job and they are
getting a reasonable pay in connection with that job. So we are
grateful for that.
If you do not mind, if I can call you, Alicia. I do not
know you, but if you do not mind. A, we are thankful you are
here. Senator Harkin is directing us to make sure you get back
on time. So I am going to stop in a minute.
I wrote down two things at the top of your testimony as you
were giving it. Hard work, big job, which is I think an
understatement for what you do every day for your children. And
we rarely see in testimony the expression of love, like in your
case, for your children, that you expressed in the first
paragraph. You say it is a big job and I love them so much. We
appreciate you saying that.
I have four daughters. They are above the ages of 11, 10,
and 5. But when I was growing up, I was one of four boys. We
had eight. And my father was fascinated by how much we could
eat.
[Laughter.]
So when you pointed that out, I was thinking about his
reaction where he would literally just shake his head when
cereal boxes would disappear.
I will maybe send you a question as well, but I did want to
highlight what this would mean to you. There are so many ways
you expressed it. But you said toward the end of your testimony
I would love to save $20 a week and they can get haircuts at
the same time. It is a pretty searing reminder about how
important this is. So thanks for being here. Thanks for your
witness and your testimony. We are grateful you are here.
The Chairman. Thank you, Senator.
Senator Warren.
Senator Warren. Thank you, Mr. Chairman, and thank you all
for being here today. We really appreciate it.
I think based on the best studies, if we raise the minimum
wage, there is no clear answer on whether there might be some
job loss or not. So I want to focus on what we know for sure
would happen if we raise the minimum wage.
Sister Simone, as you know, a working mother today working
full-time at current minimum wage is below the poverty line. It
is not right but it is all too common.
We also know that there are 17 million children, nearly one
in five children, in this country with a parent who works at
less than $10.10 an hour. My view is mothers should not work
full-time and live in poverty.
Now, you testified that in 1968, the minimum wage was high
enough to keep a family of three out of poverty and that even
in 1980, the minimum wage was at least high enough to keep a
family of two out of poverty. The problem, of course, is
inflation combined with the fact the adjustments to minimum
wage have been left to the whims of Congress.
What I would like to ask you about is increasing the
minimum wage and indexing it so that families are no longer
caught in these long spells between when Congress can act and
so that businesses can plan to see the increasing minimum wage
coming their way. I just want to ask you to comment on that. Do
you believe that it is a moral imperative not only to raise the
minimum wage but to index the minimum wage to account for the
changes in the value of the money?
Sister Campbell. I think this is one of the key structural
changes that must be made in order to address the issues of
income inequality in our Nation. We have to get wages out of
being a political football, which we use in election years to
rally our base on either side, and deal with the base reality
that people need their wages to be large enough to support
their families. That is what we say. You work hard. You play by
the rules. You should be able to support your family and save
$20 a week. That is what we should do. Indexing it moves it in
that direction. Getting it to $10.10 is critical to move it to
anywhere near enough to support a family, and then to keep
moving so we do not have these long dry periods where nothing
happens and then we have big fights because we have to raise it
40-some percent. So indexing is critical to caring for the
needs of the people of the United States.
Senator Warren. Thank you very much. I appreciate it,
Sister Simone.
And if I could have 10 seconds.
The Chairman. Please.
Senator Warren. I just want to ask Dr. Boushey about this.
We have 10 States that have indexed their minimum wage. Could
you just make a very brief statement about the impact this has
on businesses to be able to plan and to smooth their labor
costs over time? Dr. Boushey.
Ms. Boushey. Certainly. We do have a number of States, 10
States, that have already indexed their minimum wage to
inflation, and you have not seen the kinds of catastrophic or
even negative employment effects, and it certainly has been
good for businesses and good for planning.
There was a new survey that came out of small business
owners this week that showed that, if I am remembering the
number exactly, 57 percent were in favor of raising the minimum
wage because it increases productivity and helps them.
Senator Warren. Thank you. Thank you so much for being here
and thank you, Ms. McCrary, for being here. We really
appreciate it.
Thank you, Mr. Chairman.
The Chairman. Thank you, Senator.
We have to go vote. I have a question. We have run out of
time, but I am going to submit it to you, Dr. Boushey, and if
you would submit the answer back in writing.
Here is the question. There are some studies on minimum
wage that have really sophisticated methodologies. They look at
the actual, real-world impact of past wage increases comparing
lower wage areas with higher areas. Would you say these are the
most reliable studies, and what is the conclusion that they
reach? So if I could do that and if you could just respond in
writing, I would appreciate it.
Again, thank you all very much for being here and taking a
lot of time and travel to be here. I thank the North Iowa
Community Action Agency, all community action agencies--they do
a great job in our country and for putting a human face on
this, as I said.
I am hopeful that we can move this legislation along after
the next break period and give every American a raise that
deserves it. It is something we ought to be doing. Thank you
all very much. Thanks, Sister. Thanks, Ms. McCrary. Thank you,
Dr. Boushey, for being back here.
The committee will stand adjourned. Thank you.
[Additional material follows.]
ADDITIONAL MATERIAL
Prepared Statement of Senator Murray
Good morning, Mr. Chairman. Thank you for holding this very
important hearing. We are here today to discuss a basic issue
of fairness and equity. To discuss how we, as a country, are to
respond to those who are struggling at the lowest rungs of our
economic ladder, and who for so many years have not only been
in a holding pattern, but have in fact been slipping slowly and
steadily farther and farther behind.
We are here to discuss how to ensure that the American
dream isn't dashed for millions and millions of workers two-
thirds of whom are women.
We are here to find out whether my friends on the other
side of the aisle are really going to block giving 15 million
American women a raise?
To find out whether my Republican colleagues are really
prepared to tell 1 in 4 working women in America that $7.25 an
hour--enough for about two gallons of gas--is enough for them
to support themselves and their kids and that we as a country
shouldn't take this important step to provide a better standard
of living for them, their families, and the generations that
will follow.
Are they prepared to do that at a time when more and more
women are depended upon as the sole income earners in American
families.
I hope they talk to the millions of American women who,
like my own mother when I was growing up, are the sole
breadwinners and caregivers in their families.
And I hope they get a sense of how $7.25 an hour today
translates:
To a grocery trip for a family of four,
Or to shopping for school supplies,
Or even how it impacts making the daily commute.
Because American women aren't focused on how they are
talking, they are interested in what they're actually saying.
[Economic Policy Institute (EPI), February 20, 2014]
CBO Report Shows Low-Wage Workers Would Be Better Off With a Minimum
Wage of $10.10
(By Heidi Shierholz And David Cooper)
Tuesday's CBO report on the effects of increasing the minimum wage
has generated a lot of discussion. While some of the CBO's findings are
consistent with our own analysis, we have some serious disagreements.
Here's our take on the report, particularly CBO's estimates on
employment and income (we focus on their estimates of the effects of
increasing the minimum wage to $10.10 by 2016).
The report finds that 16.5 million workers who make below $10.10
would get a raise, and an additional 8 million workers who make
slightly above $10.10 would also likely get a bump (since employers
like to preserve internal wage ladders). This is right in line with our
estimates of the likely impact.
They found that the increase in the minimum wage would benefit
mostly adults who need the earnings from their minimum wage job to make
ends meet: less than 12 percent of the people who would get a raise are
under age 20 and more than 70 percent of the total earnings would go to
workers in families whose income is less than three times the poverty
threshold. For context, in 2013, three times the poverty threshold for
a family of three was around $55,700. This too is right in line with
our analysis.
CBO also found that 900,000 people would be lifted out of poverty.
We agree that raising the minimum will lift a significant number of
people out of poverty, and if anything, CBO's estimate here seems
conservative. CBO is a bit vague on how they came to their conclusion
about the effect on poverty levels, but from what we can tell, it seems
that they looked at current income levels, expected poverty levels in
2016, simulated how peoples' incomes would change following the minimum
wage hike, and estimated the change in the number of people in poverty.
This is a perfectly reasonable approach; however, there's a good body
of research that has looked at the real-world experience of how minimum
wage hikes have affected poverty levels. A recent paper by Arin Dube
looks specifically at this question and estimates that in the past, for
every 10 percent increase in the minimum wage, we've seen a 2.4 percent
decrease in the number of people in poverty. This implies that
increasing the minimum wage to $10.10 could reduce the number of people
in poverty by as much as 4.5 million.
Notably, CBO estimates that increasing the minimum wage to $10.10
would cost 500,000 jobs--a finding that we disagree with.
It's important to note that the economists at CBO didn't do their
own analysis on the employment impact of increasing the minimum wage--
they looked at the academic literature on this subject and arrived at a
conclusion about what it showed. In other words, they used exactly the
same information that the more than 600 economist who signed a letter
in support of increasing the minimum wage to $10.10 were looking at
when they concluded that increasing the minimum wage will raise the
wages of low-wage workers with little or no negative effect on
employment.
CBO acknowledged that the methods of more recent studies,
particularly studies of state-by-state difference that address the fact
that changes in State minimum wages can be correlated with local
economic conditions in ways that can bias results, ``have estimated
more accurately the effects of minimum wages on employment.'' These are
the studies that show that increases in the minimum wage have caused
little or no job loss. Nevertheless, they still gave consideration to
older methodologies, which show significant negative effects. By doing
so, they ultimately picked an estimate that is more negative than the
current consensus.
The CBO does emphasize the uncertainty in their estimate, noting
that their estimate is part of a large range of plausible estimates
that includes ``a very slight reduction in employment'' (which we
assume can be taken to mean basically indistinguishable from zero). In
other words, their range of estimates--which they believe there is only
``about a two-thirds chance'' that the real impact would fall within--
includes no effect on employment.
Also, CBO doesn't describe how their forecasted negative employment
effect would play out on the ground. Importantly, it would not take the
form of workers losing good jobs they've been in for a long time.
Minimum wage jobs are almost by definition our economy's lowest-quality
jobs, and they tend to have extremely high turnover. What an employment
decline looks like in this context is that job seekers will spend a
little longer looking for a job that--due to the minimum wage hike--
will pay much more. On net, even those experiencing negative job
effects end up big winners.
Last, even if you accept their employment effect, it is important
to note that they find that low-wage workers as a group are
unambiguously better off, with their earnings increased by $31 billion.
Prepared Statement of Jeffrey Buchanan, Senior Domestic Policy Advisor,
Oxfam America
a fair minimum wage is critical to america's working poor crisis
Oxfam America is an international development and humanitarian
relief agency committed to working for lasting solutions to poverty,
hunger and social injustice. We work in over 120 countries around the
globe to save lives, help people overcome poverty, and fight for social
justice.
As a global organization working to alleviate poverty, Oxfam
recognizes the importance of looking closely at poverty that too often
get overlooked--including that which exists in wealthy nations like the
United States. We have been working for over two decades in the United
Stated to ensure fair wages and working conditions partnering with
community-based organizations and some of our Nation's most vulnerable
workers to build paths out of poverty. Based on these experiences, we
support the legislation proposed by Senator Tom Harkin, the Fair
Minimum Wage Act of 2013, to increase the minimum wage to $10.10 and
index it thereafter to the costs of living and encourage the Senate
Health, Education, Labor, and Pensions Committee and the U.S. Senate to
advance this important legislation.
Today the minimum wage stands at $7.25, a rate far lower than its
historic high of $10.74 (in 2013 dollars) in 1968. Every year the
Congress fails to raise the minimum wage further erodes its real value
while the costs of life's necessities continues to rise, damaging the
buying power of millions of Americans working hard at jobs that do not
pay the wages necessary to sustain them and their families financially.
More than 10.4 million American families continue to struggle to get by
on incomes in and near the poverty line despite their long hours on the
job and fierce work ethics.\1\ Almost one in three working families is
struggling to get by on wages that fail to pay for even their families'
most basic needs.\2\ Today's minimum wage pays, on average, less than
one-half of the basic living expenses for a family of three.\3\ That
parents can work full-time year round and still be forced to raise
their children in poverty in the United States of America is a
continuing tragedy. Hardworking Americans deserve better.
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\1\ Roberts, Brandon, ``Low Wage Working Families: The Growing
Economic Gap'', January 2013, http://www.workingpoorfamilies.org/wp-
content/uploads/2013/01/Winter-2012_2013-WPFP-Data-Brief.pdf.
\2\ Ibid.
\3\ Cooper, David, ``Raising the Federal minimum wage to $10.10
would give working families, and the overall economy, a much-needed
boost'', March 2013, http://www.epi.org/publication/bp357-Federal-
minimum-wage-increase/.
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Although there have always been jobs that pay poorly in our
country, the economic reality in America today is harsher, and more
intractable, than at any time in recent history. We have seen drastic
structural changes in the U.S. economy and workforce including the loss
of living wage jobs and ``hollowing out'' the middle class. Nearly half
of the Nation's job growth in the past 3 years continues to be
concentrated in low wage industries, even though these jobs represent a
minority of jobs overall in the U.S. economy.\4\
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\4\ Royal Bank of Scotland, ``US Economics Weekly'', May 2013,
https://strategy.rbsm.com/Tools/
Resources/.pdf?key=iPiwkV4Dbr8fpTRlJgfggzskSvFcOKPQ.
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america leads developed nations in poverty wages and inequality
While America's economy calling card in the past may have been our
thriving middle class and the ``American Dream'' of opportunity and
economic mobility for anyone willing to work hard to rise into
prosperity, today America has emerged as a global economic leader in
three distressing categories; income inequality, low-wage work and in-
work poverty. The United States is now the most unequal rich country in
the world and also home to the largest percentage of low-wage workers
of any advanced economy.\5\ Work is not always a pathway out of poverty
in the United States. In fact our Nation has among the highest
percentage of working families living in poverty, eclipsed only by
Poland, Mexico and Turkey, among 29 countries profiled by the OECD.\6\
Certainly this is impacted by having a minimum wage much lower than the
wage floors of many other developed economies, America's primary
economic competitors, including Australia, the United Kingdom, France
and Canada.\7\ Even in terms of economic mobility, and the ability of a
poor child to climb into prosperity, today America lags behind most
other advanced economies.\8\
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\5\ Organisation for Economic Cooperation and Development (OECD),
OECD Employment Outlook 2011, (Paris: OECD, 2011).
\6\ OECD, OECD Employment Outlook 2009, (Paris: OECD, 2009).
\7\ Isidore, Chris ``On minimum wage, U.S. lags many rivals ``,
CNN, February 2013 http://money.cnn.com/2013/02/13/news/economy/
minimum-wage-countries/.
\8\ OECD, Economic Policy Reforms: Going for Growth, ``A Family
Affair: Intergenerational Social Mobility across OECD Countries'',
2010, http://www.oecd.org/tax/public-finance/
chapter%205%20gfg%202010.pdf.
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What is happening here at home is part of a broader trend Oxfam and
our community partners are witnessing across the globe. According to
Oxfam's report, ``Working for the Few'', released at the 2014 World
Economic Forum, today 7 out of 10 people around the world live in
countries where economic inequality has increased in the last 30
years.\9\ In fact the richest 85 people in the world now hold as much
wealth as the poorest 3.5 billion. In the United States, the 20 richest
Americans now hold as much wealth as all 155 million people in the
entire bottom half of the U.S. population. As a global development and
humanitarian organization, Oxfam believes we can no longer win the
fight against poverty, at home and abroad, without addressing growing
economic inequality.
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\9\ Galasso, Nick; Fuentes, Riccardo, ``Working for the Few'',
Oxfam, January 2014 http://www.oxfam.org/en/policy/working-for-the-few-
economic-inequality.
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increasing the minimum wage: a fair, popular and effective step
While there are many ways to reduce inequality, and perhaps few
magic bullets, increasing the minimum wage is a key step that is fair,
popular, and most importantly effective.
Since 1973, median real hourly compensation has risen just 10.7
percent.\10\ In recent decades, real wages have stagnated for workers
across most occupations and educational backgrounds in the bottom of
the income distribution. The result has been expansive wage inequality
between workers at top and those at the middle and bottom of the income
distribution. During the recession, real wages for all but the top 5
percent of workers stagnated or fell. The proportion of income going to
wages and compensation in the U.S. economy continued to shrink during
this period following a trendline beginning as far back as 1980, at the
same time as corporate profits reached all-time highs.
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\10\ Mishel, Lawrence ``Declining Real Value of the Minimum Wage is
a major factor driving inequality'', February 2013, http://www.epi.org/
publication/declining-Federal-minimum-wage-inequality/.
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Research points to a number of possible drivers, including
technology change and evolving educational needs, but changes in public
policies to weaken regulation, particularly wage setting institutions
and the related bargaining power of workers continue to be a major
force behind reducing wages. The failure to set a fair minimum wage
rate, and increase it with the rising costs of living is an important
piece of this story. In fact the falling real value of the minimum wage
accounts for about half of the increase in income inequality between
the 50th and 10th percentile in the income distribution between 1979
and 2011.\11\
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\11\ Dube, Arindrajit ``Minimum Wage and the Distribution of Family
Wages'', December 2013 https://dl.dropboxusercontent.com/u/15038936/
Dube_MinimumWagesFamilyIncomes.pdf.
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A $10.10 minimum wage will mean higher wages and incomes for a
projected 27.8 million low wage workers. This includes 17 million
workers now making less than $10.10 as well as roughly 11 million
workers who currently make slightly above that who likely will benefit
indirectly, receiving raises as business owners seek to maintain
existing hierarchies among workers. The majority of these workers are
adults in working families, and not just teenagers from high income
families that minimum wage detractors typically point to.
In fact a full-time year-round minimum wage worker would see a
$6,000 increase in income, capable of lifting a family of three out of
poverty. Increasing the minimum wage will help reduce the number of
working poor Americans. According to new research by Arindrajit Dube of
the University of Massachusetts, Amherst increasing the minimum wage to
$10.10 an hour would reduce the number of people in poverty by 4.6
million in the short term and 6.8 million in the long run.\12\ It would
significantly improve the incomes and quality of life for our lowest
income families, without costing taxpayers a dime.
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\12\ Ibid.
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Despite fears of job losses expressed by detractors of the minimum
wage, over 600 economists recently wrote a letter to leadership in the
U.S. Senate and House of Representatives in favor of an increase.\13\
They highlighted recent research which showed little to no decrease in
employment as a result of modest increases in minimum wages. In fact
some studies show an increase in minimum wage actually could increase
job creation and labor force participation.
---------------------------------------------------------------------------
\13\ Letter from over 600 Economists Supporting Minimum Wage
Increase, 2014 http://www.epi.org/minimum-wage-statement/.
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Polls suggest as many as 76 percent of Americans support increasing
the minimum wage, including majorities of Democrats, Republicans and
Independents.\14\ A majority of small business owners also support an
increase according to a survey by Small Business Majority.\15\ Minimum
wage increases have had bipartisan support in the recent past Congress.
In both 1997 and 2007, Republican and Democratic Members of the
Congress joined together to vote to increase the minimum wage under
Presidents of both parties. There is no reason an increase in the
minimum wage needs to remain such a divided discussion.
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\14\ Small Business Majority, ``Opinion Poll: Small Businesses
Support Increasing Minimum Wage'', April 2013, http://
www.smallbusinessmajority.org/small-business-research/minimum-wage/
\15\ Gallup, ``Most Americans for Raising Minimum Wage'', November
2013, http://www.gallup.com/poll/165794/americans-raising-minimum-
wage.aspx.
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voices of the working poor, oxfam's ``hard work, hard lives'' survey
Increasing the minimum wage is also very popular with low wage
workers, viewed as one of the highest rated reforms the U.S. Congress
can pursue to help working poor families. This was a finding in a Labor
Day 2013 survey of 800 low wage workers commissioned by Oxfam--
conducted by Hart Research Associates--showing stark and sometimes
unexpected results, on the greatest challenges, aspirations and policy
preferences of workers in and near poverty.\16\
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\16\ Oxfam America, ``Hard Work, Hard Lives'', August 2013, http://
www.oxfamamerica.org/explore/research-publications/hard-work-hard-
lives/.
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The survey found that America's working poor have a strong work
ethic, put in long hours, and believe that hard work can pay off. At
the same time, millions of Americans hold jobs that trap them in a
cycle of working hard while still unable to get ahead, which leaves
them with little hope for economic mobility. Most are stuck in jobs for
which they are paid less than in their previous job, and believe that
people are more likely to fall from the middle class rather than rise
into it.
workers earning under $10 per hour see greater challenges, immobility
Low-wage jobs (i.e., for the purposes of the survey, those paying
less than $14 per hour and those in households with incomes below 200
percent of the poverty level, roughly the population of workers who
would benefit directly or indirectly from a minimum wage increase) do
not pay enough to provide even a modest standard of living; do not
offer adequate benefits to protect workers from family illness and the
demands of raising children; and leave workers unable to invest in
paths to economic mobility (like education) or to save for retirement.
The survey found that most low-wage workers barely scrape by month
to month, are plagued by worries about meeting their families' basic
needs, and often turn to loans from loved ones, credit card debt, and
payday loans, and government programs just to get by. We also found
that while workers earning less than $14 per hour face far steeper
challenges in making ends meet than does the average American, even
among low-wage workers, a significant difference exists between those
who earn more than $10 an hour, and those who earn less.
Increasing pay for workers making below $10 per hour can mean the
difference between poverty and getting by. While nearly half (44
percent) of workers earning over $10 an hour say they at least meet
their basic living expenses, just one-third (34 percent) of workers
making less than $10 an hour can say the same.
When asked how often they worry about a series of personal
challenges, 69 percent of workers making less than $10 an hour reported
worrying sometimes or frequently about either losing a job or not being
able to find one, compared with 59 percent of workers making between
$10 and $14. In fact, in this instance, $10 an hour appears to mark a
dividing line. Workers making between $10 and $12 an hour (57 percent)
more closely resemble workers making between $12 and $14 (62 percent)
than they do workers making less than $10 (69 percent). This finding
provides further evidence that increasing the minimum wage to $10.10
per hour could lead to a dramatic difference in the quality of life for
workers making the lowest wages.
Workers making more than $10 an hour were also less likely to worry
about keeping up with rent or mortgage payments. This is not
surprising, considering that just 37 percent of these workers spend
more than half their income on rent or mortgage, compared with half (51
percent) of workers making less than $10 an hour. With low wages,
unstable work situations, and housing commitments that make up such a
high percentage of their anticipated income, it is no surprise that
workers earning less than $10 an hour face a predominantly paycheck-to-
paycheck existence. When asked whether they have savings that would
cover their living expenses for at least 3 months--generally considered
an appropriate sign of financial stability--less than one in five (18
percent) workers making less than $10 an hour responded that they did.
While too few workers making more than $10 answered this question in
the affirmative, workers making between $10 and $12 were 14 points more
likely to say they had the requisite savings than workers making less
than $10 an hour.
In term of the challenges low-wage workers identified in achieving
their career goals and economic mobility, workers making less than $10
an hour, are much more likely to classify these challenges as big
obstacles. These challenges include a bad economy and job market in
their community (which 61 percent of workers making less than $10 an
hour report as a very or fairly big obstacle, compared with 47 percent
of workers making between $10 and $14), and difficulty getting a loan
or investments to start their own businesses (34 percent for workers
making less than $10 and 25 percent for those making between $10 and
$14). Workers making less than $10 an hour are also more likely to cite
the difficulty of affording more education or training (40 percent to
33 percent), and are more than twice as likely to cite a lack of
reliable and affordable transportation as a very or fairly big obstacle
than workers making between $10 and $14 (17 percent for workers making
between $10 and $14, and 35 percent for those earning less than $10).
of solutions from the working poor, minimum wage rises to the top
The survey showed 79 percent of low wage workers supported an
increase in the minimum wage as an important step the U.S. Congress
could take to benefit their families and communities economically.
While not a silver bullet, this is an important bill for the Senate to
support in its efforts to address the growing needs of the working
poor. The poll also showed support for a number of other policies the
Congress could pursue to improve the economic futures of working poor
families including strengthening the earned income tax credit (71
percent), improving access to child care subsidies (79 percent),
expanding partnerships between industry and workforce training
institutions (84 percent).
But low wage workers lack faith in their elected officials to take
action to address the needs of the working poor. In fact most workers
(65 percent) believe Congress is more likely to pass laws that benefit
the wealthy more than everyone else than to pass laws benefiting the
poor (9 percent) by a scale of more than six to one.
conclusion
This Congress has an opportunity to turn this perception around by
forming a new agenda to address the needs of America's working poor.
With so much interest in inequality, mobility and poverty across
leaders on both sides of the aisle in Congress in recent months, it
would be a tragedy to not find ways to address the needs of these often
forgotten, hardworking families. Past increases of the minimum wage
have happened under both Democratic and Republican Administrations
thanks to previous bipartisan support in the Congress. Passing a
minimum wage increase is an important first step in addressing the
needs of the working poor. While increasing the minimum wage to $10.10
will not solve every challenge for low-wage working families, it has
the potential to have a significant positive impact on reducing poverty
and improving economic opportunity of millions of hard working
Americans. Passing this important legislation is a chance to enable
people to get a better shot at economic mobility and helping
themselves: to better make ends meet, afford education, training for
themselves and their children, to save money for homes and retirement.
We would also encourage the committee and your colleagues in the
Senate to continue to pursue other policies highlighted by our recent
survey to promote the mobility and opportunity of the working poor:
Strengthening partnerships between industry and job
training institutions to better prepare low wage workers for high
demand, decent wage jobs;
Improving subsidies for childcare to low-wage working
parents;
Expanding earned paid medical and family leave to more low
wage workers to ensure caring for a new child or loved one doesn't
force workers to lose their job and income; and
Strengthening tax credits like the Earned Income Tax
Credit to help make work pay improve the incomes and quality of life of
low-income workers and their families.
Prepared Statement of Gwen Moore
Chairman Harkin, Ranking Member Alexander, Good morning. It's an
honor to be here today.
My name is Gwen Moore. I'm a single mother of two children from
Mankato, MN. I'm here to talk about why it's important we raise the
minimum wage to $10.10 and why it must keep up with inflation.
I make $8.50 an hour cleaning hotel rooms. It's hard work. I'm on
my feet all day and I'm exhausted at the end of my shift. But I love my
job. It's important work. And those are some of the reasons why the
work should be better rewarded.
With a take-home pay of about $800 a month, I have to rely on
government assistance and a helping hand from family members just to
get by. I have subsidized housing. I receive food assistance and rely
on the local food bank. For now, I have to swallow my pride to keep my
family from going hungry and homeless. I want to and should be able to
stand on my own. A minimum wage of $10.10 would bring me closer to that
goal.
Here's a little glimpse of what it's like living and raising a
family at just above minimum wage.
Any of you who have children know how expensive it is to keep food
on the table, clothes on their backs and a roof over their heads, and
those are just the basics.
My 11-year-old son is growing fast, he's outgrown the coats,
clothes, and shoes I bought him for the winter, and we still have at
least a month of bitter cold ahead of us in Minnesota. He's tall and
it's tough finding clothes that fit him. It costs me hundreds of
dollars every few months, just to keep up with his growth. I'm not
buying Nikes or top name brands. I'm shopping at deep discount stores,
thrift shops and relying on hand-me-downs from family and friends.
Fortunately, my 8-year-old girl is not growing as fast, but making sure
she has a warm coat, snow pants and other gear just to walk to school
in the frigid Minnesota winter is expensive.
The expenses bring sacrifice, going without other necessities like
clothes for myself. And forget extras. In Minnesota, we've been in a
deep freeze. Temperatures have been at or dangerously below zero for
much of the last 2 months. I'd really like to take them to go see a
movie or have an afternoon out but there's no way I could afford to.
Fortunately we have a rec center in town to prevent us from being
cooped up all winter.
I'd like to start some kind of college savings fund for them, but
there's no extra money to even save for short-term emergencies. It's
only a matter of time before my 1990 Chevy Corsica dies, and I'm left
to rely on friends, co-workers, and an infrequent bus system to get to
and from work and the grocery store.
I save on childcare by working when my children are at school. But
that comes with a sacrifice. Since I have to work a shorter day, there
are times I have to work 14 days straight just to get enough hours to
meet my expenses.
I feel like all I do is work, and it's frustrating because I never
seem to get ahead. So many co-workers and community members feel the
same way. Even if I do get the supervisor's job I'm working hard
toward, there will still be co-workers and others in my community
making minimum wage; working hard, but struggling and relying on family
and public services just to get by.
People who don't want to raise the minimum wage should walk a day
in the shoes of someone trying to make it on just $7.25 or $8.50 an
hour. In Minnesota, there are folks making as little as $5.25 an hour
because of loopholes in State law. This is unjust and demoralizing.
Ten dollars and ten cents would make hardworking people feel as if
their efforts were valued. It would increase morale in the workplace.
It would ease family and community struggles.
For me, $10.10 would provide breathing room. It would mean not
having to work 14-day stretches to pay for the basics. I could buy my
daughter the proper gear for her dance classes and not have to worry as
much when my son grows another inch.
Ten dollars and ten cents means I'll be able to afford more
groceries at my local food store.
After all, if we're all making more, we'll all be spending more.
For me, $10.10 means an extra $2,500 a year. It means being one step
closer to financial independence.
Making sure the minimum wage keeps up with inflation is also
critical for me to keep up with the rising cost of food, clothes,
transportation, and housing.
I know what some people are thinking, why wait for government to
raise the wage? Why not just look for a better job or go back to school
and increase your skills. That's a valid question.
First, I've looked long and hard for the job I have, there isn't
much out there, especially in smaller towns like mine. And yes, I think
it's always a good idea to go back to school and upgrade your work
skills. However, there will always be a need for jobs like mine.
Someone has to clean hotel rooms, office buildings, schools and
hospitals. Someone has to prepare food at restaurants. And there will
always be a need for grocery store and retail clerks.
These jobs must pay fairer wages, wages that allow families to meet
basic living expenses. Wages that aren't so heavily subsidized by
social safety net programs and local charities.
I want to stand on my own; I want a better life for my children.
Raising the minimum wage to $10.10 an hour will help me do that with
dignity. It's fair, it's just, it's smart business.
Prepared Statement of Laurie Anne Palmer, BURGER KING Franchisee,
Waterville, ME
Chairman Harkin, Ranking Member Alexander and members of this
committee, thank you for the opportunity to submit my testimony today.
My name is Laurie Anne Palmer and I own Waterville Burger Corporation
which runs four BURGER KING restaurants in the Waterville area of
Maine. I would like to note that I am a small business owner; my views
are my own and may not reflect those of the BURGER KING brand.
In 1972, my father, David Palmer, purchased the only existing
BURGER KING restaurant in Maine. Over the next 8 years, my mother and
father expanded to 5 restaurants around Portland and Waterville, ME.
After selling their Portland stores, my parents formed Waterville
Burger Corporation and began growing their operations in the Waterville
area, eventually turning the company over to me in 1996. As a teenager
and into college, I had worked part time in their restaurants, so it
was a natural fit for me to take over upon their retirement. I've
always considered my parent's employees as my second family, and I
still do so today.
In 1998, I was forced to close one of my restaurants. This
restaurant was located in Boothbay Harbor, ME--a very seasonal small
fishing town. The State of Maine's Department of Transportation had
rerouted the tourist traffic off I-95 resulting in a bypass of the
town. My other restaurants were supporting this restaurant financially
and it just did not make sense to continue to lose money at that
location. I have invested significant time and money in my four
remaining stores, including transferring $25,000 of my personal savings
this year alone into the business to keep it afloat. I will always do
what it takes to keep my company healthy. Personal sacrifice is the
first step in cutting costs. I learned this from my parents and will
continue this method of operation. I am proud to employ 140 people, 30
of which are full-time and 110 are part-time.
I am here today to talk to you about the Fair Minimum Wage Act of
2013 (S. 460). As I understand it, this bill seeks to increase the
Federal minimum wage from $7.25 per hour to $10.10 per hour, which
equates to a 39.3 percent increase. It would also increase the cash
wage for tipped employees from $2.13 per hour to $7.07 per hour, a 232
percent increase. If this legislation becomes law, small business
owners like myself--who already face minimal profit margins--will
either be forced to recoup the costs elsewhere or close their
businesses entirely. In a business that has been solely owned and run
by my family, this possible outcome would be devastating not only for
me, but for my second family--my employees.
the franchise model
It is important to understand that, as a franchisee, the business
model under which I operate is much different than other small business
owners. By signing a franchise agreement, my businesses must carry
certain trademarks and other identifiers consistent with the BURGER
KING brand. BURGER KING Corporation also receives a monthly royalty
fee of 3.5 percent and a monthly advertising fee of 4 percent of my
gross sales.
As a franchisee, I am often seen as an agent of the brand and not a
small business owner. In fact, my salary comes from the net income
generated after royalty and advertising fees, payroll, supplier bills,
utility bills, and other costs associated with running my business. My
net income last year was $35,100. In particularly slow months, I didn't
receive a salary at all. In the months devastated by weather I had to
contribute money into the business. Further, I am currently preparing
my business for the implementation of the Affordable Care Act (ACA),
which is going to cost me thousands of dollars, if not more.
It is crucial to understand that, as a franchisee, government
mandates are paid out of my pocket--not that of my franchisor. That's
why additional proposals like an increase in minimum wage will put yet
another financial strain on my business--one that's already struggling
to keep its doors open.
quick service restaurant (qsr) industry
As a franchisee in the QSR industry, my profit margins are minimal.
As a businessperson, I look at the penny profits of the products I
sell. Data from a P&L benchmark report prepared by my purchasing
cooperative, Restaurant Services, Inc. (RSI), shows that, from November
2012-October 2013, the average net profit per BURGER KING Restaurant
was approximately $78,000. An increase in the minimum wage to $10.10
per hour ($2.85/hour) for a small business owner employing 10 minimum
wage workers working 40 hours per week is an increase of $59,280 per
year. Simple math reveals that an increase in minimum wage to $10.10
per hour would reduce the average net income of a BURGER KING
franchisee to $18,720 per year--a figure lower than the 2014 Federal
poverty level for a family of three. For a franchisee like me whose net
profits are less than half of the $77,000 average, it would simply put
me out of business.
Further, a calculation of profits per employee reveal that those in
the QSR industry like me cannot afford to absorb the impact of costs
such as a minimum wage increase. In fact, a study from the University
of Tennessee's Center for Business and Economic Research concluded that
the average net income--or profit--per employee for those in the
hospitality industry is $754--significantly lower than almost every
industry in the United States (see attached PPE Executive Summary). An
increase in minimum wage to $10.10 per hour would cost me $5,928 for
each full-time (40 hours per week) minimum wage employee per year
($2.85 40 52)--a figure far below the income generated per
employee. Again, the math shows that I simply cannot afford this
minimum wage increase and, unless I can recoup the costs somewhere
else, will go out of business.''
impact on my business
An increase in minimum wage will directly and negatively impact my
ability to create new jobs while limiting the benefits available to my
current employees. I currently employ 60 people who work an average of
25 hours per week and earn the current minimum wage as defined by Maine
law--$7.50 per hour. All but a hand full of these people were hired
within the last 6 months. Mathematically, an increase in the Federal
minimum wage would cost me an extra $3,900 per week or $208,000 per
year ($2.60 25 60 52). As I mentioned above, my net income for
last year was approximately $35,100--with an extra $208,000 in
expenses, I will very likely be forced to close my business.
In order to remain in business and continue to employ over 140
individuals, these costs must be recouped somewhere. Most likely, I
will be forced to cut employee hours, increase menu prices and/or
freeze all possible new hires. The industry has developed equipment
engineered to reduce labor hours in the restaurant--an increase in
minimum wage would make the purchase of this equipment a more likely
consideration. These employees are my second family--many of them have
worked for me for over 10 years. A small handful have even been with me
for over 20 years. Having to cut their hours or even layoff employees
would be almost as devastating to me as it would to my employees.
While an increase in the minimum wage doesn't take into account the
overwhelming financial burdens of ACA implementation, I have additional
costs that are cutting into my already minimal profits. Increases in
food and energy costs have been rising steadily over the last several
years. I must additionally consider the fact that my higher paid
employees will also be seeking an increase in pay as a result of an
increase in minimum wage. My payroll costs are at 30 percent of my net
sales with the current wage structure. Simply put, another costly
government mandate such as an increase in minimum wage may be the nail
in my business's coffin.
the actual ``minimum wage''
In truth, the ``minimum wage'' is not a floor--it is an opportunity
for those who may neither want nor have access to other employment. It
is a ``starting wage'' in which primarily young, inexperienced workers
are given the training and experience they would have not otherwise
received. As a result of hard work and dedication, many quickly receive
pay increases and are promoted within the organization.
The majority of my employees have been promoted due to their hard
work and dedication and now serve as managers in my restaurants. In
fact, my four General Managers began their careers with me earning the
minimum wage and have worked their way to the top position in each of
my restaurants. All of my hourly managers began by earning the minimum
wage and have each worked hard to earn a management position. I
strongly believe in developing the talent of individuals.
One hundred percent of my current staff starting at minimum wage
are under 25. In fact, 47 percent of Federal minimum wage restaurant
employees are teenagers, while 71 percent are under the age of 25. The
average household income of a restaurant worker that earns Federal
minimum wage is $62,507. Minimum wage income is often a supplement to
family wages or as ``spending money'' for younger workers.
An increase in the Federal minimum wage will likely and directly
hurt those it was intended to benefit. By increasing costs, small
business owners like me will be forced to eliminate entry-level jobs
and redistribute tasks to more senior employees. The availability of
job opportunities for those who need it the most will decrease and
unemployment will likely rise. In sum, a minimum wage increase will
hurt both small business owners and their potential employees across
the country--the last thing we need in an already stagnant economy.
I'm proud of the opportunity I offer my employees and of course I
wish I could pay them more, but my industry business model makes it
very difficult. As I referenced previously, this is a labor-intensive
business with tight margins. It is challenging enough competing with
McDonalds, Wendy's and others, but when mandates like ACA and this
proposed wage hike are thrust upon me, I get scared, I really do . . .
for me and my employees.
Thank you for the opportunity to explain the effect of a minimum
wage increase on my business.
Profit Per Employee
``means testing'' for government business mandates
background
For many years, legislators and regulators implementing business
mandates have used unfair and arbitrary metrics to determine which
businesses should receive exemptions based upon the cost of compliance.
They are rightly concerned that these mandates can overburden an
employer's ability to operate, which is why such exemptions exist.
Unfortunately, these overly simplistic metrics have disproportionately
hurt labor intensive, low-margin industries such as those in the
service sector. The unintended consequences have been reduced hours,
lost jobs, and little incentive for employers to grow their businesses.
They either reduce jobs to qualify for the ``50 employees or less''
exemption or refuse to grow beyond 50 employees.
What is Profit Per Employee (PPE)? Profit Per Employee is an
established business metric that is calculated by simply dividing net
profit by total number of employees. The calculation of Profit in the
PPE metric will rely on standard accounting rules as defined under
Generally Accepted Accounting Principles (GAAP).
Based on this number, Congress can more accurately determine who is
able or unable to absorb a cost mandate. For example, a company with
PPE of $100,000 can accommodate a cost mandate of $1,000 per employee,
whereas a company with a $3,000 PPE will clearly struggle to absorb the
mandate. The most common business exemptions currently used are total
employees (50 employees or less) or total revenue ($500,000 or less).
How would PPE work? The PPE metric will allow Congress to ``means
test'' which businesses will be forced to cut hours, jobs, or even
close its doors if they are not protected from a mandate. Businesses
seeking a waiver or relief from a specific mandate would need to
demonstrate their businesses have a verifiable PPE of $5,000 or less.
Both public and private business entities would use information from
their IRS tax return (a legally attested document) to calculate their
PPE.
A 3-year PPE average would also be required to ensure that only
businesses with traditionally low margins would qualify. This
information would be submitted to the relevant Federal agency for a
ruling. Since the PPE calculation would be derived from existing
regulatory obligations, compliance would not be burdensome for
businesses. The application waiver could be submitted on a single page
so processing by the relevant agency would be timely and efficient.
analysis
A 2010 study from the University of Tennessee's Center for Business
and Economic Research concluded that Profit Per Employee (PPE) is a
much more meaningful metric for exemption policies across diverse
industries and business models. This new metric will help level the
playing field across different industries.
`` (Profit Per Employee) would be better than total
employment because it is a better proxy for ability to pay, and
it would be better than total profits alone because it accounts
for variation in firm size and profit margin.''--Economist
Donald Bruce
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
The Profit Per Employee Coalition is a 501(c)(6) not-for-profit
corporation consisting primarily of employers from labor intensive,
low-margin service industries. Coalition members are dedicated to
protecting U.S. jobs and businesses by ensuring that future legislation
considers the impact of mandates on lower-margin industries such as
those in the service sector.
______
A Statement to Federal Policymakers
The ``recovery'' from the Great Recession has been anemic. Business
growth, job creation, and consumer spending remain tenuous. Since the
official trough in June 2009, median income has fallen, real wages have
barely risen, unemployment remains elevated, and because so many
Americans have left the work force entirely, the fraction of the
population working is below the pre-recession level.
To address the very real concerns of out of work and low-wage
workers, many of our Nation's policymakers point to raising the minimum
wage as a ``silver bullet'' solution. Although increasing wages through
legislative action may sound like a great idea, poverty is a serious,
complex issue that demands a comprehensive and thoughtful solution that
targets those Americans actually in need.
As economists, we understand the fragile nature of this recovery
and the dire financial realities of the nearly 50 million Americans
living in poverty. To alleviate these burdens for families and improve
our local, regional, and national economies, we need a mix of solutions
that encourage employment, business creation, and boost earnings rather
than across-the-board mandates that raise the cost of labor.
One of the serious consequences of raising the minimum wage is that
business owners saddled with a higher cost of labor will need to cut
costs, or pass the increase to their consumers in order to make ends
meet. Many of the businesses that pay their workers minimum wage
operate on extremely tight profit margins, with any increase in the
cost of labor threatening this delicate balance.
The Congressional Budget Office's (CBO) most recent report
underscores the damage that a Federal minimum wage increase would have.
According to CBO, raising the Federal minimum wage to $10.10 per hour
would cost the economy 500,000 jobs by 2016. Many of these jobs are
held by entry-level workers with limited experience or vocational
skills, the very employees meant to be helped.
The minimum wage is also a poorly targeted anti-poverty measure.
Extra earnings generated by such an increase in the minimum m wage
would not substantially help the poor. As CBO noted, ``many low-wage
workers are not members of low-income families.'' In fact, CBO
estimates that less than 20 percent of the workers who would see a wage
increase to $10.10 actually live in households that earn less than the
Federal poverty line.
For these reasons, we encourage Federal policymakers to examine
creative, comprehensive policy solutions that truly help address
poverty, boost incomes from work, and increase upward mobility by
fostering growth in our Nation's economy.
Sincerely,
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Prepared Statement of John Schmitt, Senior Economist, Center For
Economic and Policy Research, (CEPR), Washington, DC
On almost every issue in dispute, February's Congressional Budget
Office (CBO) report embraced arguments made by supporters of a higher
minimum wage. The only major exception--which dominated the media
coverage--was with respect to the employment effects of a minimum-wage
increase, where the CBO decided to saw the baby in half.
This statement analyzes the disputes where the CBO accepted the
numbers and the reasoning of supporters of increasing the minimum wage
and also provides some observations on CBO's analysis of the employment
effects of the minimum wage.
1. The minimum wage will directly affect tens of millions of
workers. Opponents of the minimum wage like to cite Bureau of Labor
Statistics (BLS) numbers that suggest that there are only about 1.6
million minimum-wage workers, ignoring that this figure refers only to
workers who earn exactly the Federal minimum wage of $7.25 per hour.
CBO, instead, estimates that about 16.5 million workers would
receive a wage increase because the CBO correctly factored in that
millions more workers who earn between the current Federal minimum wage
and the new proposed level of $10.10 would also receive a pay increase.
The CBO estimate of the total direct beneficiaries is almost
identical to the 16.7 million worker estimate produced by the Economic
Policy Institute and used widely by supporters.
2. The minimum wage will indirectly raise the wages of millions
more. Opponents downplay ``spillover'' effects of the minimum wage,
that is, they say that the minimum wage is unlikely to have any impact
on the wages of workers earning above the Federal floor.
The CBO, however, estimates that about 8.0 million workers who
otherwise would have earned just above $10.10 in 2016 would also
receive a boost after the increase, as employers adjust internal pay
scales to reflect the new lower wage at the bottom.
The CBO estimate is somewhat lower than EPI's projection of 11.1
million workers, but still constitutes solid recognition of the
importance of ``spillover'' effects and the capacity of the minimum
wage to influence the broader wage distribution.
3. The beneficiaries of a minimum-wage increase are overwhelmingly
not teenagers. Opponents argue that the typical minimum wage worker is
a suburban teenager. CBO's analysis includes all workers that would
receive an increase in the minimum wage and concludes that only 12
percent of these low-wage workers are teenagers, 10 percent have a
college degree, and more than half (53 percent) work full-time. These
numbers mirror closely the demographic data produced by EPI and widely
cited by supporters of the increase.
4. The large majority of benefits of a minimum-wage increase would
go to low- and middle-income families. Opponents claim that the minimum
wage is not well-targeted to low-income families. But, CBO says 65
percent of the increase in earnings would go to families with incomes
below three times the Federal poverty line (or, roughly, about $60,000
for a family of three). Again, the CBO figures are close to EPI's
estimates, which conclude that about 69 percent of benefits go to
families with incomes below $60,000, with 23 percent going to families
with incomes below $20,000.
5. The minimum wage will reduce poverty. One of the sources most
frequently cited by opponents of the minimum wage, David Neumark and
William Wascher's book, Minimum Wages (2008), does not pull any punches
on the impact of the minimum wage on poverty: ``. . . there is
essentially no empirical evidence indicating that minimum wages have
beneficial distributional effects. Instead, the research tends to find
either no evidence of distributional effects or evidence that minimum
wages increase poverty.'' (p. 189)
But, the CBO report rejected this reading of the research and
concluded that an increase to $10.10 would, on net, lift 900,000 people
out of poverty.
The CBO's estimate of the size of poverty reduction is more
conservative than recent projections produced by economist Arindrajit
Dube, who concluded that increasing the minimum wage would reduce
poverty by between 4.6 million and 6.8 million people, after full
implementation. But, CBO clearly believes that--even after employment
losses--that the minimum wage is an anti-poverty tool.
6. The minimum wage is a form of stimulus. The CBO also
acknowledged and accepted the economic logic of supporters of the
minimum wage who argue that by increasing the incomes of low-wage
workers--who tend to spend a very high share of what they earn--a
minimum-wage increase would act as a stimulus to the broader economy.
CBO writes:
``On balance, according to CBO's analysis, raising the
minimum wage would increase demand for goods and services . . .
[by shifting] income from business owners and consumers (as a
whole) to low-wage workers. Low-wage workers generally spend a
larger share of each dollar they receive than the average
business owner or consumer does; thus . . . overall spending
increases.'' (p. 27)
CBO's estimate that this stimulus effect would ``boost . . .
employment by a few tens of thousands of workers in the second half of
2016'' is in the ballpark of EPI's estimate of about 85,000 jobs
through minimum-wage stimulus.
7. EITC and minimum wage are complements. Whenever efforts to
increase the minimum wage gain momentum, opponents suggest expanding
the Earned Income Tax Credit (EITC) instead. (The EITC is a refundable
tax credit that boosts the after-tax wages of low-wage workers in low-
income families, especially those with children.) Opponents see the
minimum wage and the EITC as competing with one another. Supporters of
the minimum wage, though, see the two policies as strongly
complementary.
The EITC, in a straightforward way, increases the incentive to
work. As a result, the EITC draws more people into the labor market and
induces others who already have jobs to work more hours. The resulting
increase in labor supply drives down the market wage (that is, the wage
before EITC benefits are paid), which lowers employers' labor costs.
The EITC, which was designed as a subsidy to low-wage workers, also
effectively functions as a tax-payer subsidy to low-wage employers. A
minimum wage puts a limit on the size of that subsidy to employers.
The two policies work well together. The EITC raises wages for low-
income workers to where a minimum wage of the same level would likely
cause job loss. Meanwhile, the minimum wage ensures that the benefits
of the EITC go to workers, not employers.
CBO acknowledges these important issues, citing research by David
Lee and Emmanuel Saez, as well as Jesse Rothstein, and concludes:
``An increase in the minimum wage would shift some of that
benefit [of the EITC that accrues to employers, rather than to
workers] from employers to workers by requiring the former to
pay the latter more.'' (p. 15)
On all of these issues, the CBO concluded that supporters of
raising the minimum wage were right and opponents were wrong. According
to CBO, raising the minimum wage to $10.10 per hour by 2016 would
directly raise the wages of over 16 million workers and indirectly
raise the wages of another 8 million. The beneficiaries are
overwhelmingly adults, most working full-time. The benefits are well-
targeted, with the large majority going to low- and middle-income
families. The CBO believes that the minimum wage will lift almost 1
million people out of poverty. The CBO also endorses both the idea of
the minimum wage as stimulus and the idea that the minimum wage and the
EITC are policy complements, not substitutes for one another.
8. In a major departure from earlier CBO analysis, the range of
likely employment outcomes in the new CBO report includes zero.
Headlines have focused on CBO's ``central estimate'' of the ``change in
employment'' from an increase in the Federal minimum wage to $10.10--a
loss of 500,000 jobs. But, the ``likely range'' in the CBO forecast
runs from a ``[v]ery slight decrease to -1.0 million workers.''
A mid-range estimate of 500,000 jobs lost, with a high-end estimate
of one million jobs lost, is obviously bad optics for the proposed
increase. Nevertheless, recognition in a CBO document that the ``likely
range'' of employment effects effectively includes zero (a ``very
slight decrease'') is, as far as I can tell from reviewing several past
CBO evaluations of the minimum wage, completely unprecedented.
CBO reports from the late 1990s, for example, assume that a 10
percent increase in the minimum wage would reduce employment of
teenagers by between 0.5 percent and 2.0 percent, with a ``smaller
percentage reduction for young adults (ages 20 to 24).'' (CBO, 1999, p.
4) A 2001 CBO report was not as explicit about its assumptions, but the
estimated employment impact did not include zero (200,000 to 600,000
jobs lost).
Including zero in the range of plausible employment outcomes--for
the first time ever--ought to feature more prominently in the
discussion of the report and in the evaluation of the proposal on the
table, especially considering that the proposal involves an increase in
the minimum wage of almost 40 percent.
More than two decades of research that has questioned the negative
employment impact of moderate increases in the minimum wage is slowly
entering into standard analysis.
9. The CBO chose not to referee a deep divide in the economics
profession and, instead, awkwardly split the difference on estimates of
the employment effects. The appendix to the CBO report provides details
on specific assumptions about the employment effects of the minimum
wage, but offers little on how CBO arrived at those specifics.
Two assumptions drive most of the employment results. The first is
the assumption that a 10 percent increase in the minimum wage would
reduce teen employment by 1 percent with a ``likely range'' from close
to zero (``a very slight negative amount'' p. 23) to as high as 2
percent. The second assumption is that the effect on low-wage adults
would be ``about one-third'' (p. 25) of the estimated effect for
teenagers.
The CBO cites numerous studies in connection with the choice of
these ``policy elasticities.'' But, non-specialist readers won't
realize that none of CBO's parameters actually appear in any of the
studies cited. Probably the most prominent minimum-wage critics, David
Neumark and William Wascher, for example, argue that a 10 percent
increase in the minimum wage reduces teen (and less-skilled worker)
employment by 1 to 2 percent--not the 0 to 2 percent used by the CBO.
Other critics would put the range between 1 and 3 percent, for a mid-
range of 2 percent. Meanwhile, the research by Arindrajit Dube, Michael
Reich, Sylvia Allegretto, and William Lester--the group of economists
that in recent decades has most informed minimum-wage supporters--puts
the employment effect on teens as centered close to zero, with a 10
percent increase in the minimum wage associated with between a 0.6
percent decrease and a 1.3 percent increase in employment (this range
taken from Allegretto, Dube, Reich, and Zipperer, Table 3, columns 5-
8).
Michael Reich has noted, CBO's range lies somewhere between the two
camps, with no explanation from CBO as to how it chose to weight the
two very different sets of estimates. Siding with the critics of the
minimum wage would have produced higher estimates of job loss than what
CBO published. Siding with the large and growing body of research
finding little or no employment effect would have produced much lower
estimates of loss and not ruled out the possibility of job gains.
10. The CBO breaks with the existing research by assuming
significant job loss for low-wage adults. As I mentioned earlier, the
CBO assumes that the employment effects on adults would be one-third of
what they would be for teenagers. As the CBO notes, there is ``much
less research . . . on the responsiveness of adult employment to
minimum-wage increases than on the responsiveness of teenage
employment.'' In fact, the idea that the minimum wage has essentially
no effect on adult workers has long been close to the consensus view
within the economics profession. In a large review of the literature at
the beginning of the 1980s, for example, Charles Brown, Curtis Gilroy,
and Andrew Kohen concluded that even the ``direction of the effect on
adult employment is uncertain in the empirical work, as it is in the
theory'' (p. 524)--and that was before the wave of research since the
early 1990s that has questioned the negative employment impact of the
minimum wage. Indeed, this view has been so standard, that the CBO
studies from the late 1990s and early 2000s that I cited earlier appear
to assume no employment effects on adults. Since the CBO concludes that
88 percent of workers affected by a minimum-wage increase are not
teenagers, this unconventional assumption has a large impact on their
final calculations.
11. Critics and opponents of the minimum wage agree that employment
effects are not the only aspect of the minimum wage that should factor
into decisions about the policy. In their book Minimum Wages, critics
David Neumark and William Wascher write:
But the existence of disemployment effects does not
necessarily imply that minimum wages constitute bad social
policy. As with many government rules and regulations, a higher
minimum wage entails both benefits and costs. Thus, the
question is not whether there are any costs to a higher minimum
wage, but instead whether the tradeoffs between the costs and
the benefits are acceptable . . . (PP. 141-42)
And minimum-wage supporter Jared Bernstein makes a similar point:
``even if [critics] are right . . . the beneficiaries far outweigh
those displaced.'' (Or see liberal columnist Harold Meyerson's tweet:
@HaroldMeyerson: CBO: Minimum wage hike will help 33 workers for every
1 it hurts. Pretty damn good ratio.)
Several commentators have made a more forceful version of this
argument, suggesting that if the minimum wage isn't causing some amount
of job loss, it probably isn't being set high enough. The
unconventionally liberal Matt Yglesias, for example, writes:
If the White House genuinely believes that a hike to $10.10
would have zero negative impact on job creation, then the White
House is probably proposing too low a number. The outcome that
the CBO is forecasting--an outcome where you get a small amount
of disemployment that's vastly outweighed by the increase in
income among low-wage families writ large--is the outcome that
you want. If $10.10 an hour would raise incomes and cost zero
jobs, then why not go up to $11 and raise incomes even more at
the cost of a little bit of disemployment?
This view is shared, in almost identical terms, by the not-so-
liberal Josh Barro in a post titled ``If Your Minimum Wage Increase
Doesn't Raise Unemployment, You Didn't Raise The Minimum Wage Enough'':
. . . a minimum wage increase can cause a modest rise in
unemployment and still be a good policy idea, so long as it has
more than offsetting positive effects. And the minimum wage
tradeoff presented by CBO looks awfully favorable. For every
person put out of work by the minimum wage increase, more than
30 will see rises in income, often on the order of several
dollars an hour. Low- and moderate-income families will get an
extra $17 billion a year in income, even after accounting for
people who get put out of work; for reference, that's roughly
equivalent to a 25 percent increase in the Earned Income Tax
Credit.
We can only ask CBO to lay out the likely consequences of
particular policies. Once tradeoffs are involved, we need to make the
value judgments that CBO can't make for us. Much of the media coverage
has hyped the mid-range job-loss number and what that number means for
the political prospects of proposed increase, but the same coverage has
done little or nothing to explore any tradeoff between higher incomes
and fewer jobs.
12. We need to have a realistic understanding of the low-wage labor
market. A range of people--young, old, men, women, white, black,
Latino, Asian, full-time and part-time, less-educated and college-
educated--work in low-wage jobs, many for large parts of their working
life. But, an important feature of low-wage jobs is that they tend to
have high turnover. Even if half the workers in a low-wage workplace
are in stable long-term jobs, the other half of positions might
turnover completely once or even twice in a year.
High turnover is an important context to keep in mind when
evaluating the costs and benefits of the minimum wage. Even if the
CBO's central estimate of job loss is correct, very few low-wage
workers will receive pink slips. Given high turnover, employers who
want to reduce employment are much more likely to make any adjustments
implied by the CBO estimates through attrition--failing to replace a
few percent of the workers who leave on a regular basis.
Workers looking for jobs at the new, higher minimum wage may be
looking in a slightly smaller job pool, for a slightly longer period of
time. But, when they find a job, it will pay substantially more than
the job they would have found somewhat more quickly at the old, but
lower minimum wage. Given this reality and the CBO numbers, which
suggest that the minimum wage yields a large net transfer of income
from employers to low-wage workers as a group, it is hard to imagine
that any low-wage workers would be worse off on an annual basis after
the minimum-wage increase. (As my colleague Dean Baker puts it, unlike
many other policies, including trade agreements, patent protection, or
fiscal austerity, there are no ``designated losers'' with the minimum
wage.)
13. Whenever we're talking about employment effects, we need to be
sure that the conversation includes macroeconomic policy. In the
current context of high unemployment, the easiest way to make up for
negative employment effects of any policy is to be sure that we are
pursuing appropriately expansionary macroeconomic policy. To a first
approximation, labor-market institutions such as the minimum wage,
unemployment insurance benefits, and unions determine the distribution
of wages, benefits, and incomes, while macroeconomic policy determines
the level of employment. There may be circumstances where labor-market
institutions begin to act as important constraints on employment, but
it is hard to argue that we are anywhere near there now, or even that
we have been anywhere close in the last three decades. (For example, we
saw no signs of rising inflation at the end of the 1990s and into 2000,
even when the unemployment rate hovered for an extended period near 4
percent.) If opponents of the minimum wage are genuinely concerned
about the fate of low-wage workers, they should be pushing for
appropriately expansionary macroeconomic policy, not fighting policies
that make low-wage workers as a whole substantially better off.
Response by Thomas E. Perez to Questions of Senator Harkin, Senator
Casey, Senator Alexander, Senator Scott, Senator Isakson, Senator
Murkowski, and Senator Hatch
senator harkin
Question 1. A lot of States, including your home State of Maryland,
are taking the initiative to raise their own wages in response to
Federal inaction. I applaud these States for acting to support their
workers and their economy, but I know that State action alone is not
enough. Why is it important for the Federal Government to act to raise
wages for workers across the country, not just on a state-by-state
basis?
Answer 1. You are right that we are seeing a tremendous amount of
momentum on this issue. Twenty-five States (plus the District of
Columbia) have now passed a minimum wage that exceeds the Federal
level. Many have acted to give their low-wage workers a raise just in
the last year. Just weeks after the committee's hearing, Connecticut
and my home State of Maryland became the first two States to enact a
minimum wage of $10.10 an hour, and, in late April, lawmakers in Hawaii
passed legislation to do the same by 2018. Prince George's County, MD,
and Montgomery County, MD, where I reside, will each see increases in
their minimum wage rates starting later this year.
While I, too, applaud these State efforts, it's important that the
Federal Government take action for the following reasons:
More than half of the States in this country still allow
employers to pay as little as $7.25 per hour. The buying power of that
wage has declined by more than 8 percent since it was enacted almost 5
years ago. In that same time period, we know that nationally the cost
for rent has increased by more than 4 percent; grocery costs are up
nearly 8 percent; child care is up more than 9 percent; and mass
transit costs are up 12.5 percent. That means Americans at the bottom
of the income ladder have been stretched thin, and in most cases, are
falling behind. No one should be left behind based on where they live.
We as a Federal Government have an obligation to look out for the least
among us; it's important that the Federal Government improve the
standard of living for all Americans as much as possible.
Nationally, a raise to $10.10 would benefit 28 million
workers, lifting about 2 million out of poverty. A raise in the minimum
wage will put more money in people's pockets, which they will pump back
into the economy by spending it on goods and services in their
communities. This isn't just economic theory. I've spoken with small
business owners and CEOs of large businesses who all tell me the same
thing: more money in the hands of workers will inevitably be spent in
their stores, improving their bottom lines.
Therefore, it's vitally important that despite the great momentum
we see around the country, the Congress must act to raise the wage for
all Americans.
senator casey
It is estimated that a minimum wage increase to $10.10 would add $1
billion in GDP and 3,800 new jobs to Pennsylvania's economy, providing
a $1,500 boost to the average annual income of low-wage workers.\1\ In
Pennsylvania alone, a minimum wage increase is estimated to raise the
pay of over 600,000 women and lift over 127,000 workers out of poverty
(roughly 4.6 million workers will be lifted out of poverty across the
United States).\2\ You have traveled extensively across the country
talking with workers and employers about the effects of a minimum wage
increase.
---------------------------------------------------------------------------
\1\ Estimates are from Economic Policy Institute (EPI) ``Raising
the Federal Minimum Wage to $10.10 Would Lift Wages for Millions and
Provide a Modest Economic Boost''. 12/19/2013
\2\ Ibid, Bureau of Labor Statistics (accessed 11/18/2013), and
Washington Post ``Economists agree: Raising the minimum wage reduces
poverty'' by Mike Konczal, 1/4/2014.
---------------------------------------------------------------------------
Question 1. What have you heard from employers, particularly small
business owners, about the effects of a minimum wage increase on their
business' revenues? Do the employers you have spoken with agree that
boosting the incomes of low-wage workers will add more money and
encourage more spending in local economies and, thus, lead to increased
revenues?
Answer 1. I've met with small business owners and the CEOs of large
companies who know that higher wages for workers can be good for the
bottom line. For example, Amanda Rothschild of Baltimore helps to run a
small coffee shop called Charmington's. In the days after opening their
doors just a handful of years ago, they realized that they needed help.
So, they put up the help wanted sign and hired their first employee,
paying her just slightly above the minimum wage. Charmington's has
since hired more employees and what Amanda has told me is that by
paying above the current Federal minimum wage, she's able to retain
employees and cut down on training costs. The first employee who was
hired at Charmington's is still there. But, Amanda also says that it's
not enough for employers to pay their employees more. She wants to see
the minimum wage raised so that the low-wage workers who live in her
community can afford to spend money in her cafe. In short, she wants
more business.
Subsequent to the committee's hearing, I traveled to Massachusetts
where I met with the owners of a small health and wellness store
outside of Boston called Cambridge Naturals. ``Every dollar we can
invest in somebody comes back to us because they learn about our
products and feel invested in our business,'' co-owner Elizabeth Stagl
told me. At a roundtable discussion at the store, David Sandberg, owner
of Porter Square Books, said he has always paid higher starting wages
to his employees, but that it's time for a nationwide minimum wage
increase to level the playing field for all businesses.
It is clear that despite the arguments that a minimum wage increase
would hurt small businesses and harm the economy, most small business
owners disagree. In fact, a recent survey released by the Small
Business Majority finds that 57 percent of small business owners
support raising the minimum wage to $10.10 per hour.
Question 2. Based on your conversations with employers and workers,
as well as data collected and studied by the Department of Labor, what
are your conclusions on the effects we can expect to see on
unemployment with a higher Federal minimum wage? Historically, what
effects have minimum wage increases had on employment?
Answer 2. Researchers have found little to no negative impact on
employment from the modest increases in the minimum wage. Since 1938,
the national minimum wage has been raised 22 times, under both
Democratic and Republican administrations with broad, bi-partisan
support.
Studies have shown that minimum wage increases lead to ``little or
no employment response \3\'':
---------------------------------------------------------------------------
\3\ Schmitt, John. 2013. ``Why Does the Minimum Wage Have No
Discernible Effect on Employment?'' Center for Economic and Policy
Research.
Comparing 288 pairs of contiguous U.S. counties with
minimum wage differentials from 1990 to 2006 finds ``no adverse
employment effects'' (Dube, Lester, and Reich, 2010).
A meta-analysis of the minimum wage research published
since 2000 concludes, ``The weight of that evidence points to little or
no employment response to modest increases in the minimum wage''
(Schmitt, 2013).
Researchers \4\ have noted that even this distribution of
studies is biased because studies finding large positive effects on
employment are likely not to be published while studies finding large
negative effects on employment are published.
---------------------------------------------------------------------------
\4\ Doucouliagos, Hristos and T. D. Stanley. 2009. ``Publication
Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis.''
British Journal of Industrial Relations, vol. 47, no. 2, PP. 406-28
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senator alexander
Question 1. The Congressional Budget Office was created by the
Congressional Budget and Impoundment Control Act of 1974. The office is
supposed to be non-partisan and the Director shall be selected
``without regard to political affiliation and solely on the basis of
his fitness to perform his duties.'' On February 18, the Congressional
Budget Office released a report on economic and employment effects of
raising the minimum wage. The CBO's central estimate was that a minimum
wage increase to $10.10 ``would reduce employment by roughly 500,000 in
the second half of 2016.'' Do you agree with the CBO report's findings
that raising the minimum wage would have a negative effect on
employment? Do you agree that the ``CBO is responsible for providing
nonpartisan and thoughtful analysis to the Congress?''
In regards to their report on the minimum wage, do you agree that
they carried out their own mission of providing ``nonpartisan and
thoughtful analysis?''
Answer 1. From my time working for Senator Kennedy, I developed
respect and appreciation for the Congressional Budget Office and the
work that it does. I do believe that CBO conducted its research and
analysis carefully and thoughtfully, and without intending to reach an
outcome that favored one political party over another.
In fact, many of the CBO's findings are consistent with findings of
the President's Council of Economic Advisors (CEA). For example, both
CBO and CEA conclude that millions of people would benefit from an
increase in the minimum wage, that poverty would be reduced, and that a
raise would increase the overall wages going to lower income
households. The CBO said that its central estimate is a 0.3 percent
decrease in employment, but also acknowledged that the impact could be
essentially zero. With respect to the latter, that finding would be in
keeping with the recent academic literature on how raising the minimum
wage affects employment. A letter signed in January of this year by 600
economists, including seven Nobel laureates, described the literature
as follows: ``[T]he weight of evidence now show[s] that increases in
the minimum wage have had little or no negative effect on the
employment of minimum-wage workers, even during times of weakness in
the labor market.'' \5\
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\5\ Economic Policy Institute (EPI) ``Over 600 Economists Sign
Letter in Support of $10.10 Minimum Wage,'' http://www.epi.org/minimum-
wage-statement/.
Question 2. As I mentioned at the hearing, in February, Federal
Reserve Chair, Janet Yellen testified before the Senate Banking
Committee. When asked about the CBO report, she replied: ``The CBO is
as qualified as anyone to evaluate that literature'' and that she
``wouldn't want to argue with their assessment.'' Do you share her
view? Yes, or no.
Unlike the President's Council of Economic Advisors, isn't the CBO
nonpartisan, and the Director chosen without regard to political
affiliation and solely on the basis of fitness to perform his duties?
Answer 2. See response to Ranking Member Alexander's Question #1.
Question 3. Last year, economist and New York Times columnist Paul
Krugman wrote that most economists would ``agree that setting a minimum
wage of, say, $20 an hour would create a lot of problems.'' Do you
agree? If so, should indexing of future minimum wage increases sunset
once the minimum wage gets to $20? Should there be a cap on the minimum
wage at all?
Answer 3. The President supports a proposal to raise the minimum
wage in several gradual steps to $10.10 per hour by 2016. I am not
aware of any proposals to raise the Federal minimum wage to $20 an
hour. With respect to indexing the minimum wage to inflation, many
economists argue that it's a more natural, market-driven approach and
smart economics to do so. Doing so builds in predictability for wage
increases. Subsequent to the committee's hearing, Subway CEO Fred
DeLuca stated in an interview with CNBC that he embraced the idea of
indexing the minimum wage to inflation ``so that way everybody knows
what they can count on.'' \6\ I've also spoken with small business
owners who support the President's proposal and like the idea of tying
the minimum wage to inflation for exactly that reason: labor cost
predictability. They've told me that they'd rather see regular,
incremental increases in the minimum wage instead of sporadic larger
step increases in the wage over a short period of time. Labor cost
predictability helps them budget for the long term and helps their
bottom lines.
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\6\ Katie Little, ``Subway CEO: How I'd Solve the Minimum Wage
Debate,'' CNBC, May 7, 2014, http://www.cnbc.com/id/101647378.
Question 4. The President issued an Executive order to raise the
minimum wage for employees working on Federal contracts to $10.10 per
hour. How many workers will be affected by the Executive order?
Hundreds? Thousands? Hundreds of thousands?
Will the Executive order apply to employees who work for private
employers on government property?
The Executive order indexes future increases to the minimum wage to
the Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W). According to the CBO, that index only applies to 32 percent of
U.S. residents. Why didn't the Executive order cite to a more commonly
used index, such as the Consumer Price Index for All Urban Consumers
(CPI-U)?
The Executive order calls for the Department of Labor to issue
regulations by October 1. Does the Department plan on following the
formal notice and comment procedure and allow the public to comment on
the proposed rule before it is finalized?
Answer 4. Executive Order 13658 is expected to benefit hundreds of
thousands of people working under contracts with the Federal Government
who are making less than $10.10 an hour. The Executive order will
generally apply to new contracts where the solicitation is issued on or
after January 1, 2015 and where the contract is: (i) (A) a procurement
contract for services or construction; (B) a contract for services
covered by the Service Contract Act; (C) a contract for concessions,
including any concessions contract excluded by Department of Labor
regulations at 29 CFR 4.133(b); or (D) a contract entered into with the
Federal Government in connection with Federal property or lands and
related to offering services for Federal employees, their dependents,
or the general public; and (ii) the wages of workers under such
contract are governed by the Fair Labor Standards Act, the Service
Contract Act, or the Davis-Bacon Act.
The CPI-W is a standard cost-of-living adjustment for working
Americans. Currently Social Security is indexed by CPI-W and increases
to the Executive order minimum wage are to be determined by the CPI-W.
The Department believes that the CPI-W better encompasses the group of
workers that will be affected by this EO.
The Department intends to fully comply with the Administrative
Procedure Act in development of regulations to implement Executive
Order 13658.
Question 5. The Department of Labor (DOL) is promulgating a
proposed rule that would require employers and their attorneys or
consultants to publicly disclose relationships where advice is given on
issues related to union organizing, otherwise known as the
``persuader'' rule. The proposed rule was first introduced in June
2011. The American Bar Association submitted public comments opposing
the proposed rule. The Tennessee Bar Association is concerned the
proposed rule would force Tennessee lawyers to disclose information
about their representation of clients that would otherwise be entitled
to confidential treatment under our State's lawyers ethics rules and
would ultimately discourage them from providing important legal
counsel.
In early March, a DOL spokesman said the rule would not be
finalized in March, as DOL previously predicted. What are the specific
reasons for the delay and when do you expect the rule to be finalized?
Answer 5. Several factors have contributed to the delay in
finalizing the persuader rule, including the volume of comments
received and our interest in correctly concluding our analysis before
publishing a final rule. Prior to the hearing, in early March, the
Department indicated that we would not meet the March 2014 date that
was listed in the Fall 2013 Semi-Annual Regulatory Agenda. A new date
for publication of the final rule will be provided in the Department's
Spring 2014 Regulatory Agenda.
Question 6. According to the Fall 2013 Unified Agenda, DOL planned
to finalize the ``persuader rule'' in March 2014. However, according to
news reports, the publication is delayed. In the notice of proposed
rulemaking, issued on June 21, 2011, DOL estimated that the rule will
cost approximately $826,000 annually, and it did not monetize benefits.
However, an April 2013 report by the Manhattan Institute estimates that
the rule could cost between $7.5 billion and $10.6 billion during the
first year of implementation and between $4.3 billion and $6.5 billion
per year thereafter. Executive Orders 13563 and 12866 require rules
that are likely to have an annual effect on the economy of $100 million
or more to undergo a rigorous cost-benefit analysis, known as a
regulatory impact analysis. What steps have you taken to ensure that
DOL has performed a proper economic analysis of the ``persuader rule''
before it is finalized, including, if needed, a regulatory impact
analysis that quantifies both costs and benefits?
Answer 6. In the June 21, 2011 proposed rule, the Department
estimated that the rule's total annual cost on filers will be
approximately $826,000, and therefore would not be considered
economically significant under section 3(f) of E.O. 12866. The April
2013 report by the Manhattan Institute was issued after the comment
period for the proposed rule had already closed in September 2011.
Therefore, the report cannot be considered by the Department in
finalizing the rule. Nonetheless, timely comments from other
organizations that also addressed the proposal's burden analysis
provided similar analyses estimating that the rule's cost could be much
larger than the Department's estimate. The Department will fully
address the rule's estimated cost upon publication of a final rule.
Question 7. I read an op-ed from the USA Today last year written by
a mother down in Arkansas who started a consignment business for
children's clothing out of her home. Today, her business has grown to
over 62 locations in 20 States. Her entrepreneurial business model has
given families the opportunity to earn a little extra money by selling
their children's old clothes. Yet, the Wage and Hour Division has
investigated the mother because she doesn't pay the parents who
volunteer at these events to get the first crack at shopping before the
general public. Is this a wise use of the agency's limited resources?
You told this committee that your priority as Secretary would be
``jobs, jobs, jobs''--does going after small businesses like this
mother who started her own children's clothing consignment business
conflict with that?
Answer 7. The Department of Labor's Wage and Hour Division does not
have and has never had an enforcement initiative aimed at consignment
shops or similar operations. The referenced business is a for-profit
company that had annual gross revenues in the range of $1.6 million to
$1.9 million and is covered by the Fair Labor Standards Act's minimum
wage and overtime protections. In late 2012, Wage and Hour began an
investigation that revealed that the business had violated the FLSA by
failing to pay approximately 40 of its employees the wages due under
the FLSA. The business acknowledged these violations and agreed to pay
the approximately $6,400 in back wages due its employees. The business
was also informed that families who consigned items for sale at the
business's events (i.e., they prepared items for sale, brought them to
the events, dropped them off, and then left) were not employees under
the FLSA. It was further explained to the business, however, that
consignors who actually worked at the events (performing jobs that paid
employees also performed, such as operating cash registers, providing
security, and assisting in the sorting and sale of everyone's items)
were not volunteers, but in fact employees. The Department did not
impose any penalties and did not pursue the matter further. The
Department has communicated the conclusion of the matter to the
business. Considering the full circumstances, the Department believes
that the measured resources devoted to the matter were appropriate.
However, the company in question has now filed suit against the
Department in Federal court, and we are currently in litigation on the
matter.
Question 8. Recent media reports indicate that an Occupational
Safety and Health Administration (OSHA) inspector investigating a
February 2010 accident at SeaWorld's Orlando facility may have been
collaborating with animal rights activists during the course of her
investigation. In September 2013, SeaWorld submitted a Freedom of
Information Act (FOIA) request seeking additional information. Have all
DOL offices and agencies fully responded to that FOIA request? What
specific steps are you taking to ensure all DOL investigators are not
engaging in improper activity during the course of an investigation?
Answer 8. To date, the Department has produced six interim
responses to SeaWorld's FOIA request. As the Department indicated to
SeaWorld in these responses, the Department is responding to the FOIA
request with a rolling production and will produce additional
responsive material as it is located. The Department has referred the
allegations of improper employee conduct to the DOL Inspector General.
Based on the outcome of that investigation, DOL will determine what, if
any, specific steps must be taken to ensure all DOL investigators are
not engaging in improper activity during the course of an
investigation.
Question 9. On March 18, the President directed the Department of
Labor to promulgate new rules amending the Fair Labor Standards Act
(FLSA) regulations on overtime exemptions. According to the President's
speech announcing the plan, he noted the weekly salary test should be
increased, and you have publicly stated that in addition, the ``primary
duty'' test should be changed for the executive, administrative, and
professional exemptions under the law. What other specific changes is
DOL looking at in regards to this new rule?
Your staff indicated that the DOL is unlikely to issue a Notice of
Proposed Rulemaking (NPRM) on overtime regulations, before the
Department issues a rule on the Executive order increasing the minimum
wage for Federal contractors by October 1, 2014. Is this correct? If
not, when do you expect the DOL to issue the NPRM on overtime?
How long has the DOL been considering re-writing the regulations on
overtime under the FLSA? Have you met with stakeholders on the issue?
If so, please provide the names of attendees and the dates of those
meetings.
Answer 9. We have started our work in response to the President's
direction to the Department to update the regulations regarding
overtime protection for executive, administrative, and professional
employees.
The Department is considering updating existing protections in
keeping with the intention of the Fair Labor Standards Act, addressing
the changing nature of the American workplace, and simplifying the
overtime rules to make them easier for both workers and businesses to
understand and apply.
The Department is committed to providing meaningful opportunities
for the public to participate in this initiative. To date, we have
already communicated directly with representatives of major human
resources organizations such as the Society for Human Resource
Management (SHRM), the HR Policy Association, corporate CEOs (including
the Business Roundtable) and representatives of local chambers of
commerce. We have several opportunities for additional engagement
tentatively scheduled and are working with the Small Business
Administration's Office of Advocacy to identify key opportunities for
broad stakeholder engagement. A list of such opportunities for public
engagement will be made available in the near future and we will keep
you informed of these activities. Should you have parties you wish to
have included in such engagements, we would welcome your suggestions.
The Department's Spring 2014 Plan and Agenda will include a timeline
for the issuance of a proposed rule. I look forward to working with
members of the committee as we move forward.
senator scott
Question 1. In April 2013, Chairman Darrell Issa of the House
Committee on Oversight and Government Reform issued a subpoena to you
to produce all personal e-mails relating to official Department of
Justice (DOJ) business. DOJ acknowledged that about 1,200 e-mails
existed. Instead of producing the documents, DOJ only permitted in
camera review of the entirety of 35 e-mails, and of the remaining
approximately 1,165 e-mails everything was redacted except for the to,
from, and date. Therefore, you are noncompliant with a validly issued
congressional subpoena. Will you produce all un-redacted personal e-
mails relating to official government business to Chairman Issa?
Answer 1. Specific questions regarding Department of Justice
processes or documents should be directed to DOJ.
senator isakson
Question 1. Secretary Perez, as you are aware, in 2007, Congress
extended the minimum wage to American Samoa, which required the
territory to increase its minimum wage incrementally until American
Samoa reached the Federal minimum wage. In subsequent years, Congress
postponed that increase. Recently, a Wall Street Journal editorial
discussed this issue, identifying the discrepancy in pay between the
employees working in tuna canneries in California and Georgia versus
those working in American Samoa. (Attached is the full text for the
record.) As you know, one cornerstone of the President's budget is
raising the minimum wage. Given this, please describe the
Administration's position on postponing the minimum wage increase for
American Samoa that is scheduled to take effect on September 30, 2015.
[The Wall Street Journal, March 16, 2014]
Un-American Tuna--Why your kid can't get a tuna sandwich at school
Nutritionists say fish is brain food, so you might think the U.S.
Government would make it available in school cafeterias. Yet for some 3
years tuna has been hard to come by when the bell rings for lunch
across America. This absurdity is brought to you by the Department of
Agriculture's ``buy American'' policy for school lunches.
The only tuna that qualifies for ``buy American'' is StarKist. But
in March 2011 the Food and Drug Administration inspected StarKist's
American Samoa processing operation and found it wasn't up to health
standards.
Two other large tuna suppliers, Bumble Bee Foods and Chicken of the
Sea International, might have stepped in. But they're not allowed to
bid because their fish can be landed on vessels that are not U.S.-
flagged and the skinning, gutting and boning of their catch is done in
Thailand. Apparently that makes it un-American. Never mind that the
tuna loins are still sent to the United States where workers add 80
percent of the value of the final canned product. Or that those jobs-
1,000 or so--in California and Georgia tend to pay between $12 and $18
an hour.
The fish tale gets more preposterous. StarKist takes its haul from
the same Asia-Pacific waters as its competitors on both U.S.- and
foreign-flagged ships. But the company says its tuna are segregated and
only fish landed on U.S. vessels qualify for USDA purchases. (Yes,
segregated tuna!) Its tuna are cleaned and processed in American Samoa,
where most of the cannery workers are non-Americans from nearby
independent Samoa.
The Government Accountability Office reported in 2011 that the
median cannery wage on the island in 2010 was $4.76 an hour, well below
the U.S. Federal minimum of $7.25. The company says it pays up to $10
an hour. But in 2007 when StarKist's parent company Del Monte was based
in Nancy Pelosi's San Francisco district, Democrats made an exception
for American Samoa when they raised the minimum wage. StarKist is now
owned by Korea's Dongwon Industries, but in 2012 American Samoa again
won a carve-out from the U.S. minimum wage. For the record, Bumble Bee
is owned by a U.K. private equity firm and Chicken of the Sea is Thai-
owned.
To sum up: The USDA says a foreign-owned company that catches some
of its tuna on foreign-flagged boats and cans the tuna mostly with
foreign workers who make less than the U.S. minimum wage qualifies as
``American.'' But two foreign-owned companies that buy some of their
tuna from foreign-flagged operations and can their tuna with American
workers is ``un-American.''
FDA inspectors gave StarKist's American Samoa facility a clean bill
of health in July 2013, but the USDA has made no new tuna solicitations
for school lunches. Congress' 2014 spending bill, passed in January,
directed the USDA to re-evaluate its buy-American tuna practices.
The mere suggestion of more competition provoked a tuna meltdown
from Samoa's Delegate to Congress Eni Faleomavaega. In a Jan. 27 op-ed
in the Hill newspaper, he made unsubstantiated allegations of child
labor by StarKist's competitors. The USDA evaluation report is due by
Monday. What is really un-American seems to be competent government.
Answer 1. Congress has the authority to postpone increases in the
minimum wage in certain territories and has done so for both the
American Samoa and the Commonwealth of Northern Mariana Islands. In the
case of American Samoa, Congress recognized the uniqueness of the
single-industry economy, which is entirely dependent on the tuna
fishing and processing industries. They do not enjoy the economic
security possessed by a diversified economy like those on the mainland.
However, the issue of increasing the minimum wage in the American Samoa
remains important, and Congress should seriously consider the impact of
any future delays.
Question 2. Secretary Perez, does the Administration support
policies that would allow political entities such as States or
territories to ``opt out'' of proposed minimum wage increases because
of high unemployment rates? Or should all political entities adhere to
the same wage scheme?
Answer 2. The Fair Labor Standards Act, the law that provides for
the Federal minimum wage, covers the vast majority of private sector
workers, as well as State and local governments. The Federal minimum
wage establishes a wage floor for all workers across the country and
levels the playing field for all States and employers.
Question 3. My staff has heard from several contractors who own and
operate restaurants on military bases. They have described a scenario
where they will have to pay an additional health and welfare benefit of
$3.81 per hour on top of the Executive order's minimum wage increase to
their workers.
The starting wage in these locations will therefore climb to $13.91
per hour. The result is that these owners could be forced to close
restaurants on military bases, because the costs would be too
expensive. The goal is to provide affordable meal options and services
to our military and their families. These restaurants also provide job
opportunities for family members of military service men and women
stationed at our bases. Closing one restaurant would eliminate 13-20
jobs and deprive our military and their families of a place to enjoy a
quick meal.
Do these sorts of skyrocketing costs discourage small business
owners from wanting to enter into contracts with the Federal Government
to provide services for military members and their families?
Do rising costs of some of these contractors concern you?
Answer 3. Last summer, in response to a request that the Department
review the wages being paid to fast food workers employed by
contractors with the Federal Government, the Wage and Hour Division
(WHD) found that these workers were being paid substandard wages and
were entitled to fringe benefits. Following long-standing regulations,
the agency applied the standard, nationwide health and welfare fringe
benefit that applies to all workers covered by the Service Contract Act
(SCA). This spring, the Department of the Navy requested that we
reconsider the amount of health and welfare benefits--$3.81 per hour--
as well as the wage rates and vacation and holiday pay that we
implemented last summer. After careful consideration of that request,
our regulations, and relevant data, the WHD has determined that the
standard, nationwide health and welfare benefit rate should be adjusted
on wage determinations applicable to the fast food industry. Our
determination is that contractors employing fast food workers on SCA-
covered contracts will have to pay wage rates based on applicable
Bureau of Labor Statistics data; $.66 per hour in health and welfare
benefits; $.17 per hour in vacation pay for workers who have been
employed for more than a year; and $.09 per hour in holiday pay. We
believe that these wage and benefit rates more accurately reflect the
conditions in the industry and are fair for employers and for workers.
Question 4. The President recently ordered the Department of Labor
to update regulations that establish which employees qualify for
overtime under the Fair Labor Standards Act (FLSA). The President also
indicated that the minimum salary threshold that applies to ``white
collar'' exemptions needed to be updated. While your Department
contemplates such a significant expansion in the overtime exemption,
how do you plan to address the concerns of employers and small
businesses during the construction of your proposal? Unlike proposals
by the Occupational Safety and Health Administration, proposals issued
by the Wage and Hour Division are not subject to the Small Business
Regulatory Enforcement Fairness Act (SBREFA). What plans to do you have
to obtain input and hear from small businesses as you move forward?
Answer 4. In the coming weeks, I and my staff will be reaching out
to businesses, workers, and State and local government to get their
ideas about the best way to update the overtime rules for executive,
administrative and professional employees to adapt them to the modern
workplace in a way that makes them simpler and easier to follow. The
Department also expects to work with the Office of Advocacy of the U.S.
Small Business Administration to host D.C.-based and regional listening
sessions. The proposed rule also will go through the formal notice and
comment process. I look forward to working with members of the
committee as we move forward.
______
senator murkowski
Mr. Secretary, I'm very concerned about the lack of process and
transparency surrounding recent efforts to raise the minimum wage. As
you heard at the hearing, this was the third hearing the HELP Committee
has held on this issue without actually addressing the pending
legislative proposals and their potential impacts on our economy and
labor market. Last year, the President proposed raising the minimum
wage to $9.00 per hour but last month, on February 12, 2014, the
President signed an ``Executive Order Establishing a Minimum Wage for
Contractors'' (hereafter the ``Executive Order'') unilaterally
increasing the Federal minimum wage for Federal contractors to $10.10
per hour following an announcement in his State of the Union address.
Question 1. How did the Administration arrive at this proposal to
increase the minimum wage for Federal contractors? Please explain.
Answer 1. Section 1 of Executive Order 13658 sets forth a general
policy of the Federal Government that increasing the hourly minimum
wage paid by Federal contractors to $10.10 will increase efficiency and
cost savings for the Federal Government. The Order states that raising
the pay of low-wage workers increases their morale and the productivity
and quality of their work, lowers turnover and its accompanying costs,
and reduces supervisory costs. The Order further states that these
savings and quality improvements will lead to improved economy and
efficiency in government procurement.
Question 2. What steps did you or others within the Department of
Labor perform to assist in this decision? Please explain.
a. Did you or others within the Department of Labor conduct any
studies, perform any analysis, or otherwise consider the effects or
impacts, positive or negative, of raising the minimum wage for Federal
contractors?
b. Please describe what studies, analyses, documents prepared, or
other considerations conducted.
c. Please provide me with a copy of these studies, analyses, other
documents, or explanation of other considerations relied upon in
assessing the impacts of this policy decision?
Answer 2. The Executive order was cleared through the normal
interagency process.
Question 3. If you or others within the Department of Labor were
not involved, who was? If you were not involved, why weren't you
involved?
Answer 3. See response to Senator Murkowski's Question #2.
Question 4. Do you believe the President has the ability to issue
such an Executive order? If so, under what authority? If not, please
explain.
Answer 4. The President issued Executive Order 13658 pursuant to
his authority under ``the Constitution and the laws of the United
States,'' expressly including the Federal Property and Administrative
Services Act (Procurement Act), 40 U.S.C. 101 et seq. 79 Fed. Reg.
9851. The Procurement Act authorizes the President to ``prescribe
policies and directives that [he] considers necessary to carry out''
the statutory purposes of ensuring ``economical and efficient''
government procurement and supply. 40 U.S.C. 101, 121(a).
In particular, section 1 of Executive Order 13658 sets forth a
general policy of the Federal Government that increasing the hourly
minimum wage paid by Federal contractors to $10.10 will increase
efficiency and cost savings for the Federal Government. As explained in
the Order, raising the pay of low-wage workers increases their morale
and the productivity and quality of their work, lowers turnover and its
accompanying costs, and reduces supervisory costs. These savings and
quality improvements will lead to improved economy and efficiency in
government procurement.
Question 5. Do you believe the Executive order can be enforced
against any other laws or regulations not expressly mentioned in the
Executive order? If so, please explain and cite the relevant laws and/
or regulations.
Answer 5. Section 4 of Executive Order 13658 provides that the
Department must issue regulations by October 1, 2014, to the extent
permitted by law and consistent with the requirements of the
Procurement Act, to implement the requirements of the Order, including
providing exclusions from the requirements set forth in the Order where
appropriate. It also requires that, to the extent permitted by law,
within 60 days of the Department issuing such regulations, the Federal
Acquisition Regulatory Council must issue regulations in the Federal
Acquisition Regulation to provide for inclusion of the contract clause
in Federal procurement solicitations and contracts subject to the
Executive order.
Additionally, this section states that within 60 days of the
Department issuing regulations pursuant to the Order, agencies must
take steps, to the extent permitted by law, to exercise any applicable
authority to ensure that contracts for concessions and contracts
entered into with the Federal Government in connection with Federal
property or lands and related to offering services for Federal
employees, their dependents, or the general public, entered into on or
after January 1, 2015, consistent with the effective date of such
agency action, comply with the requirements in sections 2 and 3 of the
Order. The Order further specifies that any regulations issued pursuant
to this section should, to the extent practicable and consistent with
section 8 of the Order, incorporate existing definitions, procedures,
remedies, and enforcement processes under the Fair Labor Standards Act;
the Service Contract Act; and the Davis-Bacon Act.
Question 6. Do you know how many workers the Executive order will
affect?
a. If yes, how many? Please provide a breakdown of Federal
contractors, subcontractors and tipped workers.
b. If no, why not?
Answer 6. Executive Order 13658 is expected to benefit hundreds of
thousands of people working under contracts with the Federal Government
who are making less than $10.10 an hour.
Question 7. As I understand it, the majority of Federal contractors
make well above the current Federal minimum wage of $7.25 per hour.
What is the rationale for raising the minimum wage for a segment of
workers (Federal contractors) the majority of whom already make more
than the current Federal minimum wage?
Answer 7. The increase to $10.10 an hour will make a difference for
a number of workers, including dishwashers, fast-food workers, laundry
workers, and many other employees of Federal contractors. In addition,
the Order states that increasing the hourly minimum wage paid by
Federal contractors to $10.10 will increase efficiency and cost savings
for the Federal Government. The Order also states that raising the pay
of low-wage workers increases their morale and the productivity and
quality of their work, lowers turnover and its accompanying costs, and
reduces supervisory costs. The Order states that these savings and
quality improvements will lead to improved economy and efficiency in
government procurement.
Question 8. Following the President's State of the Union address
last month, you participated on a national teleconference with the Vice
President to discuss the President's announcement to increase the
minimum wage for Federal contractors. At one point during that call,
the Vice President announced that this Executive order is an effort to
require all employers to pay all their employees $10.10/hour in the
absence of Federal legislation.
a. Do you agree with the Vice President's position? If so, why? If
not, why not?
b. Your Department may be responsible for enforcing this position.
How do you intend to require all employers pay all employees $10.10 per
hour?
c. Do you believe the Department has the authority to enforce this
through the regulatory process? If so, how? Under what authority?
d. Have you or anyone within your Department performed any analysis
to determine how this position might impact the labor market, the
economy, labor costs, or employers--particularly small business owners?
i. If so, please describe and provide me with a copy of such
analysis.
ii. If not you or someone within your Department, are you aware of
any analyses performed to determine the impact an increase in the labor
costs for employers of non-Federal contractors will have on employers'
employment decisions for non-Federal contract employees?
iii. If so, please describe and provide me with a copy of such
analysis.
Answer 8. The President is committed to doing whatever he can to
raise working Americans' wages. He is encouraging business leaders to
raise the wages of their employees. He is calling on State and local
elected officials to work to raise the wages of citizens in their
jurisdiction and for Congress to pass the Fair Minimum Wage Act.
Raising the Federal minimum wage to $10.10 would lift wages for
approximately 28 million Americans and lift 2 million Americans out of
poverty.
senator hatch
A one-size-fits-all Federal minimum wage, along with the
President's proposal to lift the minimum by 39 percent in the near
term, fails to account for regional variation in purchasing power and,
as a consequence, would unfairly impose larger adjusted costs on
businesses in a State like Utah or Iowa than in higher cost regions
like the Northeast. For example, if you adjust for differences across
States in the purchasing power of a dollar, a Federal minimum wage of
$10.10 in a State with prices equal to the national average, requires
over $11.50 per hour in a high-cost State like New York and only about
$8.80 per hour in a low-cost State like South Dakota--for equal
purchasing power. In addition, there are current Federal activities
that account for these types of regional variations. Two examples are:
Federal pay adjustments for labor-market costs and conditions and
mortgage loan limits adjusted for areas with high housing costs.
That being the case, I have two questions:
Question 1a. Why is it equitable to set a one-size-fits-all minimum
wage that effectively underpays New York's low-wage workers relative to
the average, and forces employers in low-cost areas like South Dakota
to pay a premium relative to the average?
Question 1b. Given that numerous Federal activities, including the
setting of pay for Federal workers, make adjustments to account for
differences in purchasing power across regions and States, why should
similar adjustments not be made with regard to the minimum wage?
Answers 1a and b. The Fair Labor Standards Act, the law that
provides for the Federal minimum wage, covers the vast majority of
private sector workers, as well as State and local governments. The
Federal minimum wage establishes a wage floor for all workers across
the country. Setting a wage floor levels the playing field for all
States and employers.
Question 2. In 2010 and again in 2012, President Obama signed
legislation to postpone increasing the minimum wage in American Samoa
toward the Federal minimum. His actions were partly in response to
findings of possibly severe negative labor market effects by the
Government Accountability Office, or GAO. In the case of American
Samoa, the President's actions appeared to be an explicit
acknowledgement that differences across regions--particularly with
regard to the purchasing power of a dollar--mean that a one-size-fits-
all approach to the minimum wage just isn't equitable. Nonetheless, the
Administration is advocating an eventual 39 percent increase in a
single federally mandated minimum wage to apply to all States,
independent of purchasing power variations across States and regions.
Secretary Perez, can you acknowledge that the negative labor market
effects from imposing a national one-size-fits-all increase in the
Federal minimum wage will differ from State to State, with greater
negative effects in places like Utah, Iowa, or South Dakota where the
cost of living is below the national average?
Answer 2. See response to Senator Hatch's Question #1.
In 2011, President Obama identified what he thought was a
structural issue for our economy involving adoption of technology and
ensuing job losses. At the time, the President said:
``There are some structural issues with our economy where a
lot of businesses have learned to become much more efficient
with a lot fewer workers.''
And he went on to say:
``You see it when you go to a bank and you use an ATM, you
don't go to a bank teller; or you go to the airport and you're
using a kiosk instead of checking in at the gate.''
In light of the President's seeming dismay that, for many
employers, it is simply cheaper to adopt new technology than to employ
more workers, and in light of the current proposal to raise the Federal
minimum wage in the near term by 39 percent and to raise the minimum
wage for workers who receive tips by over 230 percent, I have two
questions:
Question 3a. Do you agree that those increases in the minimum wage
will make it more cost-effective for businesses to move away from low-
wage labor and toward automation, using such things as touch screen
ordering platforms in place of people?
Question 3b. Do you agree that the massive increase in the minimum
wage for tipped employees that the President is advocating will almost
certainly destroy some existing business models, forcing businesses to
fundamentally change the way that they operate?
Answers 3a and b. Technology, jobs, and good wages can and have
existed side by side. It's often a legitimate concern that
technological innovation can displace jobs done by people, and it does
happen. But it's also important to keep in mind that as new
technologies are developed and deployed, they come with their own set
of needs for real people to be engaged alongside of them.
With respect to the required Federal cash wage for tipped
employees, it's important to note that it hasn't been raised above
$2.13 per hour in more than two decades. In 19 States, employers can
pay as little as $2.13 per hour as long as workers in occupations where
tips are received earn enough in tips to meet the $7.25 per hour
minimum wage. If not, then the employer has to make up the difference
in the pay period. These workers, the majority of whom are women, are
three times more likely than non-tipped workers to live in poverty. I
believe that we should raise the required cash wage for tipped workers
to ensure that their hard work is rewarded, and that their dependence
on social safety net programs is reduced.
Furthermore, increasing the cash wage for tipped employees will not
destroy existing business models. In seven States, employers are
required to pay tipped workers the full minimum wage before tips.
Washington is one of those States. Currently, it has the highest State
minimum wage in the Nation at $9.32 per hour. Voters in the State
enacted an increase in the State's minimum wage in 1998 that also
linked the State's minimum wage rate to inflation thereafter. As a
recent Bloomberg article points out, over the past 15 years job growth
in Washington continued at an average 0.8 percent annual pace, 0.3
percentage point above the national rate. Payrolls at Washington's
restaurants and bars, establishments with business models said to be
vulnerable to higher wage costs, have expanded by 21 percent. Poverty
there has trailed the national level for at least 7 years. The
Washington example shows that a higher minimum wage and an equal wage
for tipped workers do not lead to the destruction of existing business
models.
Question 4. Economists in the Administration have been pushing a
story that essentially says that the large and significant minimum wage
increases that the President and Democrats in Congress want to impose
on businesses throughout the country will lead to lower turnover costs,
which will, according to their argument, mean that employers will end
up saving when they are forced to pay more for labor. The idea seems to
be that when workers are paid more, they value retention of their
position and are less likely to leave their jobs or shirk their
responsibilities. As a result, businesses will not need to engage in as
many costly searches for employees or deal with as many problems (e.g.,
sporadic work attendance) with their existing workforce. I wonder if
you buy into that story. If so, I wonder whether you can explain to me
how it is that private-sector businesses are so inept that, absent a
Federal mandate for higher wages, they are unable to figure out that
there could be gains available from reducing labor turnover by paying
their employees more.
Answer 4. The President's proposal to raise the minimum wage is in
line with previous increases and brings us back to the value of the
wage in the late 1960s. There have been numerous studies that indicate
that under certain conditions, raising wages leads to higher
productivity, lower turnover, reduced absenteeism, and reduction in
hiring/training costs.
Response by Heather Boushey, Ph.D., B.A. to Questions of Senator
Harkin,
Senator Casey and Senator Murray
senator harkin
Question 1. As Dr. Elmendorf testified, the CBO report looked at a
range of economic literature on the effects of a minimum wage raise on
employment and poverty. So they have given us one reading of these
studies. But we know that there are some studies on the minimum wage
that have more sophisticated methodologies than others. They look at
the actual real world impact of past wage increases, comparing lower
wage areas with higher wage areas. What is your reading of the current
state of economic literature on the minimum wage and its effect? Would
you say these are the most reliable studies? What is the conclusion
that these studies reach? Why does your reading of the literature
differ from CBO's?
Answer 1. Overall, the report by the Congressional Budget Office on
the proposed minimum wage increases is well done.\1\ They produce
quality research and contribute a valuable perspective to the policy
debate. Yet my reading of the economics literature on the minimum wage
leads me to differ with CBO's conclusions. Overall, their report
overstates the effect of raising the minimum wage on employment.\2\ The
main reason for our disagreement is that I put a stronger weight on the
studies you mention, ones that look at neighboring localities with
different minimum wages. My professional opinion is that not all these
studies are of the same quality, but CBO doesn't exclude lesser quality
papers.
While CBO describes some of its thinking in its selection of
employment elasticities from the economics literature, their
methodology is relatively vague. They state they favor studies that use
a methodology that finds small to no employment effects of modest
increases in the minimum wage. They consider publication bias in
academic journals that would result in the publication of fewer studies
that find no employment effect. But their preferred elasticities appear
to be about halfway between the elasticities found by their stated
favored methodology and more negative estimates.\3\
Question 2. In your testimony, you note that GDP has grown 245
percent since 1968, adjusted for inflation, but poverty has grown and
the middle class is barely treading water. Why is this? Where has all
that growth gone, and why has it not helped the bottom and middle?
Answer 2. The American economy has changed quite a bit since 1968,
but the increasing share of America's income going to the very rich is
the most prominent trend. From 1968 to 2012, 70 percent of income
growth has gone to the top 1 percent of families.\4\ In 1968, the top 1
percent of earners received 11 percent of all income. By 2012, the top
1 percent's share grew to 22 percent of income.\5\ That time period
also saw income growth slow for the middle part of the income
distribution and stagnant, even declining, incomes for those at the
bottom. And the once strong link between productivity and compensation
growth severed during this time period. From 1973 to 2011, labor
productivity grew by 80 percent. But over that same time period,
average compensation only grew by 39 percent.\6\ The average worker is
no longer reaping the fruits of her labor.
A variety of factors stemming from changes in our economy, such as
technological change and increased international trade, and policy
actions, or lack thereof, have resulted in this inequitable growth. But
the causes for each trend are different. At the bottom of the income
distribution, the lack of consistent increases in the minimum wage was
responsible for a large portion of rising inequality. About 45 percent
of the rising low-end inequality from 1979 to 2009 was due to the
declining value of the minimum wage.\7\
Question 3. Last year, the University of Chicago's business school
surveyed a panel of roughly 40 economic experts on the minimum wage
policy. These economists agreed overwhelmingly, by a 4 to 1 margin,
that the benefits of a higher minimum wage outweigh the costs. Do you
find that these poll results are representative of the economics
profession today, and can you offer some explanations for why this is
the case?
Answer 3. I believe the poll results are representative of the
economics profession today. In the past 20 years, the economics
literature on the minimum wage has shifted the consensus. Careful
studies of the economics literature find that increases in the minimum
wage have little to no effect on employment.\8\ Economists David Card,
of the University of California, Berkeley, and Alan Krueger, of
Princeton University, looked at the effects of a minimum wage hike in
New Jersey by comparing fast food restaurant employment in the State to
fast food employment in Pennsylvania which did not increase its minimum
wage.\9\ Card and Krueger found that the increase in the minimum wage
did not reduce employment. Their approach has been generalized in later
research. Research by Arindrajit Dube, T. William Lester of the
University of North Carolina-Chapel Hill, and Michael Reich of the
University of California, Berkeley looked at all of the bordering
counties that have different minimum wages between 1990 and 2006.\10\
They too found that minimum wage increases did not have a significant
effect on employment.
One reason that employment has not been shown to fall due to
raising the minimum wage is because higher wages can make workers more
productive and therefore more valuable to their employer. Economists
call this the ``efficiency wages'' theory.\11\ There is an extensive
literature on efficiency wage theory, with notable contributions Nobel
Laureates Joseph Stiglitz \12\ and George Akerlof,\13\ which suggest
that paying more than the market-clearing wage can make firms more
productive.
In addition, it's possible that a higher minimum wage could make
staying in one's job more attractive and thus reduce turnover costs. A
2013 working paper by UMass-Amherst economist Arindrajit Dube,
University of North Carolina, Chapel Hill economist William Lester, and
UC-Berkeley economist Michael Reich finds that a higher minimum wage
leads to fewer so-called ``hires and separations,'' or worker
turnover.\14\ Other empirical studies suggesting that a higher minimum
wage--or a ``living wage'' covering basic needs--can reduce labor
turnover include studies of workers in San Francisco \15\ (including
airport \16\ and homecare workers \17\) and Los Angeles.\18\ Lower
turnover costs could potentially allow businesses to overcome the
increased cost of paying a higher wage.
senator casey
Question 1. Based on this data, what would be the effects of a
minimum wage increase to $10.10 for kids living in or near poverty? How
do the effects of a raise to $10.10 differ from a raise to $9 for kids
living in or near poverty?
Answer 1. Raising the minimum wage is an important anti-poverty
tool as the current minimum wage leaves too many families in poverty.
And many of these families in poverty have young children. Earning the
current Federal minimum wage, a minimum-wage earner working 40 hours a
week every week of the year would earn $15,080 over the year. This
income puts a single adult just barely above the poverty line. But if
that worker has to support any other people--such as a child--then this
family would be living below the U.S. poverty threshold. The poverty
line for a family with one non-elderly adult and two children was
$18,769 in 2013.\19\ Therefore, a full-time minimum-wage earner with
two children and no spouse would come up short by $3,689 each year.
Increasing the minimum wage to $10.10 by 2016, which would equal
$9.45 in 2013 dollars, would boost the earnings of low-wage workers and
reduce poverty. At that minimum wage, a full-time, full-year worker
would earn $19,656 in 2013 dollars over the course of the year,
assuming they never take a day off without pay, and be able to support
two children as a single earner and be above the official poverty
threshold.
Raising the minimum wage to $9 by 2016, equal to $8.42 in 2013
dollars, would be less effective in combating poverty. In this
scenario, a full-time, full-year minimum wage earner would earn $17,514
in 2013 dollars in 1 year. Not only would she make about $2,100 less
than she would under the $10.10 proposal, but more importantly her
income would put her and two dependents under the poverty threshold.
Nearly a quarter (23 percent) of the workers who will benefit from
the Fair Minimum Wage Act currently live in a family earning less than
$20,000 in a year, just above the poverty threshold of $18,769 for a
family of one adult and two children. Just under 52 percent of workers
who will benefit live in a family making below $40,000 a year, which is
closer to what many surveys show is what people believe is a basic
standard of living for a family of four.\20\
Question 2. In your testimony, you discuss the importance of a
minimum wage increase working in tandem with income support policies.
What are the effects on anti-poverty programs when wages are raised for
low-wage workers?
Answer 2. The minimum wage is an important anti-poverty tool, but
it works in concert with other programs. Increasing the minimum wage
would help reduce the burden on other anti-poverty programs.
Low-wage workers are eligible for a variety of benefits aimed at
boosting incomes or helping them afford basics, such as housing, health
care, or childcare. This is important since many basics, especially
health care, childcare, and housing, are too expensive at market rates
for low-income workers and their families. Childcare alone can eat up a
large portion of a minimum wage workers' income. It is imperative that
these programs work in tandem and that Congress--and State
policymakers--consider the interaction effects of changing any of these
policies. In many cases, the States set the rules for program
eligibility, with some guidelines from the Federal Government, so
engaging them in this conversation is a must.
In the mid-1990s when Congress implemented welfare reform, Congress
did a very good job putting all these pieces together by looking at the
benefits and income supports for low-wage workers and their families as
a package. Within a short span of time, Congress implemented welfare
reform, while also raising the minimum wage, expanding the EITC,
expanding access to children's health through the State Children's
Health Insurance Program, and expanding childcare subsidies. Only by
putting a full basket of policies together will low-wage workers be
able to rise out of poverty and into the middle class. The minimum wage
is a core piece of this puzzle, but it is not the only piece.
By boosting the wages of workers, a minimum wage increase would
reduce spending on means-tested public programs. A recent report by
researcher Rachel West and economist Michael Reich found that an
increase in the minimum wage to $10.10 would reduce Federal spending on
SNAP by 6 percent or $4.6 billion a year. A higher minimum wage could
therefore reduce Federal spending, though not on a dollar for dollar
basis. CBO's report on the minimum wage increase also points out that
raising the minimum wage would decrease spending through an overall
reduction in public benefits.\21\ Raising the minimum wage would help
reduce Federal Government spending while helping low-income workers
instead of harming them.
Question 3. Unfortunately, Federal spending on anti-poverty
programs is already being cut, without any increase in the Federal
minimum wage. What are the detrimental effects of cutting assistance
without raising wages?
Answer 3. Reducing benefits for low-wage workers would throw many
into poverty. Consider the impact of the Earned Income Tax Credit. The
EITC is a refundable tax credit for low-income families that is larger
for those with more dependent children. The EITC is an effective anti-
poverty policy that lifts millions of Americans out of poverty. In
2012, the EITC lifted 6.5 million people out of poverty, according to
the Center Budget and Policy Priorities.\22\
Looking at the data, we can see how the minimum wage and the EITC
work together to pull families out of poverty. At the current minimum-
wage level, a single earner (full-time, full-year) with two dependents
would receive $5,372 from the EITC for a total after-Federal income of
$20,452 putting them above the poverty line (although workers may need
to pay State income taxes and will owe payroll taxes). A reduction in
the EITC could very easily throw families back into poverty.
senator murray
Question 1. Can you just clarify for us the fact that study after
study shows no significant impact on jobs--either negative or
positive--from raises in the minimum wage? In my State of Washington,
for example, when we raised our minimum wage, there was no great loss
of jobs, or a flight of jobs to Idaho or Oregon, was there?
Answer 1. Careful studies of the economics literature find that
increases in the minimum wage have little to no effect on
employment.\23\ Economists David Card, of the University of California,
Berkeley, and Alan Krueger, of Princeton University, looked at the
effects of a minimum wage hike in New Jersey by comparing fast food
restaurant employment in the State to fast food employment in
Pennsylvania which did not increase its minimum wage.\24\ Card and
Krueger found that the increase in the minimum wage did not reduce
employment. Their approach has been generalized in later research.
Research by Arindrajit Dube, T. William Lester of the University of
North Carolina-Chapel Hill, and Michael Reich of the University of
California, Berkeley looked at all of the bordering counties that have
different minimum wages between 1990 and 2006.\25\ They too found that
minimum wage did not have a significant effect on employment.
One reason that employment has not been shown to fall due to
raising the minimum wage is because higher wages can make workers more
productive and therefore more valuable to their employer. Economists
call this the ``efficiency wages'' theory.\26\ There is an extensive
literature on efficiency wage theory, with notable contributions from
Nobel Laureates Joseph Stiglitz \27\ and George Akerlof,\28\ which
suggest that paying more than the market-clearing wage can make firms
more productive.
Here are just two academic studies that prove these points. John
Schmitt, a Senior Economist at the Center for Economic and Policy
Research, finds empirical economics research suggesting efficiency
gains.\29\ And in a 2011 study, Georgia State University economists
Barry Hirsch and Bruce Kaufman, along with Tetyana Zelenska from
Innovations for Poverty Action, examined the effect of a Federal
increase in the minimum wage on 81 restaurants in Georgia and
Alabama.\30\ In their survey, managers reported that they could
identify possible non-wage savings and productivity improvements in
response to the minimum-wage regulations. It is possible that lower
costs stemming from these changes could outweigh the costs of paying a
higher minimum wage.
A higher minimum wage could also make staying in a job more
attractive and thus reduce turnover costs. A 2013 working paper by
UMass-Amherst economist Arindrajit Dube, University of North Carolina,
Chapel Hill economist William Lester, and UC-Berkeley economist Michael
Reich finds that a higher minimum wage leads to fewer so-called ``hires
and separations,'' or worker turnover.\31\ Other empirical studies
suggesting that a higher minimum wage--or a ``living wage'' covering
basic needs--can reduce labor turnover and include studies of workers
in San Francisco \32\ (including airport \33\ and homecare workers
\34\) and Los Angeles.\35\ Lower turnover costs could potentially allow
businesses to overcome the increased cost of paying a higher wage.
Washington State is a good example of the experience of States
raising the minimum wage. The State has the highest minimum wage in the
country and, as a recent Bloomberg story pointed out, its job creation
rate is higher than the national average. Washington shows that minimum
wage increases are not harmful to job creation.\36\
Question 2. In 1968, the minimum wage was able to lift a family
income 20 percent above the poverty level. Today, earning a minimum
wage leaves a family nearly 20 percent below the poverty level. From
your perspective, what does having so many millions of workers living
in poverty mean to our Nation's ability to compete, to be just, and to
give everyone the full opportunity to make the most of themselves and
for their children.
Answer 2. Keeping a large swath of our population in poverty is not
only a moral problem for the United States, but it also could harm our
economy. High levels of poverty and inequality may lead to lower levels
of economic mobility and opportunity in the future. Research by Raj
Chetty of Harvard University and others find that areas with higher
levels of inequality have lower levels of economic mobility for
children.\37\ By leaving children in poverty, we may restrict their
ability to improve their position in life and fully participate in the
American economy. If some Americans cannot engage fully in our economy,
we could all be at a loss.
Question 3. Ms. Boushey, will raising the minimum wage make people
poorer? Will it destroy jobs? Will it cause youth unemployment to
skyrocket?
Answer 3. Raising the minimum wage will reduce poverty. According
to academic research, raising the minimum wage to $10.10 an hour will
reduce the poverty rate for non-elderly Americans to 15.8 percent by
2016 from current 17.5 percent levels.\38\ This increase would bring
about 6.8 million people out of poverty, while not reducing employment.
Raising the minimum wage will help family breadwinners support
their children. The typical minimum wage earner brings in half of their
family's income. Congress should also take care to make sure that other
benefits for low-wage workers provide a full package for low-wage
workers and their families as families will also need help with access
to affordable and quality health care, paid sick days, paid family
leave, childcare, and housing, even at a higher minimum wage.
Raising the minimum wage will have positive economic effects above
and beyond lowering the poverty rate. Economic research points to the
conclusion that a higher minimum wage does not cause greater
unemployment, boosts productivity, and addresses the growing problem of
rising income inequality.
Question 4. Will raising the minimum wage, in fact, likely reduce
the use of public benefits, and in turn have a positive impact on the
Federal budget?
Answer 4, By boosting the wages of workers, a minimum wage increase
would reduce spending on means-tested public programs. A recent report
by researcher Rachel West and economist Michael Reich found that an
increase in the minimum wage to $10.10 would reduce Federal spending on
SNAP by 6 percent or $4.6 billion a year. A higher minimum wage could
therefore reduce Federal spending. CBO's report on the minimum wage
increase also points out that raising the minimum wage would decrease
spending through an overall reduction in public benefits.\39\ Raising
the minimum wage would help reduce Federal Government spending and make
it easier to balance the budget while actually helping low-income
workers instead of cutting programs that help them.
Endnotes
1. Congressional Budget Office, ``The Effects of a Minimum-Wage
Increase on Employment and Family Income,'' (Washington, DC:
Congressional Budget Office, 2014), http://www.cbo.gov/publication/
44995.
2. CBO's figures differ with mine in several places because they
use the price index for Personal Consumption Expenditures instead of
the CPI-U Research Series that I use in my calculations in this
testimony. The PCE is a chain-weighted price index calculated by the
Bureau of Economic Analysis that shows a slower rate of inflation than
the CPI-U-RS series. Using the PCE, the minimum wage had a purchasing
power of $6.76 in today's dollars in 1973. Using the CPI-U-RS, that
figure would be $7.50. I believe the CPI-U-RS to be a better measure to
use in this case because the PCE was not originally designed as a
deflator of cash income and includes prices not directly faced by
consumers. See Dean Baker, ``Deflators and the Purchasing Power of the
Minimum Wage,'' CEPR Blog, available at http://www.cepr.net/index.php/
blogs/cepr-blog/deflators-and-the-purchasing-power-of-the-minimum-wage.
3. Michael Reich, ``The Troubling Fine Print In The Claim That
Raising the Minimum Wage Will Cost Jobs,'' ThinkProgress, available at
http://thinkprogress.org/economy/2014/02/19/3307661/cbo-minimum-wage-
methodology/.
4. Author's calculations using updated data from Thomas Piketty and
Emmanuel Saez, ``Income Inequality in the United States, 1913-98,'' The
Quarterly Journal of Economics 118, no. 1 (February 2003): 1-39.
5. Ibid.
6. Lawrence Mishel, The Wedges Between Productivity and Median
Compensation Growth, Issue Brief (Washington, DC: Economic Policy
Institute, April 26, 2012), http://www.epi.org/publication/ib330-
productivity-vs-compensation/.
7. David H. Autor, Alan Manning, and Christopher L. Smith, The
Contribution of the Minimum Wage to U.S. Wage Inequality over Three
Decades: A Reassessment, Working Paper (Cambridge, MA: National Bureau
of Economic Research, November 2010), http://www.nber.org/papers/
w16533.
8. John Schmitt, Why Does the Minimum Wage Have No Discernible
Effect on Employment? (Washington, DC: Center for Economic and Policy
Research, February 2013), http://www.cepr.net/index.php/publications/
reports/why-does-the-minimum-wage-have-no-discernible-effect-on-
employment; Hristos Doucouliagos and T.D. Stanley, ``Publication
Selection Bias in Minimum-Wage Research? A Meta-Regression Analysis,''
British Journal of Industrial Relations 47, no. 2 (2009): 406-28,
doi:10.1111/j.1467-8543.2009.00723.x.
9. David Card and Alan Krueger, ``Minimum Wage and Employment: A
Case Study of the Fast-Food Industry in New Jersey and Pennsylvania,''
American Economic Review 84, no. 4 (September 1994): 772-93, http://
www.jstor.org/discover/10.2307/
2118030?uid=3739256&uid=2&uid=4&sid=21103411360827.
10. Arindrajit Dube, T. William Lester, and Michael Reich,
``Minimum Wage Effects Across State Borders: Estimates Using Contiguous
Counties,'' Review of Economics and Statistics 92, no. 4 (July 7,
2010): 945-64, doi:10.1162/REST_a_00039.
11. Daniel Raff and Lawrence Summers, ``Did Henry Ford Pay
Efficiency Wages?,'' Journal of Labor Economics 5, no. 4 (1987): S57-
S86, http://www.jstor.org/
discover/10.2307/2534911?uid=3739584&uid=2&uid=4&uid=3739256&sid=211034
55575693; Barry T. Hirsch, Bruce E. Kuafman, and Tetyana Zelenska,
Minimum Wage Channels of Adjustment, Discussion Paper, IZA Discussion
Paper (Bonn, Germany: Institute for the Study of Labor, November 2011),
http://www2.gsu.edu/ ecobth/IZA_MinWageCoA_dp6132.pdf.
12. Joseph E. Stiglitz, Theories of Wage Rigidity, Working Paper
(Cambridge, MA: National Bureau of Economic Research, 1984), http://
www.nber.org/papers/
w1442.pdf.
13. George A. Akerlof, ``Labor Contracts as Partial Gift
Exchange,'' The Quarterly Journal of Economics 97, no. 4 (November
1982): 543, doi:10.2307/1885099.
14. Arindrajit Dube, T. William Lester, and Michael Reich, Minimum
Wage Shocks, Employment Flows and Labor Market Frictions (Amherst, MA,
2013), http://www.irle.berkeley.edu/workingpapers/149-13.pdf.
15. Arindrajit Dube, Suresh Naidu, and Michael Reich, ``The
Economic Effects of a Citywide Minimum Wage,'' Industrial and Labor
Relations Review 60 (2007): 522-43.
16. Michael Reich, Peter Hall, and Ken Jacobs, ``Living Wage
Policies at the San Francisco Airport: Impacts on Workers and
Businesses,'' Industrial Relations: A Journal of Economy and Society
44, no. 1 (2005): 106-38, doi:10.1111/j.0019-8676
.2004.00375.x.
17. Candace Howes, ``Living Wages and Retention of Homecare Workers
in San Francisco,'' Industrial Relations: A Journal of Economy and
Society 44, no. 1 (2005): 139-63, doi:10.1111/j.0019-8676.2004.00376.x.
18. David Fairris, ``The Impact of Living Wages on Employers: A
Control Group Analysis of the Los Angeles Ordinance,'' Industrial
Relations 44, no. 1 (January 2005): 84-105, http://papers.ssrn.com/
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19. US Census Bureau, ``Poverty Thresholds,'' January 31, 2014,
https://www.census.gov/hhes/www/poverty/data/threshld/index.html.
20. David Cooper, Raising the Federal Minimum Wage to $10.10 Would
Lift Wages for Millions and Provide a Modest Economic Boost, Briefing
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http://www.epi.org/publication/raising-Federal-minimum-wage-to-1010/.
Shawn Fremstad, ``Raising Minimum
Wage to $9 Not Enough to Ensure that Families with Full-time Workers
Live Above Poverty Line'' (Washington, DC: Center for Economic and
Policy Research, February 14, 2013), available at: http://
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not-enough-to-ensure-that-families-with-fulltime-workers
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21. Congressional Budget Office, ``The Effects of a Minimum-Wage
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Credit (Washington, DC: Center on Budget and Policy Priorities, January
30, 2014), http://www.cbpp.org/cms/?fa=view&id=2505.
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(Cambridge, MA: National Bureau of Economic Research, 1984), http://
www.nber.org/papers/w1442.pdf.
28. George A. Akerlof, ``Labor Contracts as Partial Gift
Exchange,'' The Quarterly Journal of Economics 97, no. 4 (November
1982): 543, doi:10.2307/1885099.
29. John Schmitt, Why Does the Minimum Wage Have No Discernible
Effect on Employment?
30. Hirsch, Kaufman, and Zelenska, Minimum Wage Channels of
Adjustment.
31. Arindrajit Dube, T. William Lester, and Michael Reich, Minimum
Wage Shocks, Employment Flows and Labor Market Frictions (Amherst, MA,
2013), http://www.irle.berkeley.edu/workingpapers/149-13.pdf.
32. Arindrajit Dube, Suresh Naidu, and Michael Reich, ``The
Economic Effects of a Citywide Minimum Wage,'' Industrial and Labor
Relations Review 60 (2007): 522-43.
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Policies at the San Francisco Airport: Impacts on Workers and
Businesses,'' Industrial Relations: A Journal of Economy and Society
44, no. 1 (2005): 106-38, doi:10.1111/j.0019-8676.2004.00375.x.
34. Candace Howes, ``Living Wages and Retention of Homecare Workers
in San Francisco,'' Industrial Relations: A Journal of Economy and
Society 44, no. 1 (2005): 139-63, doi:10.1111/j.0019-8676.2004.00376.x.
35. David Fairris, ``The Impact of Living Wages on Employers: A
Control Group Analysis of the Los Angeles Ordinance,'' Industrial
Relations 44, no. 1 (January 2005): 84-105, http://papers.ssrn.com/
sol3/papers.cfm?abstract_id=639757.
36. Victoria Stilwell, Peter Robinson, and William Selway,
``Highest Minimum-Wage State Washington Beats U.S. in Job Creation,''
Bloomberg, March 8, 2014, http://www.bloomberg.com/news/2014-03-05/
washington-shows-highest-minimum-wage-state-beats-u-s-with-jobs.html.
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Geography of Intergenerational Mobility in the United States, Working
Paper (Cambridge, MA: National Bureau of Economic Research, January
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39. Congressional Budget Office, ``The Effects of a Minimum-Wage
Increase on Employment and Family Income.''
Response by Sister Simone Campbell, SSS, to Questions of Senator
Harkin, Senator Casey, and Senator Murray
senator harkin
Question 1. It is wonderful to have you here to speak about the
moral and ethical reasons for economic justice policies like a strong
minimum wage. Many critics of raising the minimum wage say that
government should play no role in setting a minimum rate of pay, that
it should be left to businesses to decide their own wages, and to
private charities to help those in need. What does the Catholic faith
tradition say about the need for a government role in setting fair
wages and addressing the problem of poverty?
Answer 1. Our Catholic Faith teaches that the role of government is
to counter the excesses of any society. In our free market capitalist
system and our propensity to individualism, our faith calls us to an
awareness of the common good and defines the role of government to
ensure that wages are just. Pope Francis says in his exhortation, Joy
of the Gospel (published in November 2013) that,
``The need to resolve the structural causes of poverty cannot
be delayed, not only for the pragmatic reason of its urgency
for the good of society, but because society needs to be cured
of a sickness which is weakening and frustrating it, and which
can only lead to new crises.'' (Paragraph 202).
It is in this context that Pope Francis says that,
``We can no longer trust in the unseen forces and the
invisible hand of the market. Growth in justice requires more
than economic growth, while presupposing such growth: it
requires decisions, programs, mechanisms and processes
specifically geared to a better distribution of income, the
creation of sources of employment and an integral promotion of
the poor which goes beyond a simple welfare mentality.''
This task of creating these means is the role of government. This
includes just wages that will move workers beyond poverty and into
self-sufficiency. The Pope points out that the market driven only by
profit will not do this on its own. Government must step in to protect
workers and all of society by mandating a minimum that will protect the
entire society. He states at paragraph 192 that ``A just wage enables
[workers] to have adequate access to all the other goods which are
destined for our common use.''
Finally he states:
``Politics, though often denigrated, remains a lofty vocation
and one of the highest forms of charity, inasmuch as it seeks
the common good.''
He goes on to say that this charity is shaping macrorelationships
including economic decisions about wages and the direction of the
economy. Minimum wage is one such policy that can ensure justice for
workers, limits exploitation by the markets and creates a society where
all benefit equitably from their work.
But this teaching is not new to Pope Francis. It has been part of
our faith since Pope Leo XIII encyclical (letter) Rerum Novarum
published in 1891. For example, Pope John Paul II explains in
Centesimus Annus:
``The State has the task of determining the juridical
framework within which economic affairs are to be conducted,
and thus of safeguarding the prerequisites of a free economy,
which presumes a certain equality between the parties, such
that one party would not be so powerful as practically to
reduce the other to subservience. . . . The State must
contribute to the achievement of these goals [of just working
conditions] both directly and indirectly. Indirectly . . . by
creating favorable conditions for the free exercise of economic
activity, which will lead to abundant opportunities for
employment and sources of wealth. Directly . . . by defending
the weakest, by placing certain limits on the autonomy of the
parties who determine working conditions, and by ensuring in
every case the necessary minimum support for the unemployed
worker.''
Question 2. Some argue that raising the minimum wage won't help the
poor because most minimum wage workers aren't poor. While I disagree
with this--in fact raising the minimum wage would help millions of poor
and low-income families--what do you think, Sister Campbell? Should a
fair minimum wage be part of our national efforts to address poverty?
Answer 2. Absolutely!
A worker should be able to support a family from the wages earned.
It is shocking that people in the richest nation on earth would work
full-time and still live in poverty. This undermines the inherent
dignity of workers and what they do and makes workers dependent on a
social safety net that was geared for those who are in crises. By
forcing hard working people into the safety net, politicians opposing
minimum wage are saying that work should not pay. We need to put people
back at the center of the economy, especially through valuing work and
workers with a just wage.
More broadly raising the minimum wage is a step toward reducing
income and wealth inequality, which we know and Pope Francis reminds us
is the root of all social ills. Income and wealth inequality erodes the
quality of life for the 100 percent. Wilkinson and Pickett's Spirit
Level amply demonstrates that in nations where there is increased
inequality the quality of life deteriorates for all. Raising the
minimum wage would be a step toward reducing this inequality and
improving life for the 100 percent.
senator casey
Thank you for your efforts and the work of your organization to
promote awareness of the difficulties faced by those living in or near
poverty in this country. We have too many people, many with jobs, who
struggle every day to support themselves and their families. There are
government programs out there to provide assistance and non-profit
groups working to offer support, but the need still far outweighs the
available assistance.
Question 1. How would a raise in the minimum wage (putting extra
money directly into the pockets of low-wage workers) affect the ability
of anti-poverty programs (government and non-profit) to serve those in
need?
Answer 1. Raising the minimum wage is a necessary companion to
other anti-poverty programs because:
a. Raising the minimum wage enhances the independence and self-
sufficiency of workers and allows them and their families to live in
dignity. By having a wage that allows workers to pay for their
families' needs, it will remove them from safety net programs and save
those programs for those that are in crisis.
b. Many anti-poverty programs have eligibility requirements that
limit their reach in a way a wage increase will not.
c. The stability of a paycheck helps pay for recurring expenses and
helps a person plan financially without worrying about changes in
eligibility or loss of benefits.
d. Responding to the erosion of the buying power of the minimum
wage with government anti-poverty programs rather than raising the
minimum wage effectively makes taxpayers, rather than business owners,
responsible for providing reasonable income to hard working people. Our
safety net programs were never intended to be a long term supplement to
wages of full-time workers. http://www.nwlc.org/sites/default/files/
pdfs/minimumwageandeitc-2.pdf.; http://www.epi.org/blog/strengthening-
eitc-raising-minimum-wage/.
Question 2. In your testimony, you discuss the importance of
dignity of work--when workers have the opportunity to support their
families from their wages, instead of through assistance programs. What
are the psychological and emotional effects when workers are able to
support themselves and their families directly through their own wages?
Answer 2. Perhaps the best example of the importance of the dignity
of work is Sharon who I met in Detroit. She had cobbled together a
variety of safety net programs to support herself and her family. She
had a part-time job, SNAP, housing subsidy and LIHEAP to name a few.
She was hampered in her ability to work because of her limited
education. With the assistance of Mercy Center who helped her learn to
read and get her GED, she was able to graduate to full-time employment
and leave the safety net behind. She said that what she enjoyed most
was her 3 daughters knowing that she was able to provide for them. She
was proud of her hard work in overcoming her dyslexia and her
commitment to her children. While budgeting and planning was
challenging, she now has a completely new lease on life as she feels
capable of planning for her family's future.
Question 3. How does more money directly in workers' pockets affect
their purchasing power and flexibility in providing for their families?
Answer 3. Wages are the key way to create financial stability for
families. It gets needed resources into the hands of hard working
people. With that they can purchase needed goods and services as well
as saving for the future. Perhaps the most important thing wages do, is
to allow the family to have a sense of security and unity as they work
together to improve their situation. Regular paychecks help create
financial stability, frees a family to plan and possibly even to save.
Erosion of value of purchasing power of minimum wage over 30+ years
has already greatly affected families' access to basic necessities
(healthcare, gas, groceries, childcare), the cost of which has been
rising over that same period. By raising the minimum wage to something
even approaching the buying power of the 1970s will allow families to
care for their own needs. This means that they will be able to put
money back into the economy buying school clothes for children,
necessities for the home and being able to plan larger purchases.
senator murray
More than most, you have been a great advocate for equality and
social justice. And that's what this is really all about--social
justice. And it's not a just situation that a mom working full-time may
still live in poverty. If you work full-time, you shouldn't be poor.
Question. I'm sure you've spent quite a bit of time talking with
workers on the lowest rungs of our economy. Many of whom work in the
service sector, and many of whom work for tips. Servers in restaurants
make up the largest group of tipped workers, and have three times the
poverty rate of the workforce as a whole. Yet it's been over 20 years
since we raised the tipped minimum wage--it is still a shockingly low
$2.13 per hour. So it's not surprising that servers--in a sad irony--
also have to rely on food stamps at nearly double the rate of the
general populations in order to feed themselves and their family.
Do you have any reaction to this?
Answer. I would just add that women are disproportionately affected
in this group of tipped workers. The reality of low-wage workers is
exacerbated by being a ``tip-worker'' to the point of cruelty with the
unpredictability of tips. Having to rely on the ``kindness of
strangers'' to pay for your family's needs is as cruel as it is
unpredictable. It also should be noted that several States have done
away with the distinction between tipped and non-tipped workers without
an adverse impact on the employers.
I also want to point out that poverty rates for African-American
and Latino servers are significantly higher than servers who are white.
This increases the racial income and wealth gap in our Nation. A key
way forward would be to make sure that the tipped workers are put on a
par with all workers in their capacity to be able to support their
families as they work in our society to contribute to the economy.
Everyone who works should be justly compensated.
Response by Alicia McCrary to Questions of Senator Harkin
and Senator Murray
senator harkin
Question. Please tell me more about the program you are
participating in with North Iowa Community Action, called Family
Development and Self-Sufficiency Program, or FaDSS. What does it
involve? How has it aided you?
Answer. I have been working with FaDSS for over a year. When my
FaDSS worker comes to my home every month, she helps me set goals that
need to be accomplished and also helps me meet those goals. We have
worked on budgeting and I receive information on other resources that
can help me and my family. FaDSS helps me stay focused on the next
steps I need to take in my life, in order to get off and stay off
government assistance.
FaDSS is a supportive service to assist Family Investment Program
(FIP) families with significant or multiple barriers reach self-
sufficiency. The Department of Human Services contracts with the
Department of Human Rights, Division of Community Action Agencies to
administer the FaDSS Grant Program. The Department of Human Rights
subcontracts with 18 grantees statewide to provide FaDSS services.
Referral to FaDSS is made through the Department of Human Services,
PROMISE JOBS Program, other third-party sources, and self-referrals.
Participation in FaDSS is a voluntary option for people receiving
Family Investment Program (FIP) benefits. FaDSS provides services that
promote, empower, and nurture families toward economic and emotional
self-sufficiency. The foundation of FaDSS is regular home visits with
families, using a strength-based approach. Core services include
support, goal setting, and assessment. Support is given in many ways
such as referrals, group activities, linking families to communities
and advocacy. Assessment aids the family to identify strengths that
they possess that may be used to eliminate barriers to self-
sufficiency. Goal setting helps families break down goals that seem out
of reach into small steps that will lead to success.
senator murray
Question 1. Can you share what an increase in the minimum wage
would mean to you and your family?
Answer 1. An increase in minimum wage would help me budget better
and pay my bills on time. Having higher wages would make it easier for
the boys to participate in sports at the same time, get haircuts at the
same time and would be able to provide them with clothing that keeps up
with their growth spurts. If the minimum wage was increased, I would
even be able to start a savings account.
Question 2. As you know, we are proposing annual increases in the
minimum wage to keep up with rising prices for food, clothing, gas, and
the like. What will it mean to you to know that you can count on just a
little additional income each year in return for your hard work?
Answer 2. It would mean so much to me if I received additional
income each year; I could actually focus on budgeting without being
stressed about daily needs. I work very hard every day and it would
mean a lot to me and my family.
[Whereupon, at 10:45 a.m., the hearing was adjourned.]
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