[Senate Hearing 113-636]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 113-636
 
                   KEEPING UP WITH A CHANGING ECONOMY: 
                          INDEXING THE MINIMUM WAGE

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

                                HEARING

                                 OF THE

                    COMMITTEE ON HEALTH, EDUCATION,
                          LABOR, AND PENSIONS

                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                                   ON

EXAMINING KEEPING UP WITH A CHANGING ECONOMY, FOCUSING ON INDEXING THE 
                              MINIMUM WAGE

                               __________

                             MARCH 14, 2013

                               __________

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                                Pensions
                                
                                
                                
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          COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS

                       TOM HARKIN, Iowa, Chairman

BARBARA A. MIKULSKI, Maryland
PATTY MURRAY, Washington
BERNARD SANDERS (I), Vermont
ROBERT P. CASEY, JR., Pennsylvania
KAY R. HAGAN, North Carolina
AL FRANKEN, Minnesota
MICHAEL F. BENNET, Colorado
SHELDON WHITEHOUSE, Rhode Island
TAMMY BALDWIN, Wisconsin
CHRISTOPHER S. MURPHY, Connecticut
ELIZABETH WARREN, Massachusetts

                                     LAMAR ALEXANDER, Tennessee
                                     MICHAEL B. ENZI, Wyoming
                                     RICHARD BURR, North Carolina
                                     JOHNNY ISAKSON, Georgia
                                     RAND PAUL, Kentucky
                                     ORRIN G. HATCH, Utah
                                     PAT ROBERTS, Kansas
                                     LISA MURKOWSKI, Alaska
                                     MARK KIRK, IIllinois
                                     TIM SCOTT, South Carolina
                                       

             Pamela J. Smith, Staff Director, Chief Counsel

                 Lauren McFerran, Deputy Staff Director

               David P. Cleary, Republican Staff Director

                                  (ii)

  

                            C O N T E N T S

                               __________

                               STATEMENTS

                        THURSDAY, MARCH 14, 2013

                                                                   Page

                           Committee Members

Harkin, Hon. Tom, Chairman, Committee on Health, Education, 
  Labor, and Pensions, opening statement.........................     1
    Prepared statement...........................................     3
Alexander, Hon. Lamar, a U.S. Senator from the State of 
  Tennessee, opening statement...................................     6

                               Witnesses

Avakian, Brad, Commissioner, Oregon Bureau of Labor and 
  Industries, Portland, OR.......................................     9
    Prepared statement...........................................    11
Dube, Arindrajit, Ph.D., Department of Economics, University of 
  Massachusetts Amherst, Amherst, MA.............................    13
    Prepared statement...........................................    15
Prince, Lew, Managing Partner, Vintage Vinyl, St. Louis, MO......    30
    Prepared statement...........................................    31
Fleurio, Carolle, Restaurant Worker, Jonesboro, GA...............    33
Sickler, Melvin, Franchisee, Auntie Anne's Pretzels and Cinnabon, 
  Williamstown, NJ...............................................    35
    Prepared statement...........................................    37
Rutigliano, David, Owner, Southport Brewing Company, Trumbull, CT    41
    Prepared statement...........................................    43

                          ADDITIONAL MATERIAL

Statements, articles, publications, letters, etc.:
    Melvin Sickler, letter.......................................    58
Response by Brad Avakian to questions of Senator Alexander.......    59
Response by Arindrajit Dube, Ph.D. to questions of:
    Senator Harkin...............................................    62
    Senator Alexander............................................    63
Response by Lew Prince to questions of Senator Alexander.........    64
Response by Melvin Sickler to questions of Senator Harkin and 
  Senator Alexander..............................................    66
Response by David Rutigliano to questions of Senator Harkin......    69

                                 (iii)

  

     KEEPING UP WITH A CHANGING ECONOMY: INDEXING THE MINIMUM WAGE

                              ----------                              


                        THURSDAY, MARCH 14, 2013

                                       U.S. Senate,
       Committee on Health, Education, Labor, and Pensions,
                                                    Washington, DC.
    The committee met, pursuant to notice, at 10:05 a.m. in 
room SD-430, Dirksen Senate Office Building, Hon. Tom Harkin, 
chairman of the committee, presiding.
    Present: Senators Harkin, Alexander, and Warren.

                  Opening Statement of Senator Harkin

    The Chairman. Good morning. The Senate Health, Education, 
Labor, and Pensions Committee will please come to order.
    For several years now, I have held hearings in this 
committee focusing on the need to bolster the middle class in 
this country and to help restore the American Dream. The 
American Dream is supposed to be about building a better life 
through work. If you work hard and play by the rules, you 
should be able to support your family, raise your kids, get 
them a good education, enjoy some of the accoutrements of life: 
housing, clothing, a decent vacation once in a while, and 
retirement.
    But today, tens of millions of hardworking Americans, who 
are earning at or near the minimum wage, can't even aspire to 
live a middle-class life or achieve the American Dream. They 
are falling further and further behind. We need to do more to 
support these workers as they try to build opportunity for 
their families and their futures. A critical first step is to 
ensure that they earn a fair day's pay for a hard day's work. 
That is why last week I joined with Congressman George Miller 
to introduce the Fair Minimum Wage Act of 2013, to provide a 
long-overdue increase in the Federal minimum wage.
    The bill would gradually increase the minimum wage to 
$10.10 an hour in three annual steps, and then link future 
increases to the cost of living, so that people who are trying 
to get ahead don't fall behind as the economy grows.
    Today's hearing will focus, I hope the most, on indexing 
the minimum wage. This is the first hearing in this committee 
to look at indexing the minimum wage in more than 20 years.
    Over the past four decades, Congress has raised the minimum 
wage five times, but these raises have come sporadically and 
after long stretches with no raise. The subsequent increases 
have not brought the wage up to its past level, and so the real 
value of the minimum wage has declined significantly.
    The minimum wage right now is, in fact, worth 31 percent 
less than at its peak in 1968, even as productivity has soared. 
That is what that chart shows. It shows productivity going up. 
Interestingly enough, real average wages right now are about 
where they were in 1970; real average wages. But the real 
minimum wage, as you can see, has gone down about 31 percent; 
real, when you take inflation into account.
    If the minimum wage had kept pace with inflation since 
1968, today it would be $10.56 an hour, and a full-time worker 
would earn about $22,000 a year under the minimum wage. 
Instead, now it is $7.25 and the earnings are about $15,000 a 
year. Actually, that is a poverty wage.
    I pointed out the other day, also, that in the 1970s, the 
minimum wage was about 20 percent higher than the poverty 
level. Today, it is 20 percent less than the poverty level.
    This has hurt, seriously hurt, the standard of living for 
low-wage workers and their families. As a result, more and more 
low-wage families are forced to rely on safety net programs 
like food stamps, and housing assistance, and things like that 
to ensure that they can survive. And when millions are barely 
surviving because of low wages, they just cannot hope to join 
the middle class, and everyone gets hurt, especially our 
economy.
    The middle class is the backbone of our economy, and we 
have to grow that middle class to have a growing economy, I 
believe, in the long run. Businesses need customers to buy 
things if they want to grow and prosper. But when workers earn 
a poverty wage, they do not have purchasing power, they cannot 
help the economy thrive.
    That is why so many businesses, large and small, from the 
CEO of Costco to the record store owner that we will hear from 
here today, they support a higher minimum wage, and support 
indexing it so that it will no longer lose value in the future.
    I think we stand at a rare moment of opportunity where we 
can do what is right for the economy, and at the same time, do 
what is simply right. A fair minimum wage that is predictable, 
with modest increases that keep wages steadily growing in pace 
with inflation, rather than falling behind, I think, will 
benefit everyone. Indexing will do all of these things. That is 
why 10 States have already implemented indexing, and we will 
hear from one of them today. At the Federal level, this policy 
is long overdue.
    I have this chart that shows the 10 States that already do 
index, and as you can see, it ranges from very progressive 
liberal States like Vermont, to conservative States like 
Florida, and Missouri, and Arizona, and Montana. So it does not 
favor one area of the country over the other, it is kind of 
spread around, but 10 States that, I think, represent various 
places on the political spectrum; various parts of the 
political spectrum have already decided to index their minimum 
wage.
    Of course, it must be done right. We have to be sure to set 
an adequate minimum wage in the first place, before we index it 
because obviously, if you set it too low, then you index it, 
you are always going to be way behind. That is why my 
legislation would first increase the minimum wage to $10.10 an 
hour, over 3 years, and then index it after that.
    Once we make sure that the minimum wage is an adequate 
wage, indexing means that American workers will be able to 
count on fair wages in the future. No longer will low-wage 
workers go years without even a penny raise.
    This chart shows since 2009--since the last minimum wage 
was fully implemented--what has happened to the costs of 
electricity, rent, food, childcare, and mass transit--they have 
all gone up 4 percent to 12.5 percent. People who are at the 
minimum wage and stuck at that, are falling further and further 
behind because they are spending most of their earned income on 
these items: housing, childcare, food, auto repair, rent, 
electricity. That is why I think indexing is going to be so 
important to put in place.
    I want to thank our witnesses for being here today. I look 
forward to an informative discussion.
    [The prepared statement of Senator Harkin follows:]

                  Prepared Statement of Senator Harkin

    For several years now I have held hearings focusing on the 
need to bolster the middle class in this country and restore 
the American Dream. The American Dream is supposed to be about 
building a better life. If you work hard and play by the rules, 
you should be able to support your family, join the middle 
class, and build a brighter future for your children.
    But today, tens of millions of hardworking Americans who 
are earning at or near the minimum wage can't even aspire to 
live a middle-class life or achieve the American Dream. 
Instead, they are falling further and further behind. We need 
to do more to support these workers as they try to build 
opportunity for their families and their futures. A critical 
first step is to ensure that they earn a fair day's pay for a 
hard day's work. That is why last week I joined with 
Congressman George Miller to introduce the Fair Minimum Wage 
Act of 2013, which would provide a long-overdue increase in the 
Federal minimum wage.
    This bill will gradually increase the minimum wage to 
$10.10 an hour in three annual steps, and then link future 
increases in the minimum wage to the cost of living, so that 
people who are trying to get ahead don't fall behind as our 
economy grows.
    Today's hearing will focus specifically on indexing the 
minimum wage. This is the first hearing in this committee to 
look at indexing the minimum wage in more than 20 years.
    Over the past four decades, Congress has raised the minimum 
wage five times. But these raises have come sporadically and 
after long stretches with no raise. The subsequent increases 
have not brought the wage up to its past levels, and so the 
real value of the wage has declined significantly. The minimum 
wage in fact is worth 31 percent less than at its peak in 1968, 
even as productivity has soared.



    This means that as the economy has grown and corporate 
profits are at an all-time high, tens of millions of low-wage 
workers and their families have almost a third less buying 
power than 45 years ago. If the minimum wage had kept pace with 
inflation since 1968, today it would be $10.56 and a full-time 
worker would earn nearly $22,000. Instead, the minimum wage is 
$7.25 and a full-time worker earns only $15,000 a year. It is a 
poverty wage.
    This has seriously hurt the standard of living for low-wage 
workers and their families. As a result, many low-wage families 
are forced to rely on safety net programs like food stamps and 
housing assistance to ensure that they can survive. And when 
millions of workers are barely surviving because of low wages, 
they cannot hope to join the middle class. This ends up hurting 
everyone, especially our economy.
    It's important to make clear who is earning at or near the 
minimum wage. My bill would provide raises to 30 million 
workers--21 million workers who earn below $10.10 and 9 million 
who earn just over $10.10. The Economic Policy Institute has 
run the numbers to help us paint a picture of who these 30 
million workers are, and they are not who we might expect. For 
instance, they are not all teenagers. In fact, 88 percent of 
people who would get a raise are adults age 20 or over, not 
teenagers. We also know that the majority, 56 percent, are 
women and nearly half, 46 percent, are people of color.
    And these are not all part-time workers, either. Most of 
the workers, 55 percent, are full-time workers, and almost all, 
86 percent, work at least 20 hours a week. Workers who will get 
a raise under my bill are not uneducated, either: 44 percent 
have some college or more education.
    Finally, these are not workers in rich families just 
supplementing the higher earnings of other family members. 
Fifty-five percent of the workers have family income of $40,000 
or less and 62 percent have family income under $50,000. These 
workers rely on their earnings to survive: the workers who will 
get a raise under my bill earn half of their family's income, 
on average; if the workers are parents, they earn 59 percent of 
their family's income.
    The middle class is the backbone of our economy, and we 
must grow our middle class in order to have a growing economy 
in the long run. Businesses need customers to buy things if 
they want to grow and prosper. But when workers earn a poverty 
wage and have no purchasing power, they can't help the economy 
thrive. That's one reason why so many businesses large and 
small--from the CEO of Costco to the record store owner we will 
hear from today--support a higher minimum wage, and support 
indexing the minimum wage to inflation so that it will no 
longer lose value.
    We stand at a rare moment of opportunity--where we can do 
what is right for the economy, and at the same time, do what is 
simply right. A fair minimum wage that is predictable, with 
modest increases that keep wages steadily growing in pace with 
inflation, rather than falling behind, benefits everyone. 
Indexing will do all of these things. That is why 10 States 
have already implemented this policy, and we will hear from one 
of them today.


At the Federal level, this policy is long overdue.
    Of course, indexing the minimum wage must be done right. We 
have to be sure to set an adequate minimum wage in the first 
place, before locking it in in real terms for the indefinite 
future. That is why my legislation would first increase the 
minimum wage to $10.10 an hour, phased in through three 
increases spread out over 3 years.
    Once we make sure that the minimum wage is an adequate 
wage, indexing means that American workers will be able to 
count on fair wages in the future. No longer will low-wage 
workers go years without even a penny raise.


When groceries get more expensive or the gas or electric bills 
go up, when the bus fare climbs again or the rent goes up--
these workers, who typically must live paycheck-to-paycheck, 
will have the assurance that they have a raise coming to them. 
Indexing the minimum wage, then, not only helps working 
families keep up with the economy and deal with rising costs, 
it also gives them peace of mind.
    I want to thank our witnesses for being here today, and I 
look forward to an informative discussion of this critically 
important issue.

    And now, I will turn to Senator Alexander for opening 
comments.

                 Opening Statement of Senator Alexander

    Senator Alexander. Thanks, Mr. Chairman.
    Thanks for the hearing, and thanks to each of the witnesses 
for making the time to come here.
    I am afraid the Chairman and I have a difference of opinion 
here. This is a very well-intentioned idea, but I am afraid it 
will have the effect of hurting the very people we are trying 
to help, and hurting the people who are the employees, and 
hurting the people who are in the best position to help, and 
that would be the employers.
    Let me explain why I say that. Let's take a couple of 
examples of individuals whom I will call Paul and Jennifer.
    Paul lives in a rural part of Tennessee. He is 16 years 
old, still lives at home. He wants his first job. He wants to 
make a little money for college or a car, because he doesn't 
have the cash. Why am I talking about a teenager? Because the 
typical, or half, of minimum wage workers are actually a young 
person aged 16 to 24. Eighty percent of those youths are 
working part-time. Sixty-two percent of them are enrolled in 
school, and their average income is three times the poverty 
guideline for a family of four.
    Now, will raising the minimum wage help this young man find 
a job or will it eliminate the job he wants to help earn some 
extra money? Will it saw off the first rung of the economic 
ladder of success, which will help him climb up that ladder, 
and earn something that would be more like a maximum wage 
instead of a minimum wage?
    Or let's take Jennifer, who is 29, who lives in Nashville. 
She is a songwriter. She might be working, as most songwriters 
in Nashville are, at an extra job earning some extra money. She 
would represent the other half of the minimum wage workers: 
female, unmarried, working part-time. Three out of four have 
household incomes above the poverty guideline. Only 4 percent 
are single parents working full-time.
    The problem is that in each case, the job which Paul and 
Jennifer might get might be eliminated by the increased costs 
on employers. We have witnesses here today who will talk about 
that, but let me give an example.
    I recently met with a franchise group that owns 20 fast 
food restaurants in the DC area. They employ 542 people. 
Hospitality and restaurant companies are the largest employers 
of low-income, minority, largely young people. Now here is how 
they make a profit.
    First they pay their Social Security and Medicare taxes for 
each employee. Then they have a menu labeling mandate they pay, 
we require that; that's $1,000 per restaurant. Then local 
government has some sick leave mandates; that goes on top of 
their costs. And next year, here comes the health care law with 
a more expensive health care plan or a $2,000 per employee 
penalty. The $2,000 would add up to $1 million in new costs for 
them. If they decide to offer new insurance, it could be even 
more expensive. Those are the expenses they have before we 
would come in with a new 39 percent increase in the cost of 
labor.
    So I will be listening to the testimony today to try to 
hear whether this well-intentioned idea will hurt the people it 
is trying to help, or will help the people it is trying to 
help.
    Just to conclude, Mr. Chairman, Christina Romer, who was 
President Obama's Council of Economic Advisers Chair said in 
The New York Times last week that, ``Raising the minimum wage 
can displace poor workers with more affluent ones who have 
higher skills.''
    And economist David Neumark at the University of California 
and William Wascher surveyed more than 100 major academic 
studies on the impact of the minimum wage and determined that 
85 percent of them found a negative employment effect on low-
skilled workers.
    I am afraid one reason we still have 12 million unemployed 
Americans is we have increasingly made it more expensive to 
hire full-time employees, and this would add to that cost.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    We have one panel. I will go through and introduce the 
panel, and then we will commence our comments.
    First is Mr. Brad Avakian. Did I get it right? Avakian. Has 
been Commissioner of the Oregon Bureau of Labor and Industries 
since 2008. He oversees implementation of Oregon's voter-
enacted minimum wage, which is indexed to inflation. 
Commissioner Avakian has served in both the Oregon State Senate 
and Oregon House of Representatives, and previously he was a 
civil rights attorney. He is a graduate of Oregon State 
University and Lewis & Clark Law School.
    I will yield to our distinguished Senator from 
Massachusetts for purposes of introducing our next witness.
    Senator Warren. Our witness is Dr. Arin Dube. Welcome, Dr. 
Dube. We are glad to have you here. He is a specialist on the 
economic impact of minimum wage. He is an Assistant Professor 
of Economics at UMASS Amherst. Mr. Chairman, I have to tell 
you, Amherst is a place where only the ``H'' is silent. That is 
what we like to say in Massachusetts. Welcome.
    He has his B.S. from Stanford, his Ph.D. from the 
University of Chicago. His post-doctoral work was at University 
of California at Berkeley.
    Welcome, Dr. Dube.
    The Chairman. Thank you very much, Senator. Welcome, Dr. 
Dube.
    Next we have Mr. Lew Prince, the managing partner and CEO 
of Vintage Vinyl in St. Louis, MO. In 1979, Mr. Prince and his 
business partner, Tom Ray, started with 300 records at the 
local farmer's market. Today Vintage Vinyl is the largest 
independent music store in the Midwest, and one of the largest 
in the country.
    Interestingly enough, I was having lunch last Friday with a 
friend of mine, just having lunch, right. And he said to me, 
``When was the last time you were in a record store?'' I 
thought, you know, I used to love to go to record stores. Look 
through the vinyl, and then you started getting compact discs. 
You could go, and you could see, and it was a just a pleasure. 
I had to stop and think. There aren't any more.
    Mr. Prince. Oh, you'd love mine.
    The Chairman. I think I would love yours.
    [Laughter.]
    Mr. Prince. Seven thousand square feet of music love.
    [Laughter.]
    The Chairman. I'd spend the whole day there. Anyway, it was 
just interesting that it was even the topic of our 
conversation, but it came up, and we were lamenting the fact 
that we do not have record stores anymore.
    That then led into a discussion on Internet piracy. And my 
friend said to me,

          ``Isn't it an interesting thing, that if you walked 
        into a record store, and took a CD, and walked out 
        without paying for it, you would get arrested for 
        thievery. But if you download it free, you get away 
        with it.''

    Well, anyway, I did not mean to get into that.
    Mr. Prince. The technology is there to protect copyrights.
    The Chairman. Yes.
    Mr. Prince. I would love to talk to you about that.
    The Chairman. It is just interesting.
    Mr. Prince. I know a lot about it. I have a company that is 
designed to protect copyrights on the Internet.
    The Chairman. Well, because it was happenstance that we 
happened to----
    Senator Alexander. I would like to talk with you. We have a 
big problem with that in Nashville.
    The Chairman. Well, that is right. You've got an interest 
in that.
    Senator Alexander. We might have another hearing.
    [Laughter.]
    The Chairman. This is an area where we probably, might 
agree on.
    Senator Alexander. I think we might.
    The Chairman. Carolle Fleurio is a cook at a family 
restaurant near Atlanta, GA. She works full-time to help 
support her husband who, I understand, is disabled, two 
daughters, and a granddaughter, and a niece.
    Melvin Sickler owns multiple franchises of Auntie Anne's 
Pretzels--who hasn't had those when you go through airports--
and Cinnabon in New Jersey. He is here today testifying on 
behalf of the National Restaurant Association.
    David Rutigliano is a member of the Connecticut House of 
Representatives, a fellow legislator, and an owner of the 
Southport Brewing Company Restaurant, which has several 
locations in the State of Connecticut.
    Thank you all for being here. All of your statements will 
be made a part of the record in their entirety. I read them 
over last night. They are all very good. We would ask you to 
sum it up, if you could, within 5 minutes since we have a long 
panel, and we have a vote coming up in an hour. Now, I don't 
suppose we will get it all done by then, so we will have to 
take a break, but we will see how far we can get before then.
    With that, I will start from left to right, Mr. Avakian, if 
you could just sum up your testimony in 5 minutes, and then we 
will go from left to right.
    Thank you, and please proceed.

STATEMENT OF BRAD AVAKIAN, COMMISSIONER, OREGON BUREAU OF LABOR 
                  AND INDUSTRIES, PORTLAND, OR

    Mr. Avakian. Thank you, Chairman Harkin and Senators for 
inviting me to share Oregon's successful experience in indexing 
the minimum wage to the Consumer Price Index.
    I am Brad Avakian. I am Oregon's Commissioner of Labor and 
Industries. In our State, the position of commissioner is a 
nonpartisan, statewide, elected office charged with protecting 
workers by enforcing civil rights and wage and hour laws, 
training much of Oregon's workforce, and supporting the success 
of our Oregon businesses by helping them navigate their way 
through complicated State and Federal laws.
    I am here today to support the committee's efforts in 
indexing the national minimum wage to the Consumer Price Index, 
and to offer Oregon's perspective on how we have been able to 
do that successfully over the last 10 years.
    In 2002, our minimum wage was indexed to the Consumer Price 
Index by way of a voter supported initiative. The effort was 
supported by seniors, religious leaders, labor. It was 
supported by both rural and urban counties in our State. And at 
the heart of the effort was really the principle of basic 
fairness and smart economics.
    We believe that stronger businesses and a healthier economy 
is achieved when people have the purchasing power to buy the 
very goods and services that local businesses provide. It is no 
surprise that minimum wage families are not investing their 
money in 401(k)'s and mutual funds. Every dime in the increase 
of the minimum wage is a dime that gets reinvested back into 
community businesses as people purchase gas, and groceries, 
school supplies, and the like.
    Small businesses, in fact, are dependent on that kind of a 
local purchasing power. And as inflation causes the price of 
goods and services to rise, businesses need consumers to be 
able to keep pace with the rise of the cost of their goods. And 
so, indexing the minimum wage to the Consumer Price Index is 
good both for workers and it is necessary for the success of 
local businesses.
    Here is how it works in Oregon. Every September, when we 
get the new numbers on the Consumer Price Index, we calculate 
the difference between the new year's numbers and the last 
year's numbers, and we multiply that difference by our existing 
minimum wage. And that very simple equation gives you what the 
increase will be in the minimum wage for that year. If the 
Consumer Price Index goes down, then our minimum wage stays 
level. The last thing that we want to do in Oregon is to hurt 
Oregon's workers by decreasing their wages in a down economy 
and taking away the ability for local businesses to continue 
having profitable sales because of that.
    The other thing we achieve by linking to the Consumer Price 
Index is certainty and predictability both for local businesses 
and for workers. In the last 10 years, we have had no major 
spikes in our minimum wage. The increases have been steady and 
they have been predictable.
    Even the restaurant industry is doing well in our State. We 
have nearly 9,000 restaurants in Oregon that employs over 
172,000 workers. The National Restaurant Association has stated 
that the Oregon restaurant industry remains a driving force in 
Oregon's economy, and that is after 10 years of indexing the 
minimum wage in our State.
    My position of Commissioner in the Bureau of Labor and 
Industries is in a very unique position in order to monitor the 
effects of our linkage to the Consumer Price Index.
    We get nearly 20,000 calls a year from Oregon businesses. 
Last year, we trained over 4,000 managers in wage and hour law. 
I have regular meetings with businesses, business leaders, and 
chambers of commerce around the State.
    Their concern is where they are going to get their good 
locally skilled workers, not the linkage to the Consumer Price 
Index and the minimum wage. In fact, a couple of weeks ago, I 
had lunch with a business owner whose family business, for 
decades, has been a string of successful truck stops in the 
State, and he brought up the topic of Oregon's minimum wage and 
the effort that this committee is considering.
    His concern wasn't that the minimum wage was increasing. 
His concern was that as we erode the middle class and the 
poorer class expands, where is his family business going to get 
strong consumers with purchasing power in the future?
    Small business survives only if consumers have that 
purchasing power. American small businesses need it. American 
workers, which are the most skilled and hardworking on the 
globe, deserve the raise.
    Mr. Chair, I thank you, once again, for your invitation to 
share our experience with you, and I look forward to your 
questions.
    [The prepared statement of Mr. Avakian follows:]
                   Prepared Statement of Brad Avakian
    Mr. Chairman, Senators. Thank you for the opportunity to discuss 
Oregon's 10-year history of indexing our voter-passed minimum wage to 
the Consumer Price Index (CPI).
    My name is Brad Avakian and I serve as Oregon's Commissioner of 
Labor and Industries, a non-partisan statewide-elected position. Our 
agency protects Oregon's workforce, supports local businesses with 
technical assistance, and enforces our State's civil rights and wage 
and hour laws so that workers are protected and responsible employers 
have a level playing field on which to operate.
    We also administer the State's indexed minimum wage law, passed in 
2002 by a diverse coalition of labor, senior, religious and hunger 
security organizations and advocates.
    I'm here today to offer our agency's perspective on Oregon's 
successful experience in administering the measure and applaud Senator 
Harkin and the committee for raising this important discussion.
    After more than 10 years of implementation, we know that Oregon's 
minimum wage law has been good for workers and businesses. By indexing 
the minimum wage to inflation, we've made sure that workers don't lose 
ground as the costs of everyday goods increase. Our system also 
provides employers with greater certainty and predictability for 
payroll expenses over time.
    Oregon's law is guided by the understanding that increasing 
workers' purchasing power leads to a healthier economy. Virtually every 
dime that comes through a higher minimum wage is reinvested in the 
local economy when the worker buys groceries, gas, clothes, school 
supplies and other essentials. We know that the price on goods and 
services will increase with inflation. The success of local business is 
dependent on customers continuing their ability to purchase by seeing 
their wage keep pace with the cost of living.
                              how it works
    The Oregon measure directs the Labor and Industries Commissioner to 
adjust the minimum wage for inflation every September, rounded to the 
nearest 5 cents. The adjustment accounts for inflation as measured by 
the CPI, a statistic published by the U.S. Bureau of Labor Statistics 
to track the average change in prices over time for a fixed ``market 
basket'' of goods and services.
    For example, in September 2012, Oregon's minimum wage was $8.80. 
Based on an increase in the CPI of 1.69 percent from August 2011 to 
August 2012, my office used a simple calculation to determine the rate 
for 2013:

          $8.80 X .0169 = $.1487, rounded to $.15

The administration is simple and straight-forward.
    Notably, we have not seen major spikes or steep wage increases 
year-to-year. The increases have been steady for employers--providing 
them with a healthy level of certainty and predictability. In fact, the 
largest wage increase in the decade since voters enacted Oregon's 
minimum wage law occurred in 2008 with a modest $.45, 6-percent 
increase.
    The following year--as Oregon and the rest of the country struggled 
with the Great Recession--we saw no wage increase because of the 
declining CPI. This is an important built-in protection for workers 
during difficult economic times, and I appreciate the committee's 
approach in not having a drop in the CPIW trigger a decrease in wages 
when working families need it most.
                       protecting all oregonians
    Notably, Oregon's voter-enacted system also guarantees a minimum 
wage to wait staff. Our restaurant industry is doing well--we have 
8,867 restaurants that employ 171,900 Oregonians across the State. 
According to the National Restaurant Association, restaurants remain 
``a driving force in Oregon's economy.''
                       oregon: open for business
    The Oregon Bureau of Labor and Industries provides technical 
assistance for more than 17,000 businesses each year. In addition, I 
frequently travel the State to meet with business leaders and local 
chambers of commerce.
    When I meet with business owners, they ask me about creating a 
pipeline of skilled workers to get our economy back on track. Oregon's 
minimum wage is not an issue in those discussions. In fact, the last 
time that the issue came up in a meeting with an employer, it was in 
the context of the business owner saying that the Federal minimum wage 
was too low for workers because it hasn't kept up with the cost of 
raising a family.
    Oregon is a great place to do business. We value our workforce 
through a minimum wage that ensures that workers' buying power doesn't 
slip as the cost of everyday essentials rises.
    Thank you again for your consideration of this issue and the 
critical work of protecting America's workforce. I look forward to your 
questions.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The Chairman. Thank you very much, Commissioner Avakian.
    Dr. Dube, welcome. Please proceed.

 STATEMENT OF ARINDRAJIT DUBE, Ph.D., DEPARTMENT OF ECONOMICS, 
        UNIVERSITY OF MASSACHUSETTS AMHERST, AMHERST, MA

    Mr. Dube. Thank you, Chairman Harkin, and members of the 
committee for the opportunity to speak here today.
    My name is Arin Dube. I am Assistant Professor of Economics 
at the University of Massachusetts Amherst, and my area of 
expertise is on labor markets and minimum wages.
    As we consider the question of indexation, it is useful to 
keep in mind that over the past 30 years, the minimum wage has 
not kept up with the cost of living.
    As we heard earlier, adjusted for inflation, the high water 
mark for minimum wage was in 1968 where it stood, roughly, at 
$10.60 an hour, and today it is $7.25 an hour.
    Under the proposed legislation, with the full adjustment by 
2016, I estimate that the minimum wage will likely reach $9.38 
in today's dollars. So that's $10.10 when it actually happens, 
but it is useful to keep in mind that it will be $9.38 in 
today's dollars in 2016. That is a substantial increase, but it 
will still be lower than the high water mark back in the last 
1960s.
    In the longer run, indexation will also eliminate the large 
fluctuations we have seen in the real minimum wage, which are 
unattractive for both workers as well as employers. As a 
result, even some economists who are opposed to high minimum 
wage policies support indexation. A falling minimum wage has 
also directly contributed to rising inequality.
    Existing research suggests that about half the gap between 
the middle and the bottom of the labor market that has grown 
has been due to a falling real minimum wage. The increase 
followed by indexation will both narrow and stabilize the gap 
going forward.
    How should we think about setting a level of a real minimum 
wage? Economists often look to the ratio of the minimum and the 
median wage as a way of measuring the strength or the bite of 
the policy.
    Today, the minimum wage stands at 37 percent of the median 
wage in the United States. For other developed countries, that 
ratio is more like 50 percent. We are actually second to last 
amongst our peers, our ranking ahead only of the Czech 
Republic.
    Back in 1968, that ratio of the minimum to the median wage 
was at 55 percent of the median. I estimate that the proposed 
increases will place the minimum wage at right about 50 percent 
by 2016, close to both the historical and the international 
norm.
    What are the likely impacts on jobs for raising and 
stabilizing the real minimum wage? For the range of minimum 
wage increases we have seen in the United States over the past 
two decades, the recent evidence based on credible 
methodologies do not find job losses of any sizable magnitude.
    I want to be clear that there isn't universal agreement 
amongst economists on whether there are some job losses 
following these minimum wage increases. So here, I want to make 
three points.
    First, it is important to keep in mind that the academic 
debate about minimum wages and jobs is a disagreement over no 
job losses or small job losses for high impact groups such as 
teenagers.
    Second, studies finding negative impact on jobs like the 
ones Senator Alexander mentioned, are often not careful about 
picking control groups, picking up artifacts unrelated to 
minimum wage increases which could be deindustrialization, 
technological change, or even weather patterns.
    Studies comparing similar areas, neighboring areas right 
across the State borders, for example, can overcome a lot of 
these problems. In my own work, we have looked at State borders 
with dozens of minimum wage increases over nearly two decades 
and found no impact on restaurant jobs or teen employment. And 
these results hold, by the way, even when looking at soft labor 
markets.
    Finally, most of studies, surveys of studies and meta 
studies also suggest that the impact of jobs is small.
    So how do economists as a whole, today, feel about minimum 
wages? The best pulse of the discipline is the IGM panel of 41 
leading economists organized by the University of Chicago, my 
alma mater. When recently asked about whether they supported 
raising and indexing the minimum wage, the economists 
supporting the proposition outnumbered opponents by a factor of 
4 to 1.
    If employment effects of minimum wages are small, what 
effects can we expect to see? First, evidence shows that for 
the proposed increase, turnover would fall by about 8 percent 
or so. This increases productivity as workers stick around 
longer, reducing training costs.
    There would also be some increases in prices in the 
restaurant sector. For instance, the price of a $1 soda may 
rise by 2 to 3 cents. But given this relatively small fraction 
of workers who are minimum wage earners, any impact on the 
overall price level would be very small, and this is not a 
controversial claim.
    Finally I would argue that the best evidence shows that 
there are some moderate reductions we can expect in the poverty 
rate, mostly reversing the increases that took place during the 
last downturn.
    That sums up most of the salient ways in which the economy 
would actually react to the proposed minimum wage increase.
    Thank you, again.
    [The prepared statement of Mr. Dube follows:]
              Prepared Statement of Arindrajit Dube, Ph.D.
                           executive summary
    1.  The minimum wage has failed to keep pace with productivity, 
while top pay and corporate profitability have grown rapidly.

        A falling minimum wage has contributed to rising 
inequality, explaining around half of the rise in inequality in the 
bottom half of the pay distribution, and more so for women.
        Raising and indexing the minimum wage would reduce the 
gap between those at the bottom and the rest of the workforce.

    2. Minimum wages have not kept pace with cost of living.

        Adjusted for inflation, the real minimum wage has 
fallen from a high of $10.60 in 1968 to $7.25 in today's dollars.
        Harkin-Miller would bring minimum wages up to $9.38 in 
today's dollars.
        Indexation makes the adjustment process much more 
predictable. Even some economists who are skeptical about minimum wage 
policies support indexation.

    3. Minimum wages have also lost ground in comparison to median 
wages.

        The minimum fell from a high of 55 percent of the 
median wage in 1968 to 37 percent.
        Harkin-Miller would likely raise the minimum to 50 
percent of the median wage--close to the average for other OECD 
countries, and the U.S. historical norm during the 1960s and 1970s.

    4.  For the range of minimum wage increases we have seen in the 
United States over the past two decades, recent evidence based on 
credible methodologies do not find job losses of any sizable magnitude.

        The academic disagreements are over no job losses or 
small job losses for highly impacted groups.
        While some studies continue to find negative effects, 
these are often artifacts of regional trends and other factors 
unrelated to minimum wage increases.
        Studies comparing similar neighboring areas right 
across the border account for these problems and find no impact on jobs 
either for sectors like restaurant and retail, or groups like teens.
        Employment effects do not seem to vary by the phase of 
the business cycle or whether the State indexes its minimum wage to 
inflation.
        Most surveys and meta-analyses have also concluded that 
employment effects are small.
        This is why more economists today tend to support 
increasing and indexing than oppose it--even though there is scholarly 
disagreement on the precise impact.

    5.  While employment may not fall from moderate increases in 
minimum wages, both separation and hires fall, lowering the turnover 
rate.

        In the increasingly popular economic models with search 
frictions, lower quits and layoffs, along with increased search 
activity by the unemployed, can explain why employment response is 
small.
        Lower turnover can also increase productivity.
        Outside of the simple Econ 101 type environment, 
increasing workers' pay can improve the functioning of the low wage 
labor market.

    6.  Based on existing evidence, we can expect some increases in 
restaurant prices from a minimum wage increase. However, the overall 
price level is unlikely to change noticeably, and there is little risk 
of wage-price spirals from indexation.
    7.  The best evidence suggests that minimum wage increases lead to 
moderate reductions in the poverty rate, especially together with the 
Earned Income Tax Credit.

        There are strong theoretical rationales--and empirical 
confirmation--that minimum wages and EITC are complementary policies 
when it comes to helping low-income families.
        A high minimum wage prevents wage reductions that can 
result from an EITC.
        Since the EITC is indexed to the CPI, minimum wage 
indexation will prevent erosion of EITC benefits for minimum wage 
workers.
                                 ______
                                 
    Thank you Chairman Harkin, and members of the committee for the 
opportunity to speak here today.
    My name is Arindrajit Dube, and I am an Assistant Professor of 
Economics at the University of Massachusetts Amherst. My area of 
expertise is on labor market policies, with emphasis on low-wage 
workers. I have done extensive research on minimum wage laws over the 
past 8 years, as well as research on other types of employer mandates. 
I welcome this opportunity to share with you findings from both my own 
research as well as the sizable body of evidence that economists have 
marshaled on the question of increasing minimum wages.
    Today I want to highlight some of the key economic factors to 
consider when deciding on an appropriate adjustment to the minimum 
wage. I will discuss how the minimum wage adjustment process has worked 
in the context of the overall economy, keeping in mind movements in 
inequality and cost of living. I will specifically consider the role of 
indexation of the minimum wage to the consumer price index. And I will 
also share with you what we know about how the economy adjusts to such 
changes in minimum wages.
                        i. the economic context
A. Rising Inequality
    Summary: The minimum wage has failed to keep pace with 
productivity, while top pay and corporate profitability have grown 
rapidly.

      A falling minimum wage has contributed to rising 
inequality, explaining around half the rise in inequality in the bottom 
half of the pay distribution, and more so for women.
      Raising and indexing the minimum wage would reduce the 
gap between those at the bottom and the rest of the workforce.

    For much of the past three decades, we have seen a sharp rise in 
income inequality--fueled by both a rising dispersion in wages, as well 
as a reduction in labor's share of income. The bottom of the labor 
market has failed to keep up with overall economic gains.
    Wage inequality has grown substantially over the past 30 years, 
beginning around 1980. As shown in Figure 1, most of this increase has 
been in the top half of the wage distribution, especially since the 
1990s. The only time we saw an increase in the wages of the lower half 
of the distribution was during the period of low unemployment in the 
late 1990s. As a result, the 90th percentile real wage grew by over 30 
percent between 1973 and 2011, while the median and 10th percentile 
real wage grew by less than 5 percent over the same period (see Figure 
1).
     Figure 1: Wages in the U.S. by Percentiles (Index=1 for 1973)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Source: CPS Merged Outgoing Rotation Groups data as reported in 
State of Working American 2011.

    During the past three decades, we have also seen a general downward 
trend in labor's share of income--interrupted only by the late 1990s 
boom. The shift toward capital income has shrunk the size of the pie 
going to workers as a whole. Today, the share of income going to labor 
as opposed to capital stands at a post-war near-low. Meanwhile, 
corporate profitability has been growing at a steady clip and has been 
restored during the current recovery. These two factors--increased wage 
inequality and a fall in labor's share--have kept those at the bottom 
end of the labor market from sharing in our economic progress.
       Figure 2: U.S. Corporate Profits and Labor Share of Income

                   Corporate Profits After Taxes (CP)

               Business Sector: Labor Share (PRS84006173)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    As a way to see how the gap between a minimum wage worker and 
others in our economy has grown, in Figure 3, I plot how the minimum 
wage would have changed over the past 30 years had it grown at the same 
rate as productivity. And how it would have evolved if it had kept pace 
with the income going to the top 1 percent of the income distribution. 
For comparison, I also show the actual inflation-adjusted minimum wage 
(using the CPI-W).
    Figure 3: Real Minimum Wages Actual Versus Counterfactual Using 
              Productivity or Top 1 Percent Income Growth
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    It is quite remarkable that had the minimum wage kept up with 
overall productivity, it would have been $22 per hour in 2011. Had it 
kept up with the growth in income going to the top 1 percent, it would 
have been even higher, at $24 per hour; and the wage would have 
exceeded $33/hour at its peak in 2007.
    This evidence does not suggest that the minimum wage should be 
increased to $22 or $24 per hour. Rather, the exercise demonstrates how 
different the growth rates have been for incomes going to those at the 
bottom of the labor market as compared to the economy as a whole, and 
to those at the top end of the distribution. Of course, there are many 
reasons behind this dramatic rise in inequality, including 
technological change, falling rates of unionization, de-
industrialization, increased trade, deregulation and more. And we 
certainly cannot expect minimum wages alone to solve the challenge of 
growing inequality. However, there is also substantial evidence showing 
that a falling real minimum wage has contributed to this growth in 
inequality.
    Lee (1999) was one of the first papers to take a comprehensive look 
at the effect of minimum wages on wage inequality. He found a sizable 
spillover effect--whereby the fall in the minimum lowered wages of 
those higher up in the ladder. He argued that nearly all of the growth 
in inequality in the bottom half of the wage distribution during the 
1980s could be explained by the erosion of minimum wage through 
inflation. Considering the 50/10 gap--the ratio of the median wage to 
the wage at the 10th percentile--Lee found that 70 percent of the 
increase for men, and between 70 and 100 percent of the increase for 
women, could be explained by the decline in the value of the minimum 
wage.
    A more recent paper by Autor Manning and Smith (2010) uses a more 
refined methodology, and finds somewhat smaller spillover effects. 
However, they too find that minimum wages played an important role in 
determining the 50/10 gap--which is a measure of wage inequality in the 
bottom half of the distribution. Table 1 below reproduces their key 
findings, and shows that maintaining the minimum wage at the 1979 level 
in real terms would have staved off somewhere between half and three-
quarters of the overall increase in the bottom-half wage inequality 
depending on the period in question. Moreover, the minimum wage has a 
larger effect on inequality for female workers, who tend to be lower 
paid.

                  Table 1.--Effect of the Minimum Wage on Wage Inequality: The 50/10 Wage Ratio
----------------------------------------------------------------------------------------------------------------
                                                                         Counterfactual               Proportion
                                                                            with 1979                 due  to MW
                                                                Actual    minimum  wage  Difference      (In
                                                                             (2SLS)                    percent)
----------------------------------------------------------------------------------------------------------------
A. 1979--1991
  Female....................................................      22.40           9.65        12.75         56.9
  Male......................................................      11.20            9.5         1.70         15.2
  Pooled....................................................       7.10           1.65         5.45         76.8
A. 1979--2009
  Female....................................................      25.20          10.98        14.23         56.4
  Male......................................................       5.30           5.43        -0.13         -2.4
  Pooled....................................................      11.40           6.28         5.13         45.0
----------------------------------------------------------------------------------------------------------------
Notes: Calculated using Autor Manning and Smith (2010) Table 5. The Counterfactuals with 1979 use an average of
  the two 2SLS estimates reported by the authors.

    Both Lee and Autor, et al., use State-level variation in minimum 
wages over time, and a modeled counterfactual wage distribution, to 
reach their conclusion. A different approach using decomposition 
methods such as Dinardo Fortin and Lemieux (1996) and Chernozhukov 
Fernandez-Val and Melly (2013) tend to find even larger impacts of 
minimum wage on inequality. The latter set of authors, using cutting 
edge distributional decompositions find that the minimum wage can 
explain nearly all of the increase in the pooled 50/10 ratio between 
1979 and around 1/3 of the increased standard deviation in log wages (a 
measure of overall inequality).
    To sum up, while there is some scholarly disagreement about the 
exact magnitudes of the impact of minimum wages on inequality, we know 
that the decline in the real minimum has played an important role in 
increasing inequality in the bottom half of the wage distribution, 
especially for women.
B. Minimum Wages Have Not Kept Up with Cost of Living
    Summary: Minimum wages have not kept pace with cost of living.

      Adjusted for inflation, the real minimum wage has fallen 
from a high of $10.60 in 1968 to $7.25 in today's dollars.
      Harkin-Miller would bring minimum wages up to $9.38 in 
today's dollars.
      Indexation makes the adjustment process much more 
predictable. Even some economists who are skeptical about minimum wage 
policies support indexation.

    Over the last three decades, the minimum wage has failed to keep up 
with cost of living. Figure 4 shows the value of the Federal minimum 
wage in 2013 dollars spanning from 1960 to 2016--with projected values 
using the Harkin-Miller proposal. These projections are based on a 
passage of the bill in 2014, with the full phase in by 2016. I am using 
the CPI-W to adjust for inflation, and also assuming a 2.5 percent 
annual inflation rate over the next 3 years (roughly the average over 
the past 3 years). While the details of the discussion that follows 
will differ from using a different CPI, or different timing of passage, 
or different inflation assumptions, the main message would not change 
substantially.
Figure 4: Evolution of the Real Minimum Wage in the U.S. (2013 dollars)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    The high water mark for the minimum wage was in 1968, when it 
reached $10.60/hour in 2013 dollars. The next highest peak was in 1978, 
when the real minimum wage reached $9.37. During the 1980s the real 
minimum wage declined to below $7/hour, and over the past 20 years, the 
minimum wage has largely treaded water, reaching a historical low of 
$6.06/hour in 2006 prior to the last increase, which brought it to 
$7.25/hour in today's dollars.
    Under Harkin-Miller, with the full adjustment by 2016, the minimum 
wage will likely reach $9.38/hour in today's dollars. This is a 
substantial increase, bringing it up to the level in 1978. However, it 
will still be somewhat lower than the high water mark in 1968.
    The fall in the value of the minimum wage has not only increased 
relative deprivation (inequality), but also increased absolute 
deprivation. Today, a single parent with one child, working full time 
at the minimum wage, would earn $14,500 in pre-tax income--below the 
official poverty line in 2012 ($15,130). With Harkin-Miller phased in, 
in 2016 her earnings would rise to $18,760. At the 1968 level minimum 
wage, her pre-tax earnings would have been $21,200. (All these figures 
are in 2013 dollars.)
    Figure 5: Pre-tax Income of Single Parent With One Child Under 
                       Alternative Minimum Wages
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]                    

    Finally, the sharp swings in the real minimum wage shows some of 
the inefficiencies of current practices, where the nominal minimum wage 
stagnates for years, only to be followed by sharp increases. Regardless 
of what level we set the real minimum wage, pegging it to the cost of 
living makes it a much more rational and predictable process, which has 
value to both workers and employers. This is why even some economists 
who are skeptical about minimum wage policies nonetheless support 
indexation.\1\
---------------------------------------------------------------------------
    \1\ Well-known labor economist Daniel Hammermesh, for example, has 
supported indexation even though he is critical of minimum wages. 
http://www.utexas.edu/know/2012/02/09/
daniel_hamermesh_minimum_wage_election/.
---------------------------------------------------------------------------
C. Minimum Wages Have Fallen Behind Median Wages
    Summary: Minimum wages have lost ground in comparison to median 
wages.

      The minimum fell from a high of 55 percent of the median 
wage in 1968 to 37 percent.
      Harkin-Miller would likely raise the minimum to 50 
percent of the median wage--close to the average for other OECD 
countries, and the U.S. historical norm during the 1960s and 1970s.

    When analyzing the strength of minimum wage policies, economists 
typically use the ratio of the minimum to the median wage, also known 
as the Kaitz index. There are three reasons to pay attention to this 
measure. First, a comparison of the minimum wage to the median offers 
us a guide to how binding a particular minimum wage increase is likely 
to be, and what type of wage the labor market can bear. Second, a 
comparison also provides us with a natural benchmark for judging how 
high or low a minimum wage is across time periods or across countries 
that vary in terms of their labor markets and wage distributions. 
Third, the median wage also provides a natural reference group for 
judging how reasonable a minimum wage level is: most people would not 
think fairness concerns dictate that the minimum wage should be set 
equal to the median wage, but they may find it objectionable if it is 
much lower (say a fourth or a fifth as large). Green and Harrison 
(2010) argue that voter preferences over minimum wages are likely to 
track the median wage as an indicator of a reference market wage.
    A natural target is to set the minimum wage to half of the median 
wage. This target has important precedence historically here in the 
United States. In the 1960s, this ratio was 51 percent, reaching a high 
of 55 percent in 1968. Averaged over the 1960-79 period, the ratio 
stood at 48 percent.
  Figure 6: Evolution of the Minimum-to-Median Wage Ratio in the U.S.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Around half the median wage is also the norm among all OECD 
countries with a statutory minimum. For this group of countries, on 
average, the minimum wage in 2011 (latest data available) was equal to 
49 percent of the median wage, while averaged over the entire sample 
between 1960 and 1991, the minimum stood at 48 percent of the median 
(see Figure 7). It is important to note that many countries such as 
France and New Zealand today have minimum wages at or close to 60 
percent of the median.
    In contrast, today in the United States the minimum wage clocks at 
37 percent of the median wage, and has the lowest minimum wage in 
relation to the median of all OECD countries save the Czech Republic 
(see Figure 8).
 Figure 7: Evolution of Minimum-to-Median Wage Ratio in OECD Countries 
                              (1960-2011)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Figure 8: Distribution of Minimum-to-Median Wage Ratio in OECD 
                            Countries (2011)
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

What would be the impact of the proposed legislation on the 
minimum-to-median ratio? I estimate that under Harkin-Miller, after the 
3 steps have been implemented by 2016, the minimum wage would stand at 
around 50 percent of the median wage, assuming nominal increases in the 
median wage at the same rate as the past 3 years. Such a change would 
bring the United States just above the OECD average and the historical 
norm prior to the 1980s.
    A comparison to the median wage also clarifies why something around 
$10/hour is reasonable while $20/hour is not. The median wage today is 
around $20/hour. There are no known cases where the minimum wage was 
set equal to the median in a capitalist economy. However, there are 
many cases, including here in the United States, where it was set at or 
slightly above half the median wage.
          ii. how are increases in the minimum wage absorbed?
A. Employment Effects
    Summary: For the range of minimum wage increases we have seen in 
the United States over the past two decades, recent evidence based on 
credible methodologies do not find job losses of any sizable magnitude.

      The academic disagreements are over no job losses or 
small job losses for highly impacted groups.
      While some studies continue to find negative effects, 
these are often artifacts of regional trends and other factors 
unrelated to minimum wage increases.
      Studies comparing similar neighboring areas right across 
the border account for these problems and find no impact on jobs either 
for sectors like restaurant and retail groups like teens.
      Employment effects do not seem to vary by the phase of 
the business cycle or whether the State indexes its minimum wage to 
inflation.
      Most surveys and meta-analyses have also concluded that 
employment effects are small.
      This is why more economists today support an increase 
than oppose it--even though there is scholarly disagreement on the 
precise impact.

    When it comes to the literature on minimum wages' impact on jobs, 
it is useful to think of several distinct phases. Until the early 
1990s, economists largely relied on time series evidence--correlating 
changes in the national level unemployment rate for teens to changes in 
the Federal minimum wage. This older generation literature was shown to 
have numerous problems, and economists today largely discount these 
findings today because there are many factors affecting the national 
unemployment rates for teens that have nothing to do with minimum 
wages.
    Beginning in the early 1990s, a second generation of work 
(sometimes called the ``new minimum wage'' research) started exploiting 
the State-level variation in minimum wages that emerged in the 1980s 
and grew in the 1990s due to the stagnating Federal minimum wage. The 
two leading approaches were the State panel approach pioneered by 
Neumark and Wascher (1992) and case study approach pioneered by Card 
and Krueger (1994). The State-panel approach used more data, but 
implicitly assumed ``parallel trends'' . . . that the low-wage 
employment trajectories in high minimum-wage States like Massachusetts 
and Oregon were the same as low minimum-wage States like Texas and 
Georgia. As it turns out, this is not a good assumption.
    In contrast, the case study approach of Card and Krueger (1994, 
2000), as well as Card (1992), focused on looking at individual cases 
with a focus on getting reliable control groups. In their highly 
celebrated work published in 1994, they found that an increase in the 
minimum wage in New Jersey did not reduce employment in fast food 
restaurants in that State as compared to a neighboring State, 
Pennsylvania. Although these results were questioned by Neumark and 
Wascher (2000)--who collected their own data--the core findings (lack 
of job loss) held up when Card and Krueger used official employment 
data covering nearly the entire workforce using Unemployment Insurance 
rolls. However, the challenges with the case study approach are that: 
(1) it is difficult to draw firm inference from single cases, (2) they 
typically use only a short-time horizon, and (3) results may be 
difficult to generalize.
    Over the past 5 years, we have made a lot of progress in 
synthesizing the results using these two approaches. The local case 
study approach has the virtue of using similar controls groups: 
adjacent control counties are much more alike in terms of observed 
characteristics than non-adjacent ones (Allegretto, Dube, Reich, 
Zipperer, forthcoming). This is of particular concern given how 
regionally clustered high minimum wage States have been over the past 
20 years.
    In a series of papers with Michael Reich and T. William Lester, we 
combined the virtues of these two approaches by embedding the local 
comparisons within a long panels using detailed county level data. In a 
2010 paper published in the Review of Economics and Statistics, Lester, 
Reich and I considered all adjacent counties straddling State borders 
for which data was available continuously for the full period between 
1990 and 2006--a total of 504 counties. The following figure shows the 
border counties in the United States.

  Figure 9: Map of Border Counties Used to Study Minimum Wage Policies
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Of these, 337 counties in 288 pairs had some difference in minimum 
wage. Comparing across these neighboring counties, we showed that there 
was no evidence of job losses for high impact sectors such as 
restaurants and retail. This was true even considering four or more 
years after the minimum wage hike. In followup work, we used the same 
cross-border methodology to study the effect on teens--a high impact 
demographic group (Dube Lester Reich 2012). Again, we found no 
discernible impact on employment. In yet another paper, we used a 
different dataset and less fine-grained regional controls and again 
replicated our findings that minimum wages did not reduce teen 
employment during the 1990s and 2000s. (Allegretto Dube Reich 2011).
    Our studies also helped explain why researchers have sometimes 
found a negative effect on jobs from the policy. Over the past two 
decades, the variation in minimum wages has been highly regionally 
selective: the States that have seen greater increases in the minimum 
wage--typically in the northeast and the west--have tended to be those 
with lower underlying growth in demand for low-wage workers. Failure to 
account for these factors will lead us to mistakenly attribute the low 
growth in employment to higher minimum wages, instead of the real cause 
(deindustri-
alization, technological change, bad weather, etc.) For example, we 
showed that the apparent job losses in the State panel models tend to 
occur before the minimum wage increase occurs, a tell-tale sign of a 
spurious effect.
    In all, we have by now replicated these findings in 4 papers using 
5 datasets and 6 different ways of accounting for comparability of 
areas. These are summarized in Table 2. For high impact groups such as 
restaurant workers and teens, we find that a 10 percent increase in 
minimum wage raises average wages or earnings by 1.5 percent to 2 
percent. Employment changes are usually close to zero, never more 
negative than -0.5 percent, and sometimes positive in sign. In all 
cases, there is clear evidence that minimum wage increases raise total 
pay going to low-wage workers after factoring in both wage and 
employment changes.\2\
---------------------------------------------------------------------------
    \2\ In a very recent paper, Neumark Salas and Wascher (2013), 
hereafter NSW, criticize our work and question the value of using local 
controls. By now there is a large body of research that shows why local 
controls and cross-border research design produce more reliable control 
groups--including many papers outside of the minimum wage literature. 
NSW seems to ignore this literature, and instead claim that an 
alternative technique called ``synthetic control'' picks controls that 
are not always nearby. However, as we show in a forthcoming paper, they 
misinterpret their own findings: control States that are within the 
same census division receive four times as large weights than States 
outside, confirming that nearby areas are indeed more similar 
(Allegretto Dube Reich and Zipperer, forthcoming). Moreover, using the 
synthetic control method, we show that a control State that is 100 
miles away on average gets a weight that is seven times as large as a 
State that is 2,000 miles away--again validating our strategies. 
Finally, we show that when we use the synthetic control method to 
estimate the effect of minimum wages on teens using all usable State-
level minimum wage changes between 1997 and 2007, we do not detect any 
evidence of job losses for teens, with an average employment elasticity 
close to zero. These findings show that NSW's claims are not borne out 
in the data, including when we apply their own preferred technique. We 
also show that the results from one synthetic control case study that 
found negative employment effect Burkhauser Sabia Hansen 2012, which 
studies the impact of New York's minimum wage was an outlier.

                         Table 2.--Response to a 10 Percent Increase in the Minimum Wage
----------------------------------------------------------------------------------------------------------------
                                          (1)                 (2)                 (3)                 (4)
----------------------------------------------------------------------------------------------------------------
Teens:
  Earnings......................  1.5 percent*......  1.5 percent*......  1.6 percent*......
  Employment....................  0.5 percent.......  1.3 percent.......  -0.4 percent......
  Turnover Rate.................    ................    ................  -1.9 percent*.....
Restaurant Workers:
  Earnings......................    ................    ................  2.1 percent*......  2.0 percent*
  Employment....................    ................    ................  -0.6 percent......  0.6 percent
  Turnover Rate.................    ................    ................  -2.6 percent*.....
Data Sets:......................  CPS...............  ACS/Census........  QWI...............  QCEW
                                  Allegretto Dube...  Allegretto Dube...  Dube Lester.......  Dube Lester
Paper:..........................  Reich (2011)......  Reich (2009)......  Reich (2012)......  Reich (2010)
----------------------------------------------------------------------------------------------------------------
Notes: Column (1) controls for spatial heterogeneity using census division-specific time effects and State-
  linear trends; column (2) uses commuting-zone specific time effects; columns (3) and (4) both use county-pair
  specific time effects. CPS stands for Current Population Survey; ACS stands for American Community Survey; QWI
  stands for Quarterly Workforce Indicators; QCEW stands for Quarterly Census of Employment and Wages.

    Other researchers have also obtained similar results. In 
independently produced work, Addison Blackburn and Cotti (2009, 2012) 
found that once they accounted for trends in sectoral employment, there 
is no evidence of job loss in the retail or restaurant sectors. And 
that failure to account for such trends generates misleading estimates 
suggesting job losses. Neither our work (Allegretto Dube Reich 2011), 
nor others (Addison Blackburn Cotti 2011) found evidence that minimum 
wages cause more job losses during economic downturns or periods of 
higher overall unemployment. This is relevant for the current 
discussion of raising the minimum wage during a time with an elevated 
unemployment rate.
    Since there are 10 States that index their minimum wage to the CPI 
we can also test whether the employment effects are different in these 
States. In Allegretto Dube and Reich (2011) we did not find systematic 
differences in employment response by the States' indexation status.
    Leaving the most recent evidence aside, a broader look at the 
literature also tends to go against the view of large job losses. A 
review by Charles Brown in 1999 for the Handbook of Labor Economics had 
concluded based on the first round of ``New Minimum Wage Research'' 
that employment effects of minimum wages were likely to be small, 
though the results varied depending on the methods. Similarly, a meta 
analysis by Doucouliagos and Stanley (2009) concluded that even prior 
to the most recent work, the literature as a whole (between 1972 and 
2007) did not show evidence of job loss. An up-to-date survey of the 
more recent evidence by Wolfson and Belman (forthcoming) corroborate 
this finding, and conclude that it was unlikely that the minimum wage 
increases under study led to statistically or economically meaningful 
job losses. And when we take into account the demonstrated failings of 
papers using the State-level approach, this conclusion is 
strengthened.\3\
---------------------------------------------------------------------------
    \3\ One review to conclude there is evidence of job loss is Neumark 
and Wascher (2008). However, as I discuss in Dube (2010), this is a 
subjective reading of the evidence based on a selective set of papers, 
and excludes the evidence from the past 5 years. John Schmitt (2013) 
also provides a useful summary of the key articles, surveys and meta 
analyses, including many of the ones discussed here.
---------------------------------------------------------------------------
    While 20 or 30 years ago most economists believed that minimum wage 
increases invariably cause some job loss, as the data has come in, the 
profession has updated its beliefs. Recently, the IGM Forum panel of 41 
leading economists organized by the Booth School of Business at the 
University of Chicago was asked their opinion about the desirability of 
raising the minimum wage to $9/hour as proposed by the President, and 
indexing it to inflation.\4\ The IGM Forum panel is widely seen as 
representing the pulse of the profession.
---------------------------------------------------------------------------
    \4\ http://www.igmchicago.org/igm-economic-experts-panel/poll-
results?SurveyID=SV_br0IEq5
a9E77NMV.
---------------------------------------------------------------------------
    Only 34 percent of the economists on the panel agreed with that 
proposition that the minimum wage hike ``would make it noticeably 
harder for low-skilled workers to find employment.'' The rest disagreed 
or were uncertain. It is instructive to compare this with older 
evidence. Surveys of AEA members in 2000 found 46 percent agreeing with 
a similar proposition, while surveys concluded in 1992 and 1978 
revealed 79 percent and 90 percent of economists agreeing with similar 
statements (Klein and Dompe 2007). While we should be cautious when 
comparing across different surveys, the belief that minimum wages 
necessarily cause job loss no longer appears to be a majority position 
within the profession.
    Even more importantly, overall support for raising the wage and 
indexing it was strong among the panelists. Forty-seven percent 
supported the policy, while only 14 percent opposed it, while the rest 
were uncertain. The IGM panel also reports the responses weighted by 
the confidence the panelists reported in their answers. Weighted by 
confidence, the proportion expressing support and opposition were 62 
percent and 16 percent, respectively. The third of the panel that 
expected job losses were split on their support for the policy, while 
the third that were sure that there would not be job losses were 
unanimous in their support. (Those who were uncertain broke in favor of 
an increase.) Today, more economists appear to support a moderate 
increase in the minimum wage and indexation to cost of living than 
oppose it.
B. Turnover and Job Flows
    Summary: While employment may not fall from moderate increases in 
minimum wages, both separation and hires fall, lowering the turnover 
rate.

      In the increasingly popular economic models with search 
friction, lower quits and layoffs, along with increased search activity 
by the unemployed, can explain why employment response is small.
      Lower turnover can also increase productivity.
      Outside of the simple Econ 101 type environment, 
increasing workers' pay can improve the functioning of the low wage 
labor market.

    In contrast to employment levels, there is growing evidence that 
increased minimum wages reduce employment flows--i.e., turnover. In 
Dube Lester Reich (2012), we used the same border county methodology to 
estimate the impact on separations, hires, and turnover rate (turnover 
rate is the average of the separation and hires rates). We found that 
for the low-wage groups we considered (teens, restaurant workers), 
there was a sharp reduction in both separations and hires, even though 
the number of jobs remained stable. As a result, the turnover rate fell 
substantially. As Table 2 reports, for a 10 percent increase in the 
minimum wage, the turnover rate falls by 1.9 percent for teens, and 2.1 
percent for restaurant employees, which are substantial magnitudes. In 
an independent study using Canadian data, Brochu and Green (2012) also 
find substantial reductions in turnover following a minimum wage 
increase.
    The reduction in separations and hires, concurrent with a steady 
employment level, offers some clues as to how minimum wages may be 
absorbed in the low-wage labor market. One explanation is that by 
reducing frictional wage inequality, an increased minimum wage reduces 
job-to-job transitions. Put simply, if McDonalds pays a better wage, 
fewer of its workers will leave to take better paying jobs--say at the 
higher wage chain In-and-Out Burgers. A higher statutory minimum 
reduces vacancies at McDonald's, and makes it more likely that the 
vacancy at the In-and-Out Burgers is filled from the ranks of the 
unemployed. These two factors tend to help with maintaining the 
employment level. Second, as Brochu and Green show, a higher minimum 
wage may also reduce employers' desire to lay off workers in some 
situations, pushing less people into unemployment.
    Overall, even if a minimum wage increase somewhat reduces the 
number of desired jobs from the employer's perspective, reduced quits 
and layoffs can compensate and help keep the overall employment 
relatively stable. Models with search frictions in the labor market--
which have become increasingly popular--can help explain this pattern 
of small effect on employment coupled with larger effect on turnover. 
Of course this cannot be true at all levels of the minimum wage--with a 
sufficiently large increase, employment levels will most likely fall as 
well.
    Finally, there are other channels through which minimum wages may 
positively impact employment. A higher minimum wage can spur those who 
are unemployed to search more intensely for jobs, as the value of a job 
rises. It can also bring in workers who previously were not searching 
because the wage was too low. In models with search friction, job 
creation is not simply determined by how many vacancies are posted; 
rather it is a function of both the number of vacancies as well as how 
many workers are searching for jobs, and how hard they are searching. 
Generally speaking, workers' bargaining power may be insufficiently low 
for the purposes of efficiency. By increasing workers' pay, a minimum 
wage policy can improve the functioning of the low-wage labor market.
    There are other implications from reduced turnover as well. Dube, 
Freeman and Reich (2010) finds that replacement costs are around 8 
percent of annual salaries, and are sizable even for blue collar and 
service workers. Reduced turnover can, therefore, increase productivity 
through reducing recruitment and training expenses.
    These additional channels of adjustment can help explain why 
moderate increases in minimum wage seem to have small employment 
effects.
C. Prices, Inflation and Indexation
    Summary: Based on existing evidence, we can expect some increases 
in restaurant prices from a minimum wage increase. However, the overall 
price level is unlikely to change noticeably, and there is little risk 
of wage price spirals from indexation.

    An additional channel for absorbing a minimum wage adjustment is 
through increases in the price of the product. The extent to which this 
occurs depends on how sensitive the demand for the product is to price. 
Lemos (2008) reviews this evidence, and argues that there is evidence 
of moderate increase in prices of high impact sectors like restaurants 
following a minimum wage increase. To date, the clearest evidence on 
price increase in the U.S. case comes from Aaronson French MacDonald 
(2008), who find that a 10 percent increase in minimum wage would raise 
restaurant prices by around 0.7 percent. These estimates would suggest 
that the proposed Harkin-Miller adjustment would increase restaurant 
prices by around 2.7 percent. (This is likely an over-estimate because 
the real minimum wage increase in Harkin-Miller is less than the 
nominal increase of 39 percent over 2 years.)
    While restaurant prices will see likely some increases, the overall 
price level (e.g., the Consumer Price Index) is unlikely to be 
noticeably affected by minimum wage hikes. For example, Neumark and 
Wascher (2008, p. 248) points out:

          ``Both because of the relatively small share of production 
        costs accounted for by minimum wage labor and because of the 
        limited spillovers from a minimum wage increase to wages of 
        other workers, the effect of a minimum wage increase on the 
        overall price level is likely to be small.''--(Neumark and 
        Wascher 2008, p. 248.)

    In a recent op-ed, Aaronson and French (2013) suggest that the 
overall price level increase from the President's proposal would be 
around 0.3 percent; analogous calculations would suggest that the 
Harkin-Miller proposal would increase the overall price by less than 
0.5 percent.
    The small impact on the overall price level has relevance for 
indexation. One concern sometimes raised by indexation is that it feeds 
a wage-price spiral. These concerns stem from the experience in the 
1970s, when there was widespread use of escalator clauses in union 
contracts. However, in the case of minimum wages, the relatively small 
number of affected workers and the small share of production costs from 
minimum wage workers limits the scope for feedback into prices. 
Therefore, worries about ``wage price spirals'' from an increased 
minimum wage are misplaced and not typically shared by researchers on 
the topic, regardless of their opinion about the desirability of the 
minimum wage.
              iii. the minimum wage, poverty, and the eitc
    Summary: The best evidence suggests that minimum wage increases 
lead to moderate reductions in the poverty rate, especially together 
with the Earned Income Tax Credit.

      There are strong theoretical rationales--and empirical 
confirmation--that minimum wages and EITC are complementary policies 
when it comes to helping low-income families.
      A high minimum wage prevents wage reductions that can 
result from an EITC.
      Since the EITC is indexed to the CPT, minimum wage 
indexation will prevent erosion of EITC benefits for minimum wage 
workers.

    Minimum wages tend to increase income going to working class and 
poor families. However, the anti-poverty aspect of minimum wage is 
limited by the fact that many families under the poverty line do not 
have substantial attachment to the labor force.
    To date, there have been a handful of comprehensive studies of 
minimum wage on family income, and the evidence is mixed on the 
strength of the anti-poverty impact. There are some studies that find 
clear anti-poverty effects (Addison and Blackburn 1999) while others 
find more small and/or imprecise estimates (Burkhauser and Sabia 2007, 
Sabia and Burkhauser 2010). However, all of these studies are plagued 
by numerous methodological problems such as use of aggregate data, lack 
of sufficient controls, and short time horizons. Many of the estimates 
are imprecise.
    The study with fewest problems is probably Neumark and Wascher 
(2011), who look specifically at the interaction of minimum wage and 
EITC on family incomes. Although they do not report an overall estimate 
for the impact of minimum wages on poverty, their findings show that a 
10 percent increase in minimum wages would reduce poverty by around 3 
percent for the widest group they studied (18-44-year-old adults and 
family heads). They find even stronger reductions in the proportion of 
families with income less than half the poverty threshold.\5\ While the 
impact may differ by particular subgroups, the indication is that 
minimum wages tends to decrease poverty moderately.
---------------------------------------------------------------------------
    \5\ There is only one study that I am aware of that finds a 
poverty-increasing role of the minimum wage (Neumark Schweitzer and 
Wascher 2005). They use an unconventional methodology that has not been 
used before or since this paper, including by the authors. In contrast, 
Neumark and Wascher 2011 uses standard methodology to estimate impact 
on family incomes, and tends to find more beneficial results.
---------------------------------------------------------------------------
    In new work, I find very similar results using a 22-year period and 
all individuals under 65 years of age. I, too, find that a 10 percent 
increase in minimum wages would reduce poverty by around 3 percent 
(Dube, forthcoming). To put this in perspective, this suggests that the 
Harkin-Miller bill would reduce the official poverty rate from by 
around 1.8 percentage points, from 15.1 percent to 13.3 percent--a 
moderate-sized reduction that would mostly reverse the increases in 
poverty we have seen since the onset of the 2007 recession.
    Critics of minimum wages often point to the Earned Income Tax 
Credit (EITC) as an alternative policy that is better able to aid the 
poor. However, this is a false dichotomy. The EITC is an important 
program that likely held the poverty rate down by as much as 1.6 
percentage points in 2010.\6\ However, a problem with the EITC is that 
while it encourages work (a good thing), tends to push down wages by 
increasing supply, passing on some of the taxpayer-funded benefits to 
employers. EITC tends to lower wages by pushing out labor supply, 
lowering wages.
---------------------------------------------------------------------------
    \6\ http://www.census.gov/prod/2007pubs/p60-232.pdf.
---------------------------------------------------------------------------
    Rothstein (2010) shows that after accounting for this leakage, 
beneficiaries get about 73 cents on the dollar. When we factor in the 
impact on non-beneficiaries, it suggests that the majority of the EITC 
expenditures are captured by employers. A minimum wage mitigates this 
leakage by limiting the wage reductions from an increase in labor 
supply. Lee and Saez (2012) show how in a wide range of situations, the 
optimal policy package includes a form of minimum wage and something 
like EITC. They conclude in that ``our results imply that the minimum 
wage and subsidies for low-skilled workers are complementary 
policies.''
    Results from Neumark and Wascher (2011) also indicate that for 
families with kids (i.e., the primary beneficiaries of EITC)--minimum 
wage and EITC complement each other in reducing poverty.
    Finally, an erosion of the real value of minimum wages reduces EITC 
benefits for minimum wage workers, since the EITC (unlike the minimum 
wage) is tied to inflation. The indexation of minimum wages will tend 
to better harmonize these complementary programs.\7\
---------------------------------------------------------------------------
    \7\ http://www.taxpolicycenter.org/UploadedPDF/
311401_Minimum_Wage.pdf.
---------------------------------------------------------------------------
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    The Chairman. Thank you, Dr. Dube.
    Now, to Mr. Prince. Please proceed.

          STATEMENT OF LEW PRINCE, MANAGING PARTNER, 
                  VINTAGE VINYL, ST. LOUIS, MO

    Mr. Prince. Thank you, and thanks for the opportunity.
    Last year I joined a dozen other small businesses across 
the table from the President, the Vice President, and several 
of their economic advisors. The President opened the discussion 
by asking, ``What can I do to help small business?'' The first 
of us to speak up said, ``You can raise the minimum wage to $10 
bucks.'' I was not surprised. My company has always paid more 
than minimum wage and my return on that investment has been 
huge.
    My life is a tribute to the American Dream. Senator Harkin 
gave the numbers on the growth of our business. We started out 
with nothing and now own a multimillion dollar business with 23 
employees.
    From day one, we have built this business on wages above 
minimum. For that small extra investment, I get loyal, long-
term employees who are absolutely devoted to my company, and 
who built ongoing relationships with my customers, and that is 
what built my business, those relationships.
    Senator Harkin gave the numbers on the erosion in the 
buying power of the minimum wage. When Tom and I started, we 
never would have believed that 34 years later, the buying power 
of our customers would have eroded so much, and our lives as 
businessmen would have been much easier had it not.
    If we had indexed the minimum wage to inflation back then, 
we wouldn't have this buying power problem now. If we had 
indexed back then, my business would have benefited from my 
customers having steady, predictable buying power for the 
ensuing decades. And the businesses that are now having a 
problem adjusting to a large increase would not have ever had 
that problem. It would have been a normal cost increase.
    For me, good wages are also good business strategy. The 
last 20 years have been tough on record stores and in St. 
Louis, two-thirds of the record stores have closed since 2000. 
Vintage Vinyl has outlasted a 20-store local chain and dozens 
of national chains. Most of those stores paid only minimum 
wage. My better paid employees won this life and death struggle 
for me. High wages made us more competitive.
    The crucial part of my job as a CEO is prediction. I 
project future paths for my company. I make sure we are 
financially and logistically prepared for them. Part of that is 
predicting cost. My rent, utility, and health costs always 
rise, often unpredictably. Indexing the minimum wage would make 
labor costs more predictable and easier for a business to plan 
for.
    Indexing would especially help businesses that pay minimum 
wage. They would know exactly what to plan for and exactly 
when. Indexed raises are gradual and predictable. The 7 years 
of indexing we have had in Missouri has tacked 85 cents on the 
minimum wage; that averages out to 12 cents a year. If a 
business cannot plan for, or absorb, this tiny cost increase, 
it is already dead and is not going to survive any kind of 
competition.
    Most importantly, indexing makes the buying power of my 
customers more predictable. Small business owners know minimum 
wage dollars are spendable dollars and minimum wage earners 
spend increases right away. Putting a couple of hundred dollars 
a month in our customers' pockets is a boom to any business. It 
is a job creator and a business increaser.
    Indexing is good for school systems. If wages don't keep up 
with inflation, neither can rents. The falling return on rental 
units equals falling property values. Where I come from, 
schools are financed by property tax.
    But most importantly, without indexing, minimum wage 
earners will fall further into poverty, and this will increase 
the tax burden on small businesses in an incredibly unfair way. 
Food stamps, Medicaid, and other subsidies help the needy and 
it is important that we maintain them. But from a business 
point of view, when wages are so low that full-time workers 
qualify for this help, we are actually subsidizing 
unrealistically low wages that are paid mostly by extremely 
profitable large corporations. In my State alone, Wal-Mart 
employees cost Missouri taxpayers $6.5 million a quarter in 
Medicaid costs. My small business is being forced to subsidize 
the profitability of my competition. This perverts capitalism 
and is lousy public policy.
    Capitalism and democracy work spectacularly well together 
because they check each other's excesses. Remember, a $10 
minimum will be a floor. It is not a middle-class wage and a 
paycheck that covers life's necessities is more satisfying to 
the worker, and encourages that worker to pursue success in our 
system.
    Let's keep the American Dream in sight for those farthest 
from experiencing its sweetest fruits.
    Thank you.
    [The prepared statement of Mr. Prince follows:]
                    Prepared Statement of Lew Prince
    A few months ago I got to join a dozen other small business people 
across a table from President Obama, Vice President Biden and several 
of their economic advisors. The business people ranged from a young 
entrepreneur just starting out to a woman from Detroit whose trucking 
company had just added its 300th employee. The small business 
organizations that had suggested some of us for that meeting represent 
more than 160,000 companies.
    The President opened the discussion by asking, ``What can I do to 
help small business?'' When the first of us to speak said, ``You can 
raise the minimum wage to 10 bucks,'' I was not surprised. Because for 
34 years my company has always paid more than minimum wage and my 
return on that investment has been huge.
    I co-own and am the CEO of a company called Vintage Vinyl, in St. 
Louis, MO. My partner, Tom Ray and I started with 300 record albums and 
a $20 booth at the local Farmers Market. You could say our lives are a 
tribute to the American dream. We have grown into a multi-million 
dollar business with 23 employees. We stage 150 in-store concerts a 
year in our 7,500-square foot store with 40,000 compact discs, a 
similar number of records and thousands of DVDs. We are the largest 
independent music store in the Midwest.
    From day one, we have built this business on wages above the 
minimum. For this small extra investment, I get loyal, long-term 
employees who are devoted to my company; employees whose ongoing 
relationships with my customers have built my business.
    Back in 1979, when we started our company, the minimum wage was 
$2.90. That would be $9.20 in today's dollars. Even back then, it had 
eroded from the 1968 level, which would be $10.59 in today's dollars. 
We never would have believed that 34 years later the buying power of 
minimum wage workers would actually be lower. That's terrible for small 
business, terrible for our economy and terrible for our country. If we 
had indexed the minimum wage to inflation back then, we wouldn't have 
this problem now. If we had indexed back then, my business would have 
benefited from the buying power of my customers being steady and 
predictable for the last 34 years.
    I have found that good wages are good business strategy, too. The 
last 20 years have been tough on the record business. Downloading and 
free Internet music are killing record stores. In St. Louis, two-thirds 
of the record stores have closed since the year 2000. We've outlasted a 
20-store local chain and dozens of national chains. Most of those 
stores' paid their employees minimum wage. My creative, loyal, 
dedicated and better paid employees won this life or death struggle for 
us. Higher wages made us more competitive. While my competition dealt 
with the costly results of constant employee turnover, constant 
training costs and the unsatisfied customers that turnover breeds, my 
employees added value to my business.
    Indexing the minimum wage would make it easier for businesses to 
predict and plan for labor costs. The crucial part of my job as CEO is 
prediction. I must imagine the possible futures for my company and make 
sure my employees are financially and logistically prepared for them. 
Part of that is predicting costs. My rent, utilities, supplies and 
health care costs rise constantly; sometimes unpredictably. Indexing 
would especially help businesses that pay minimum wage as they would 
know when and how much to plan for. My bookkeeper and I have already 
begun discussions in anticipation of your actions.
    Indexing minimizes the disruption of rising labor costs in minimum 
wage businesses because raises are gradual. The minimum wage has been 
indexed in Missouri since 2007. In that time indexing has tacked on 85 
cents. That averages out to about 11.5 cents a year. If a business 
can't plan for or absorb that tiny cost increase, it's already dead in 
the water and is not going to survive even the slightest competition.
    But most importantly indexing makes the buying power of my 
customers more consistent and predictable. Small business owners know 
that higher minimum wages put spendable dollars into the hands of our 
customers. Minimum wage earners, who live from paycheck to paycheck, 
spend increases right away. Putting a couple of hundred dollars more a 
month in their pockets would be a boon to business and a boon to the 
economy. These dollars go directly to the local grocery store, daycare, 
or pharmacy. It increases business and creates jobs. It also maintains 
the local tax base.
    Indexing will help government planners. Payroll taxes come from 
wages and sales taxes come from spent wages. Indexing wages to rise at 
the rate of inflation can only increase the predictability of revenues 
derived from taxes related to those wages.
    Indexing is good for school systems. The most local small business 
is landlord. Most rental units are locally owned. The vast majority of 
minimum wage workers are renters. If minimum wages don't keep up with 
inflation, neither can rents. When rents fall in relation to the price 
of other goods, property values fall proportionally and so do property 
tax revenues. Where I come from schools are funded by property taxes.
    Without indexing, people making minimum wage will fall further into 
poverty, which will increase the tax burden on small businesses and 
successful individuals. You may think of food stamps, government 
housing and child care subsidies as helping the poor and they do and 
it's important that we maintain them. But from a business point of 
view, when wages are so low that full-time workers qualify for this 
help, we are actually subsidizing unrealistically low wages paid mostly 
by extremely profitable multi-national corporations. I feel like I'm 
being forced to subsidize the profitability of my competition. This 
perverts capitalism and is lousy public policy, to boot.
    For example: In my State, According to the MO Healthnet Employer 
Report, in the 1st quarter of 2011 (the latest data available) Wal-Mart 
alone cost Missouri taxpayers $6,506,254 in Medicaid costs. McDonalds 
cost 3,781,373, Casey's, Dollar General, and Sonic Restaurants cost 
$1.5 million each, Subway, Wendys and Taco Bell came in at about a 
million dollars each. That's nearly $18 million of Missouri taxpayer 
money over eight very profitable, low-wage companies in one quarter.
    The combination of democracy and capitalism is a powerful one, but 
people have to have access to success to buy in. Capitalism and 
democracy work spectacularly well together because they keep each 
other's excesses in check. The American Dream isn't functioning when 
the pie keeps getting bigger, but working people's share shrinks.
    A decent wage at the lowest rung lets workers make ends meet while 
giving them a taste of the rewards of work. Remember, the $10 minimum 
will be a floor. It's not a middle-class wage. But having a few bucks 
in discretionary spending or a little more financial stability will 
make the reward of looking at your paycheck and thinking ``I earned 
that and it's something to build on,'' a little more satisfying and 
demonstrate the rewards of work.
    Let's keep the American Dream in sight for those farthest from 
experiencing its sweetest fruits.
    In a race to the bottom, the winner ends up at the bottom.

    The Chairman. Thank you very much, Mr. Prince.
    Now, we will turn to Ms. Fleurio. Welcome, and please 
proceed.

 STATEMENT OF CAROLLE FLEURIO, RESTAURANT WORKER, JONESBORO, GA

    Ms. Fleurio. Good morning, Senator Harkin, Senator 
Alexander, and members of this committee.
    My name is Carolle Fleurio and I thank you for inviting me 
to share my personal story. I also want to thank Senator Harkin 
and all the other Senators who are supporting the Fair Minimum 
Wage Act, which will not only raise the minimum wage, but 
guarantee that workers like me will get yearly raises that keep 
up with the cost of living.
    For the last 7 years, I have worked as a cook at a family 
restaurant in Stockbridge, GA. This restaurant is a place 
people love to go to. People have meetings there, families come 
to socialize and catch up with each other. It is a place where 
people come to feel at home and comfortable while enjoying a 
meal. Being a cook means that I am the one who helps make this 
experience possible.
    Although I enjoy my job, it's difficult to support a family 
on $8 an hour. My husband is both retired and disabled, which 
means he is unable to work. His social security check is barely 
enough to pay for car insurance for myself and our two 
daughters--my two daughters, our life insurance policy, and his 
medical need. My paycheck has to pay for everything else. I am 
responsible for the mortgage, water, light, garbage, gas, food, 
and all other household expenses. I provide a home for myself, 
my husband, my two daughters, my granddaughter, and my niece. I 
have a family back home in Haiti who cannot find a job. I 
should be able to provide for them, but I am unable to.
    When I started out at this restaurant, I earned $6.85 an 
hour. I have gotten several small raises. However, the cost of 
milk and gas keeps going up. Even though I am not getting 
ahead, these raises keep me and my family from falling too far 
behind the cost of living. Many people I know don't even get 
those small raises. That just doesn't seem right.
    Some months, my wages just aren't enough to cover our 
expenses, even though I try very hard to keep our bills as low 
as possible. I have to make the hard choice on which bills will 
be paid and which bills will just have to wait. Some months we 
simply can't pay the mortgage on time. This is very stressful 
for all of us. My husband and I must keep a roof over the head 
of all of our family. It takes a toll on our health when we get 
behind on this important bill.
    I am also unable to provide much for my youngest daughter 
who is in graduate school. She has to work many hours, earning 
less than I do per hour, to provide for herself. I would love 
for her to be able to focus on her schooling, or to work fewer 
hours, so she can study more.
    If the minimum wage goes up $1 or $2, that will make a huge 
change in my life. Not only would it help our family be better 
able to meet our basic needs, but it will also help when I get 
sick. I have no paid sick or personal days, so when I am 
feeling really sick, I have to decide if I have enough money 
that week to stay home, or if I must go in anyway. With more 
pay, on those few days a year when I am sick, I could stay home 
and get better, rather than exposing my coworkers and our 
customers to my germs.
    I have not had a vacation in 7 years, because we cannot 
afford to go without my pay. With a raise like the one the Fair 
Minimum Wage Act will provide, I could take a few days off in 
the year and have some rest time with my family. It's also very 
important to me that this bill includes an increase every year, 
to match the rise in the cost of living. That would be a real 
blessing.
    The cost of groceries and utilities goes up every year, 
knowing that even a small raise is coming will help us plan for 
these costs. It will give us more security, more peace of mind, 
and a bit of a cushion for sickness, emergencies, or just the 
regular expenses of life.
    Because I don't get paid time off even after 7 years on my 
job, I had to think hard about losing a day's pay to come to 
Washington to speak in support of this bill. I am here today 
because it is that important for me and my family, and that the 
millions of families like mine that work hard every day, but 
still do not earn enough at low-wage jobs to cover the basic 
necessities of life.
    I hope that Congress will pass this important bill. For me, 
and for the millions of other minimum wage workers around the 
country, it would mean happiness, joy, and peace.
    Thank you.
    The Chairman. Ms. Fleurio, thank you for being here.
    Ms. Fleurio. You're welcome.
    The Chairman. Thank you for putting a real human face on 
what we are talking about, and representing the millions of 
people out there that, I have said before, we hardly ever see 
in our daily lives, but who make our lives better. And these 
are the people we are talking about here in the minimum wage 
hearing, so thank you for being here.
    Ms. Fleurio. You're welcome. Thank you too.
    The Chairman. Thank you.
    Mr. Sickler, representing the National Restaurant 
Association. Please proceed.

STATEMENT OF MELVIN SICKLER, FRANCHISEE, AUNTIE ANNE'S PRETZELS 
                 AND CINNABON, WILLIAMSTOWN, NJ

    Mr. Sickler. Good morning, Chairman Harkin, Ranking Member 
Alexander, and the members of this committee.
    Thank you for this opportunity to testify today on behalf 
of my businesses and the National Restaurant Association.
    My name is Mel Sickler. I'm a multistore Auntie Anne's 
Pretzels and Cinnabon franchisee from Williamstown, NJ. I drove 
from New Jersey to be here today on behalf of small businesses 
and young people seeking more job opportunities. In that 
spirit, I ask Congress not to increase the minimum wage.
    As I understand it, legislation recently introduced would 
increase the Federal minimum wage from $7.25 an hour to $10.10 
per hour. If this legislation were to become law, it would 
create a new hardship, particularly on small businesses, at a 
time that many of us are attempting to contribute to economic 
job growth in a weak economy.
    In 1992 my wife Ginny--who is sitting behind me--and I, 
after an extensive search of many different kinds of 
franchises, went all-in financially and purchased our first 
Auntie Anne's Pretzels franchise. Twenty years later, we own 
and operate 10 stores in New Jersey. Our growth provides job 
opportunities for new hires, and creates advancement 
opportunities for deserving individuals working currently in 
our stores.
    But the restaurant industry was not immune from the effects 
of the last recession. The industry is now on a rebound and has 
been an engine of growth for the Nation's employment recovery 
for the last several years. Restaurants, in fact, have been the 
third largest private sector job creator since the recovery 
began in March 2010.
    According to figures from the Bureau of Labor Statistics, 
our industry provides millions of Americans with their first 
job and critical skills needed for a successful and rewarding 
career. In fact, one out of every three adults got their first 
job experience in a restaurant. While it serves as a gateway 
for many young people to enter the workforce, it also provides 
easier ways for advancement regardless of your background. 
Thus, our industry has become very diverse at all levels.
    For example, restaurants employ more minority managers than 
any other industry. An Auntie Anne's crewmember may start at 
age 16 with no prior work experience, but if my manger sees 
diligence, pride, and a good work ethic, they quickly raise 
that young person's wages.
    These young workers are eager to enter the workforce and 
they deserve the opportunity to do so. They deserve the 
opportunity to start as soon as possible, learning the skills 
needed to succeed in life that only a job can provide.
    The vast majority of minimum wage restaurant workers are 
young and also not the heads of their household, which probably 
explains why the average household income of restaurant workers 
earning the Federal minimum wage is $62,507, again, according 
to BLS.
    Given experience in States that have raised minimum wage 
above the Federal rate, we know the impact an increase to 
$10.10 would have on availability of jobs in our industry.
    For example, Oregon's State minimum wage is now $8.95, more 
than a dollar less than what is being proposed. After peaking 
at 16.4 employees per establishment in 1996, the average number 
of workers in Oregon's restaurants declined steadily.
    The numbers of other States with minimum wages higher than 
the Federal minimum wage are similar. Food and beverage costs 
are the two most significant line items for a restaurant, each 
accounting for approximately 33 cents of every dollar in sales 
with the average pretax margins of roughly 4 to 6 percent. 
Increases in food and labor costs can have a dramatic impact on 
restaurants' bottom line.
    While in theory, it may sound to some as a good idea to 
increase starting wage, the ramifications go further. If I 
increase the wage that I pay entry level employees by $2.85, 
then I also have to give a $2.85 raise to my employees that are 
making $10, $12, $14 and even $16 per hour. Otherwise, it would 
not be fair to these employees who have been with me for 
several years and worked their way up the ladder.
    I would love to give all of my employees a $2.85 raise, but 
the reality is I simply can't afford it. In fact, if the 
starting wage is increased to $10.10, then approximately 75 
percent of my employees would end up getting a $2.85 an hour 
raise. That would result in a 22 percent jump in my labor costs 
which would be very difficult for my business to withstand. 
This does not even account for the increased labor--the 
increase in food, health care, and energy costs which have been 
rising steadily in recent years.
    To handle this negative impact to the bottom line, some 
will say that restaurants simply need to increase their menu 
prices, pass the added costs on to the customers. The reality 
is that I will lose business if I increase menu prices in a 
challenging economic environment because most of my customers 
will just not buy from me. Instead, most restaurants will be 
forced to reduce their employees' hours, postpone plans for new 
hires and will reduce the number of employees in the 
restaurant.
    Additionally, businesses such as mine will become much more 
restrained in terms of future growth and expansion. Only a 
small minority of the restaurants will be able to handle a 39 
percent wage increase without taking actions that will harm 
workers.
    I am not a public speaker or care much for politics, for 
that matter, but I came here to testify because I do not 
understand why anyone would want to make it harder for small 
business employers like myself to hire more deserving people. 
Instead, I would ask you to focus on policies that encourage 
more people, not fewer, to enter the workforce. Our collective 
goal should be to get our young people hired and on the path to 
achieving the American Dream.
    With our current 23 percent teen unemployment rate, which 
is nearly 25 percent in my hometown State of New Jersey, 
increasing the Federal minimum wage is like throwing an anchor 
to a drowning man.
    The National Restaurant Association looks forward to 
working with this committee on issues to improve the well-being 
of our employees without sacrificing their jobs in the process.
    Thank you for this opportunity to explain the added burden 
that increasing the minimum wage would have on my business and 
the restaurant industry.
    [The prepared statement of Mr. Sickler follows:]
              Prepared Statement of Melvin ``Mel'' Sickler
    Chairman Harkin, Ranking Member Alexander, and members of this 
committee, thank you for this opportunity to testify today on behalf of 
my businesses and the National Restaurant Association.
    My name is Mel Sickler. I am a multi-store Auntie Anne's Pretzels 
and Cinnabon franchisee owner from Williamstown, NJ. I have 109 
employees, 18 are full-time and 91 are part-time employees. I drove 
from New Jersey to be here today, on behalf of small businesses and 
young people seeking more job opportunities. In that spirit, I ask 
Congress not to increase the minimum wage.
    As I understand it, legislation recently introduced, The Fair 
Minimum Wage Act of 2013 (S. 460), would increase the Federal minimum 
wage rate from $7.25 an hour to $10.10 per hour. Additionally, it would 
raise the cash wage for tipped employees from $2.13 today to 70 percent 
of the non-tipped minimum wage. If this legislation were to become law, 
it would create a new hardship, particularly on small businesses, at a 
time that many of us are attempting to contribute to economic and job 
growth in a weak economy.
    In 1977, after making a difficult decision to leave the family 
farm, and a career in farming, I started, operated, and then sold, two 
separate service businesses. Then, in 1992, my wife, Ginny, and I, 
after an extensive search of many different kinds of franchises, went 
all in financially, and purchased our first Auntie Anne's Pretzels 
franchise. We were looking for a business that we both could be 
involved in and chose Auntie Anne's.
    Twenty years later, we own and operate 10 stores in New Jersey. Not 
only are the two of us working in the business, but our three children 
are involved as well. Our business plans for the future are very 
similar to what they have been from the beginning--slow, steady, 
deliberate growth by adding more locations. Our growth provides job 
opportunities for new hires, and creates advancement opportunities for 
deserving individuals currently working in our stores.
        my small business is typical in the restaurant industry
    The National Restaurant Association is the leading business 
association for the restaurant and foodservice industry. The 
Association's mission is to help members build customer loyalty, 
rewarding careers and financial success.
    Nationally, the industry is made up of 980,000 restaurant and 
foodservice outlets employing 13.1 million people--about 10 percent of 
the American workforce. Despite being an industry of mostly small 
businesses, the restaurant industry is the Nation's second-largest 
private-sector employer.
    We are a unique industry. First, we are dominated by small 
businesses. More than 7 in 10 eating and drinking establishments are 
single-unit operations. Overall, the restaurant industry also operates 
under relatively low profit margins--roughly 4 to 6 percent before 
taxes. I know from experience, which is corroborated by the data, that 
labor costs are one of the most significant line items for restaurants.
      the restaurant industry is helping get america back on track
    The restaurant industry was not immune from the effects of the last 
recession, with job losses in 2009 and 2010 representing just the 
second and third years on record that the industry cut staff. However, 
the restaurant industry is now on a rebound, with the January 2013 
employment level up 8.8 percent from the bottom of the cycle. In 
comparison, total U.S. employment was up only 4.3 percent from the 
recession, as of January 2013.
    The restaurant industry has been an engine of growth for the 
Nation's employment recovery for the last several years, according to 
figures from the Bureau of Labor Statistics (BLS). This trend has been 
particularly evident during the current recovery from the recession, as 
restaurants have been the third-largest private-
sector job creator since the recovery began in March 2010.
    Eating and drinking establishments--the primary component of the 
restaurant industry which accounts for roughly three-fourths of the 
total restaurant and foodservice workforce--added jobs at a strong 3.4 
percent rate in 2012. As of January 2013, total restaurant employment 
was 441,000 jobs above its high-point before the recession, while the 
overall economy was still down 3.2 million jobs from its pre-recession 
peak.
               our industry gives many their first start
    Our industry provides millions of Americans with their first job 
and the critical skills needed for a successful and rewarding career. 
In fact, one out of three adults got their first job experience in a 
restaurant.
    While it serves as the gateway for many young people to enter the 
workforce, it also provides easier ways for advancement, regardless of 
your background. Thus, our industry has become very diverse at all 
levels. For example, restaurants employ more minority managers than any 
other industry and 50 percent of restaurant owners are women.
    Wages in our industry also grow at rates above those of the overall 
economy, according to figures from the Bureau of Labor Statistics. 
While an Auntie Anne's crewmember may start at age 16 with no prior 
work experience, if my managers see diligence, pride and a good work 
ethic, they quickly raise that young person's wages.
    minimum wage workers are young and a small part of the industry
    A majority of minimum wage workers are employed in industries other 
than restaurants. According to the Bureau of Labor Statistics, 3.8 
million individuals earned at or below the Federal minimum wage of 
$7.25 an hour in 2011. Of these, 45 percent (or 1.7 million) work at 
eating and drinking establishments. In addition, 60 percent of the 1.7 
million restaurant workers who appear as earning at or below the 
Federal minimum wage are servers, which means their total earnings are 
above the minimum wage when tips are included.
    Thus, excluding servers, only 340,000 earn minimum wage and 344,000 
of restaurant workers appear under BLS data to earn below the Federal 
minimum wage--jointly representing only 7 percent of the total eating 
and drinking establishments' workforce in 2011. At the same time, 
government agencies employ 204,000 workers that earn at or below the 
minimum wage. Many of those 684,000 restaurant workers appearing in BLS 
to be earning minimum wage or below also share on tips, so, in reality, 
they earn more than the minimum wage.
    I do understand that there are certain individuals, such as 
student-learners (vocational education students) and individuals with 
productive impairment capacity, who can be paid less than the Federal 
minimum wage of $7.25, as is the case with young people for the first 
90 calendar days after they are first employed. However, I do not go 
lower than the minimum wage for any of my employees, including 
teenagers during their first 90 days of employment. My approach is also 
the common practice in the industry, as the numbers attest.
    Still, it is not hard to understand why Congress would create these 
incentives for employment at less than the minimum wage for some 
categories of workers to prevent the loss of employment opportunities 
for these individuals. In fact, even unpaid entry-level work can be 
valuable, as is the case with most congressional internships. Young 
workers at minimum wage in the restaurant industry are gaining valuable 
entry-level experience--while being compensated for it.
       my crewmembers deserve a chance to be in the labor market
    These young workers, who, if they're like my typical crewmember, 
are eager to enter the workforce. And they deserve the opportunity to 
do so. They deserve the opportunity to start as soon as possible, 
learning the skills needed to succeed in life that only a job can 
provide.
    The vast majority of minimum wage restaurant workers are young. 
Forty-six percent of Federal minimum wage restaurant workers are 
teenagers, while 70 percent are under the age of 25--most of them, 80 
percent, working part-time. The majority of restaurant workers who earn 
the Federal minimum wage are also not the heads of their households, 
which probably explains why the average household income of restaurant 
workers earning the Federal minimum wage is $62,507, according to BLS 
data.
                  higher minimum wage means fewer jobs
    Given the experience in States that have raised their minimum wages 
above the Federal rate, we know the impact The Fair Minimum Wage Act of 
2013 would have, if enacted, on the availability of jobs in my 
industry.
    For example, Oregon's State minimum wage is now $8.95, more than a 
dollar less than what is being proposed in The Fair Minimum Wage Act of 
2013. After peaking at 16.4 employees per establishment in 1996, the 
average number of workers in Oregon's restaurants declined steadily.
    By 2011, Oregon's restaurants employed an average of only 13.8 
workers, or 2.6 fewer employees than they did before the State's 
minimum wage began rising above the Federal level in 1997, according to 
analysis of data from the Bureau of Labor Statistics.
    In comparison, as shown in the following chart, all restaurants in 
the United States employed an average of 16.9 workers in 2011, 
unchanged from the 1996 level. If Oregon's average staffing levels had 
remained at its 1996 level of 16.4 employees per establishment, the 
State's restaurant industry would have employed an additional 23,500 
individuals by 2011. This result in other States with minimum wages 
higher than the Federal minimum wage is similar.


                 tipped employees are well compensated
    Due to our business model, I do not have tipped employees, but 
because The Fair Minimum Wage Act of 2013 would also increase the cash 
wage for tipped employees from $2.13 today to 70 percent of the non-
tipped minimum wage, I would like to offer some data on behalf of the 
National Restaurant Association.
    On a national level, the median hourly earnings of waiters and 
waitresses range from $16 for entry-level servers to $22 for more 
experienced servers. Median hourly tips received by waiters and 
waitresses range from $12 for entry-level servers to $17 for more 
experienced servers. The median hourly employer-paid wage ranges from 
$4 for entry-level servers to $5 for more experienced servers. Thus, 
once again, it seems that this legislation is a solution in search of a 
problem that does not exist.


         bottom line impact of an increase in the minimum wage
    Food and labor costs are the two most significant line items for a 
restaurant, each accounting for approximately 33 cents of every dollar 
in sales. With average pre-tax margins of roughly 4 to 6 percent, 
increases in food and labor costs can have a dramatic impact on a 
restaurant's bottom line.
    Like many other business owners, I am preparing for the impact that 
the new healthcare employer mandates will have on my business. In fact, 
I am still trying to figure out whether I have 50 full-time 
equivalents, which is what would trigger most of the penalties and 
employer mandates. If a 39 percent minimum wage increase is added to 
this burden, my labor costs will soar.
    The chart below illustrates the impact that an increase in the 
Federal minimum wage from $7.25 to $10.10 would have on a restaurant's 
bottom line--not considering any additional costs from the new 
healthcare law.
    While, in theory, it may sound to some as a good idea to increase 
the starting wage, the ramifications go much further. If I increase the 
wage that I pay entry level employees by $2.85, then I also have to 
give a $2.85 raise to my employees that are making $10, $12, and even 
$14 an hour. Otherwise, it would not be fair to these employees who 
have been with me for several years and worked their way up the ladder.
    I would love to give all of my employees a $2.85 raise, but the 
reality is I simply cannot afford it. In fact, if the starting wage was 
increased to $10.10, then, approximately, 75 percent of my employees 
would end up getting a $2.85 an hour pay increase. That would result in 
a 22 percent jump in my labor costs, which would be very difficult for 
my business to withstand.
    As a result of a 22 percent increase in labor costs, pre-tax income 
plunges 58 percent for an average restaurant operation. Prior to the 
minimum wage increase, pre-tax income represented 4.4 percent of sales 
for an average restaurant, or $39,500, in the example below. After 
factoring in the sharp increase in labor costs, pre-tax income fell to 
only 1.7 percent of sales, or $16,500.
    This analysis does not even account for any increases in food, 
health care, or energy costs, which have been rising steadily in recent 
years. It would only take a 6 percent increase in food costs for the 
pre-tax profit to turn into a loss. This is a likely scenario, as 
wholesale food prices jumped 16 percent in the last 3 years, according 
to the Bureau of Labor Statistics.
    To handle this negative impact to the bottom line, some will say 
that restaurants simply need to increase their menu prices and pass the 
added costs on to their customers. The reality is that I will lose 
business if I increase menu prices in this challenging economic 
environment, because most of my customers will just not buy from me.
    And as the chart below shows, even a 5 percent increase in menu 
prices will not be enough to account for such a sharp increase in labor 
costs. That assumes that a 5 percent menu price increase would even be 
possible, which according to the Bureau of Labor Statistics hasn't 
happened since 1982.
    Instead, most restaurants will be forced to reduce their employees' 
hours, postpone plans for new hiring, and/or reduce the number of 
employees in their restaurants. Additionally, businesses, such as mine, 
will become much more restrained in terms of future growth and 
expansion. Only a small minority of restaurants will be able to handle 
a 39 percent minimum wage increase without taking actions that will 
harm workers.

                    Bottom Line Impact of an Increase in the Federal Minimum Wage to $10.10 *
                                Typical Restaurant With Annual Sales of $900,000
----------------------------------------------------------------------------------------------------------------
                                                    Before            Public policy impact             After
----------------------------------------------------------------------------------------------------------------
Income
  Food and Beverage Sales.....................        $900,000  Menu Prices (up) 5%.............        $945,000
Expenses
  Cost of Food & Beverage Sales...............        $288,000  Food Costs (up) ??..............        $288,000
  Salaries, Wages & Benefit...................         306,000  Labor Costs (up) 22%............         374,000
  Utility Costs...............................          31,500  Energy Costs (up) ??............          31,500
  Restaurant Occupancy Costs..................          63,000    ..............................          63,000
  General/Administrative Expenses.............          27,000    ..............................          27,000
  Other Expenses..............................         145,000    ..............................         145,000
                                               -----------------------------------------------------------------
Total Expenses................................        $860,500    ..............................        $928,500
                                               -----------------------------------------------------------------
Pre-Tax Income................................         $39,500  Pre-Tax Income (down) 58%.......         $16,500
  (Percent of Total Sales)....................            4.4%    ..............................            1.7%
----------------------------------------------------------------------------------------------------------------
Source: National Restaurant Association calculations.
* Also includes an increase in the cash wage for tipped employees to 70 percent of the Federal minimum wage.

    why make it harder for me to give young people a chance to work?
    My managers and I are hearing from more people seeking work these 
days. And I am not a public speaker or care much for politics, but I 
came here to testify because I do not understand why anyone would want 
to make it harder for small employers like myself to hire more 
deserving people. Instead, I would ask you to focus on policies that 
encourage more people, not fewer, to enter the workforce. Our 
collective goal should be to get our young people hired and on the path 
to achieving the American Dream.
    With our current 23 percent teen unemployment rate, which is nearly 
25 percent in my home State of New Jersey, increasing the Federal 
minimum wage is like throwing an anchor to a drowning man. The National 
Restaurant Association looks forward to working with this committee and 
all of Congress on issues to improve the well-being of our employees 
without sacrificing their jobs in the process.
    Thank you for this opportunity to explain the added burden that 
increasing the minimum wage would have on my business, and the 
restaurant industry.

    The Chairman. Thank you very much, Mr. Sickler for----
    Mr. Sickler. Thank you.
    The Chairman [continuing]. Driving this long distance and 
for your testimony.
    Now, we will followup with Mr. Rutigliano.

    STATEMENT OF DAVID RUTIGLIANO, OWNER, SOUTHPORT BREWING 
                     COMPANY, TRUMBULL, CT

    Mr. Rutigliano. Good morning, Chairman Harkin, Ranking 
Member Alexander, and Senator Warren.
    I testify today on behalf of my restaurants and the 
Connecticut Restaurant Association. My name is David Rutigliano 
and I am a partner in the SBC Restaurant Group. We started in 
1996 and now have six locations along the Connecticut 
shoreline. After 17 years in business, we employ approximately 
250 full- and part-time employees.
    At SBC, we are Connecticut. I have two business partners. 
We are all born and raised in Connecticut. We all got married 
and started families in Connecticut, and it is Connecticut 
where we decided to start our businesses.
    We want our State, and our country, to succeed and prosper. 
However, we do not believe Senate bill 460 is the right avenue 
to achieve this prosperity.
    Your proposal seeks to increase the Federal minimum wage by 
39.3 percent. In addition, it seeks to increase the cash wage, 
or tip wage, for tipped employees from $2.13 to $7.07 per hour. 
This is an outstanding 232 percent increase.
    These numbers, simply put, are staggering. At a time when 
many businesses are struggling to keep their doors open, 
mandating a wage increase will only hurt those employees in 
which this proposal seeks to help.
    In my home State of Connecticut, we already have the fourth 
highest minimum wage at $8.25, and one of the highest tipped 
wages at $5.69. There is a current proposal in our State 
legislature which seeks to increase minimum wage yet again and 
also index to inflation. This, along with the recently enacted 
mandatory Paid Sick Leave law, has contributed to Connecticut 
being rated at the bottom for business climate and job growth 
nationally. We also have a persistently high unemployment rate 
above the national average.
    If you add to this the looming Affordable Care Act, I ask 
anyone here to please explain to us in the restaurant industry, 
which is labor heavy and low margin, how we are going to afford 
this mandate.
    To be specific, in Connecticut, this bill would add roughly 
$2,800 per year to the cost of a full-time tipped employee. In 
other States, it would add as much as $10,000 annually to the 
cost. These increases will only diminish the amount of 
opportunity for our young people.
    The question of whether an employer can bear the cost of 
the increased minimum wage should be discussed on its merits, 
not on scare tactics or appeals to emotion. As a businessman, I 
have a fiduciary responsibility to my creditors, my family, and 
my employees to remain profitable no matter what. If an 
additional mandate means that I will be forced to scale back, 
then employees could actually be worse off after this passes.
    Simply put, increasing the cost of labor means employees 
are even less likely to hire especially in this down economy. 
At SBC, we value our employees. Our servers and bartenders work 
hard. They receive tips and therefore are compensated well 
above the minimum wage, most making upwards of $20 to $25 an 
hour, which is fully taxable income.
    A mandated increase in server wages only limits the amount 
of money available for wage increases for other employees like 
support staff and our culinary staff.
    The unemployment rate amongst our young people hovers 
around 25 percent. An increase to the minimum wage will only 
increase this number. The minimum wage in my opinion, is meant 
to be a learning wage.
    I do understand the arguments for a living wage. I submit 
to you that the way to get there should be through a learning 
wage. By raising the minimum wage, you will be robbing our 
young people of the opportunity to gain valuable experience and 
job training.
    I understand not all people who work for the minimum wage 
are young people, but there are other alternatives. We have the 
earned income tax credit. These are programs that could help 
these workers without reducing jobs.
    Wage mandates are an ineffective way to reduce poverty and 
cause restaurant operators to make difficult decisions 
including the possibility of eliminating jobs, cutting staff 
hours, and increasing prices. These decisions end up hurting 
the very people that the wage increase is intended to help. 
This proposal will undoubtedly have a negative effect on 
thousands of small businesses and employees in Connecticut and 
across the country.
    I urge you to reject this proposal. Any mandated increase 
to cost will damage an already fragile industry.
    I thank you for the opportunity to speak today. I am 
available for any questions.
    Thank you.
    [The prepared statement of Mr. Rutigliano follows:]
                 Prepared Statement of David Rutigliano
    Chairman Harkin, Ranking Member Alexander, and members of this 
committee, thank you for the opportunity to testify today on behalf of 
my restaurants and the Connecticut Restaurant Association. My name is 
David Rutigliano and I am a partner in the SBC Restaurant Group, a 
company with six locations along the shoreline in Connecticut. We have 
been in business for 16 years and employ approximately 250 full- and 
part-time employees.
    At SBC, we are Connecticut. I have two business partners and we 
were all born and raised in Connecticut. We all got married and started 
families in Connecticut and Connecticut is where we decided to start 
our business. We want our State and our country to succeed and prosper. 
However, we don't believe The Fair Minimum Wage Act of 2013 (S. 460) is 
the right avenue to achieve that prosperity.
    This proposal seeks to increase the Federal minimum wage from $7.25 
per hour to $10.10 per hour. That equates to a 39.3 percent minimum 
wage increase. In addition, it seeks to increase the cash wage for 
tipped employees from $2.13 per hour to $7.07 per hour, a 232 percent 
increase. These numbers are, simply put, staggering. At a time when 
many businesses are struggling to keep their doors open and in some 
cases employers are foregoing their own paychecks to avoid laying off 
employees, mandating wage increases will only hurt those employees 
which this proposal seeks to help.
    In my home State of Connecticut, where we already have the fourth 
highest minimum wage at $8.25 and one of the highest tipped wages at 
$5.69, there is currently a proposal in the State legislature which 
seeks to increase the minimum wage to $9.75 and the tipped wage to 
$6.73. That, along with the recently enacted mandatory paid sick leave 
law, is making an already difficult situation even worse. Add to that 
the Affordable Care Act, and I ask anyone here to explain how those of 
us in the restaurant industry, which is labor-heavy and runs on 
extremely low profit margins, will survive, let alone prosper, should 
these proposals become law.
    To be specific: In Connecticut, this bill would add roughly $2,800 
per year to the cost of a full-time tipped employee. In other States, 
it would add as much as $10,000 to the annual cost of that employee. In 
an industry that just earns roughly $2,600 in profit for each employee, 
an increase of this magnitude just isn't feasible.
    The question of whether employers can bear the costs of increased 
minimum wages should be discussed on the merits, not on scare tactics 
or appeals to emotion. If an additional mandate means that employers 
like me will be forced to scale back, then employees could actually be 
worse off after it passes.
    This is what the academic research suggests. Economists from the 
University of California-Irvine and Federal Reserve Board published the 
results of a comprehensive review of all research conducted over the 
last 20 years on the effects increases to the minimum wage had on 
employment rates. They found that 85 percent of all credible studies 
came to the same conclusion: increases in the minimum wage are almost 
always followed by a reduction in the number of jobs--particularly 
entry-level jobs. Simply put, increasing the cost of labor means 
employers are even less likely to hire--especially in a down economy.
    We value our employees, and they're compensated well. Our servers 
and bartenders work hard, receive tips and are therefore compensated 
well above the minimum wage, some making upwards of $20-$25 per hour. A 
mandated increase in server wages only limits the amount of money left 
over for wage increases for other employees, like those working in the 
kitchen.
    The unemployment rate amongst our young people hovers around the 25 
percent range. An increase in the minimum wage will only increase that 
number. The minimum wage is meant to be a learning wage. It is meant to 
give people the opportunity to gain experience and job training. When 
government increases the cost of labor, employers typically respond by 
reducing the number of entry-level, low-skilled workers they hire. I 
understand that not all people who work at the minimum wage are young 
people, but there are other alternatives--like the Earned Income Tax 
Credit--that can help these workers without reducing jobs.
    Wage mandates are an ineffective way to reduce poverty and cause 
restaurant operators to make very difficult decisions, including the 
elimination of jobs, cutting staff hours, or increasing prices. These 
decisions end up hurting the very employees that wage increases are 
meant to help. This proposal will undoubtedly have a negative effect on 
hundreds of small businesses and employees in Connecticut and across 
the country. I urge you to reject this proposal. Any mandated increase 
to costs will damage an already fragile industry.
    Thank you for the opportunity to testify today. I'm available for 
any questions.

    The Chairman. Thank you. Thank you very much, Mr. 
Rutigliano.
    Mr. Rutigliano. You're doing great.
    [Laughter.]
    The Chairman. All right. I'm getting there. Thank you very, 
very much. Thank you all. We will begin a round of 5-minute 
questions.
    I think this sort of illustrates the discussion that we are 
probably going to be having on this over the next few weeks and 
months, perhaps, here in the Congress; job loss hurting small 
business.
    Mr. Sickler mentioned Oregon, and since we have someone 
here from Oregon, I will ask you to respond to that. I guess it 
was Mr. Sickler. I underlined it. Yes, he said that Oregon 
State minimum wage is now $8.95. Is that correct?

          ``After peaking at 16.4 employees per establishment 
        in 1996, the average number of workers in Oregon's 
        restaurants declined steadily. By 2011, Oregon's 
        restaurants employed an average of only 13.8 workers, 
        or 2.6 fewer than they did before the State's minimum 
        wage began rising above the Federal level.''

    Pointing out that if Oregon's average staffing levels had 
remained at its 1996 level of 16.4 employees per establishment, 
the State's restaurant industry would have employed an 
additional 23,500 individuals by 2011.
    How do you respond to that, Mr. Avakian?
    Mr. Avakian. Mr. Chairman, thank you for the question.
    You are right, our minimum wage is $8.95 an hour, and I 
appreciate the gentleman's comments, but the implication that 
the job loss is related to the minimum wage simply is not 
accurate for our State.
    Oregon traditionally has a higher unemployment rate than 
many other States do. We are often one of the first States 
during a recession to lose jobs and one of the last to bring 
them back. Over the last 10 years, that has not been related to 
our indexing to the minimum wage.
    What it is related to is our dependence on timber, 
agriculture, and the high tech industry, which are three 
industry sectors that oftentimes are hit harder than others 
during a recession. And that is more indicative of why we end 
up with job losses.
    We are fortunate to have had a minimum wage that has 
allowed our lowest wage earners to continue pumping what has 
been, just in the last increase of 15 cents an hour, more than 
$23 million into our local economies while some of those 
industry sectors were suffering.
    The Chairman. So you are pointing to the recent downturn in 
the economy, basically, as a bigger factor than the raise in 
the minimum wage, which you have indexed since 2002, is that 
right?
    Mr. Avakian. Mr. Chairman, the law was passed in 2002. We 
began indexing in 2003, and certainly over the last 10 years, 
there have been ups and downs in markets across the country.
    The Chairman. Right. Right.
    Dr. Dube, I want to turn to you because I read through your 
testimony last night, and it is obviously accompanied by a lot 
of statistics and charts, some of which I probably do not 
understand that thoroughly.
    But I would like to ask for your input and your thoughts on 
this idea that increasing the minimum wage causes job losses. 
What have your studies shown?
    Mr. Dube. I think it is useful to use the Oregon example, 
and it is also useful to keep in mind that correlations are not 
always causations, as the saying goes. Minimum wages may be 
correlated with a lot of things. In fact, it turns out they are 
correlated with temperature.
    Now, I don't think most people would argue the minimum wage 
causes cold weather, but most minimum wage States actually 
happen to have colder weather. Similarly, an example with 
timber and other industries show that it is really important to 
make apples to apples comparison. You don't want to just 
compare a State that has a high minimum wage and compare it 
with the rest of the country without taking into account its 
industrial structure and other factors, and demographic 
characteristics as well.
    What we did is to look at, for instance, those counties in 
Oregon border, compare them with either Washington, or Idaho, 
or California and do this over a 20-year period. To have places 
that are pretty similar, depend on the same kind of industries, 
have similar demographic characteristics, and follow them over 
many years after these increases in the minimum wage and this 
includes, by the way, the increase in Oregon's minimum wage.
    We found absolutely no evidence that the kind of minimum 
wages that we have seen in the last 20 years, when we have had 
a lot of variation across the land in the minimum wages, have 
caused any job losses for low-wage sectors or for groups such 
as teens.
    The Chairman. So you took contiguous counties, let me 
understand this, in Oregon that were on the border with a 
county in Washington, or Idaho, or California. And over 20 
years compared the two counties in terms of their minimum wage 
and job losses in those two counties.
    Mr. Dube. Exactly.
    The Chairman. Contiguous counties.
    Mr. Dube. Contiguous counties. The thing that economists 
spend a lot of time doing is figuring out how to have credible 
comparison groups, control groups. We don't have laboratories, 
we have observational data and need ways to make credible 
comparisons to make sure that we have the right counterfactual, 
as the word goes.
    What we did in our study, and others have as well, is to 
compare really similar areas just across the State line. The 
Oregon example is one, and Connecticut, for instance, comparing 
Connecticut with the counties right across Massachusetts' 
border, so that, again, you are making comparisons that are 
fairly similar.
    These counties track each other prior to the minimum wage 
increase. That makes us reassured that these are good 
comparison groups, and then we can ask the question: what 
happens when on one side of the border you saw the increase in 
the minimum wage and the other side didn't? Then you don't end 
up making comparisons across places that depend on timber 
versus that don't, and so on and so forth. And again, we did 
not find evidence that from the kind of minimum wage increases 
we have seen there have been job losses.
    I am going to be really clear. Does that mean that you can 
raise minimum wage to any level and that the same conclusions 
will obtain? Absolutely not. Right? But the point is for the 
kind of minimum wage we have seen in the United States, 
historically we can get back to those without necessarily 
causing job losses.
    The Chairman. Thank you, Dr. Dube.
    Senator Alexander.
    Senator Alexander. Thanks, Mr. Chairman.
    Mr. Rutigliano, thank you for being here today.
    Mr. Rutigliano. Thank you.
    Senator Alexander. Thanks to all of you for being here 
today.
    Dr. Dube mentioned Connecticut and made comparisons. It 
seems to me the best way of getting an effect of what might 
happen is, rather than an academic study, would be to go to 
somebody running a store and ask what has happened or what will 
happen. How many stores do you have?
    Mr. Rutigliano. We have six.
    Senator Alexander. And how many employees do you have?
    Mr. Rutigliano. About 250.
    Senator Alexander. OK. Now, if you have 250 employees and 
you were to have an increase in the cost of labor of 39 
percent, what would be the----
    Mr. Rutigliano. Well, you would reduce employment, or raise 
prices, or both.
    Senator Alexander. What would happen if you raised prices?
    Mr. Rutigliano. Typically, we find that our stores vary in 
counties, we would see a reduction in business in certain parts 
of the State where we are located.
    Senator Alexander. What are your plans for the new health 
care law coming in 2014?
    Mr. Rutigliano. I am on my third Webinar from industry 
associations honestly trying to figure out how to handle it.
    Senator Alexander. But your choice will be to offer more 
expensive health insurance or pay a $2,000 penalty per 
employee, or reduce the number of employees, or try part-time 
employees, correct?
    Mr. Rutigliano. Correct.
    Senator Alexander. In addition to that, then you would have 
a 39 percent increase in the cost of employees.
    Mr. Rutigliano. Correct. The real increase for us is with 
the cash wage, the tip wage. This is what we determined to be 
the most unfair aspect of this. We already pay servers, tipped 
employees, $5.69 an hour in Connecticut, which is one of the 
highest in the Nation.
    By law, they have to make at least the minimum wage, 
including tips. On average, they are at $20-$25 an hour. It is 
almost an unfair increase for this sector of our employees, 
whereas other employees would suffer for the lack of money 
available to the fund.
    I want to address the doctor for just 1 second. They make 
it seem like there's consensus on the reports, on the studies, 
through universities.
    The University of California at Irvine and the Federal 
Reserve Board did their own study. They studied the studies, 
and they came up with the conclusion that 85 percent of the 
studies reflect a decrease in employment after the minimum 
wage. So there is not a minimum wage increase. There is not 
consensus on the issue.
    Senator Alexander. You know what? It seems to me the most 
interesting evidence is those of you who actually have to make 
these decisions.
    On indexing. Let's say, Mr. Sickler, that the economy goes 
down, but the indexing formula says you cannot lower the price 
of your employees. So I would assume the restaurants, if the 
economy goes down, are one of the first to feel it. Isn't that 
right? If the economy gets bad----
    Mr. Sickler. Absolutely.
    Senator Alexander [continuing]. The restaurant business 
gets a little worse.
    Mr. Sickler. That is where the family would spend their 
extra money.
    Senator Alexander. So if you cannot lower the cost of your 
people you hired, then where do you cut? What do you do?
    Mr. Sickler. You try to cut hours. You would like to raise 
prices, but our prices are high enough right now. It is hard 
for us to raise the prices of what we sell any higher. We will 
drive away the rest of the folks that come to our counters at 
that point.
    Senator Alexander. Mr. Rutigliano, what would you cut if 
the restaurant business went down? The economy goes down, the 
rest of business goes down, but prices, the indexing keeps 
going up for employees, what do you cut?
    Mr. Rutigliano. Well, you reduce employees and you reduce 
hours. The main thing people need to remember when it comes to 
the restaurant business is nobody has to come to us. We are in 
the discretionary income business. So when the economy 
downturns, we are usually one of the first things that go.
    Senator Alexander. You are talking about a learning job. If 
the entry level job pays $10, if somebody shows up without any 
experience, somebody 19, 20 years old and wants a job for $10 
an hour, what would you do?
    Mr. Rutigliano. For that amount of wage, I would expect 
some sort of skill set to come along with it. The higher the 
price, the more experience they would need.
    Senator Alexander. What is your experience in terms of 
entry level, minimum wage employees? How soon do they get a pay 
increase?
    Mr. Rutigliano. In my company? As fast as they demonstrate 
the ability to do the job, we bump them up right away.
    Senator Alexander. And what is the best job training? Is it 
for them, for your kind of business, to go to the community 
college or to some other place, or is it better for you just to 
train them yourselves?
    Mr. Rutigliano. We train them ourselves.
    Senator Alexander. So for that group is----
    Mr. Rutigliano. In fact, the best for our people is to 
start off in a lower position in the restaurant, show an 
interest in the hospitality industry, and then move up in our 
company, and then we hope they stay, and we compensate them 
accordingly.
    Senator Alexander. Would you agree that at a time when we 
have 12 million unemployed people and a number of them are 
trying to get on the economic ladder, that if we saw off the 
bottom rung of it, it will make it harder for them to get a 
learning job or a chance to move up the ladder?
    Mr. Rutigliano. Absolutely. I mean, it is really, 
truthfully, one of the best things we could do for our young 
people is to get them into a work environment where they learn 
how to conduct themselves in a job, punch in, punch out, show 
up on time, learn some basic job skills.
    Senator Alexander. Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Alexander.
    Senator Warren.
    Senator Warren. All right. Thank you very much. Thank you, 
Mr. Chairman. Thank you, Ranking Member for holding this 
hearing.
    I was very intrigued by the chairman's chart earlier about 
productivity. And it shows, as I read those numbers and the 
numbers that you cited, Mr. Dube, that if we just started in 
1960--not the high water mark for minimum wage, but a good time 
on minimum wage--if we started in 1960, and we said that as 
productivity goes up, that is as workers are producing more, 
then the minimum wage is going to go up the same. And if that 
were the case, the minimum wage today would be about $22 an 
hour.
    So my question, Mr. Dube, with the minimum wage at $7.25 an 
hour, is what happened to the other $14.75? It sure did not go 
to the worker.
    Mr. Dube. Thanks for the question.
    That is correct. Since the early 1970s, what we have seen 
is a divergence in the prosperities of different sections of 
our population. For instance, had the minimum wage kept pace 
with productivity since 1960, you are correct, it would have 
stood around $22 an hour today.
    Now, the answer to your question, who got the other $14? We 
can answer----
    Senator Warren. And 75 cents.
    Mr. Dube [continuing]. We can answer with the following 
comparison.
    Had the minimum wage grown at the same pace of incomes 
going to the top 1 percent of the taxpayers, the minimum wage 
would have stood at $33 an hour before the recession in 2007. 
What we have seen is really large growth in inequality in this 
country. And the minimum wage, by the way, in part, has 
contributed to that.
    The academic evidence on this suggests that the gap between 
the middle and the bottom of the labor market, for instance, 
about at least half of that gap has been caused by falling 
minimum wage, and especially so for women workers who tend to 
be lower paid and more likely to be minimum wage.
    Senator Warren. Dr. Dube, let's just focus on some of those 
studies. I appreciate that we have two people here who own 
their own restaurants, and restaurant chains, and I am glad you 
are here, and I appreciate your being here. But I just want to 
make sure that I understand the data that you have put 
together.
    The studies you have done, the county-county matches, they 
look at--and just an estimate on your part--how many different 
employers; thousands, tens of thousands?
    Mr. Dube. Tens of thousands.
    Senator Warren. Tens of thousands of employers. And is it 
speculation on what they say they will do?
    Mr. Dube. No, it is actually looking at what happened to 
employment. It is difficult for us to project what would happen 
to our business, not if I change something by myself and the 
rest of the economy was at stasis, but rather, the whole labor 
market had to pay a higher wage.
    This is the difference between, I think, what economists 
have studied--to look at what happens. How are prices adjusting 
when not just a single business has to pay a higher wage, but 
all businesses do. Right? And I think there we find the 
evidence that there are some price increases. There are no 
employment losses to be seen for the kind of changes we have 
looked at.
    Senator Warren. OK. So despite the speculation, what the 
numbers show in terms of what employers actually did is that we 
are not seeing job losses.
    If I could just ask you, Dr. Dube, because lots of people 
intuitively think, ``If the price goes up, if we raise the 
minimum wage, then we are going to get fired.'' Can you just 
quickly--I read your paper in detail, but if you don't mind--
could you just give a quick summary of the reasons that we 
don't see those layoffs?
    Mr. Dube. Sure. One of the things to keep in mind is that 
the restaurant industry has an incredibly high turnover.
    For instance, today there are millions of people who have 
left their jobs. At the same time, there are millions of people 
who are being hired. There are also vacancies. So although 
there are unemployed restaurant workers, there are also vacant 
jobs.
    This turning happens because, in part, the restaurant 
industry is a fairly low wage industry and people are taking a 
higher paid job when they can. What a minimum wage does is it 
makes it more attractive for workers to stick around. It makes 
it easier for restaurants to fill vacancies.
    What ends up happening, in part, is that a minimum wage 
increase reduces turnover, and by doing so, kills vacancies and 
not jobs. And this is something that is important to keep in 
mind in terms of how a higher wage standard can stabilize these 
jobs, and actually reduce turnover and recruitment costs.
    Senator Warren. Or if I could say that another way, a 
sustainable wage actually reduces the cost for the employers, 
and keeps people employed, and that may be the reason that we 
are just not seeing job losses when we see an increase in the 
minimum wage. Is that a fair summary?
    Mr. Dube. That is a much more eloquent summary.
    Senator Warren. You are much too kind. I just wanted to be 
sure.
    And I wanted to ask a question, Mr. Sickler. I appreciate 
you being here from the National Restaurant Association. I 
tried to go back and look at the National Restaurant 
Association's views on minimum wage. Has there ever been a time 
that the National Restaurant Association supported an increase 
in the minimum wage?
    Mr. Sickler. I am not sure, quite honestly. I can do some 
research and get back to you on that. I just don't know. I just 
don't have that answer.
    Senator Warren. I would appreciate it, because what I think 
we keep hearing from the Restaurant Association is that if the 
minimum wage goes up, that jobs will go down. Am I out of time, 
Mr. Chairman? I apologize.
    The Chairman. All right.
    Senator Warren. I hope we get back to this. Could I say one 
thing really quickly?
    The Chairman. We will have another round.
    Senator Warren. Fair enough. I apologize, Mr. Chairman.
    The Chairman. We will have another round.
    Senator Warren. Thank you.
    The Chairman. I am going to have to excuse myself. I have 
an amendment pending on the floor. I will ask Senator Alexander 
if you would run this for a while?
    Senator Alexander. Sure.
    The Chairman. The amendment starts at 11:25. I have to 
speak on my amendment.
    Senator Alexander. Sure.
    The Chairman. Then I will come back and relieve you. Is 
that OK?
    Senator Alexander. I will be here.
    The Chairman. OK. I am going to have to excuse myself. I am 
going to turn it over to Senator Alexander, and then he can do 
his 5 minutes, and then get back to you, and then I will be 
back probably about 11:30 or shortly after 11:30.
    Mr. Rutigliano. Can I respond to your comment?
    The Chairman. Sure. Absolutely, absolutely. Please, give a 
response.
    Mr. Rutigliano. I can't imagine any business advocating for 
increased costs. I mean, it is slightly unreasonable.
    Senator Warren. I am sure. Is it Mr. Prince?
    Mr. Rutigliano. No, I am talking about an association. What 
he does on his own personal level is his business. I pay a lot 
of people above the minimum wage also, but I am talking about 
expecting the National Restaurant Association, I think is, you 
know what I mean.
    Senator Alexander. We will have a chance. I will take 5 
minutes, and then we will go back to Senator Warren for 5 
minutes, and we will have a chance to continue that.
    Dr. Dube, you said that if productivity were allowed to 
determine the minimum wage, it might be $20 or even $33; as 
much as $33.
    I note that the noted conservative economist and columnist 
Paul Krugman recently 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 with that?
    Mr. Dube. I do. I do and----
    Senator Alexander. And so should we, if we index the 
minimum wage, should we put a cap on it, sunset it at, say, 
$20, or $15, or $33?
    Mr. Dube. I think the challenge for the minimum wage has 
not been high inflation rate, but rather, a stagnating nominal 
minimum wage.
    Senator Alexander. But should we put----
    Mr. Dube. I think that----
    Senator Alexander [continuing]. Should it have a cap on it 
or should it just be allowed to go up as high as it will?
    Mr. Dube. I think for a range of inflation rates we have 
seen in the last several generations, there would be at no 
point in time a minimum wage indexed that would outpace, 
substantially outpace, wages so that it would reach $20 an 
hour. On the contrary, it wouldn't even rise more than, as I 
said, maybe $11 an hour at its maximum.
    What I want to actually also get back to is your question 
in terms of setting wages. It is really important to keep in 
mind that no one is actually advocating for $20 minimum wage 
that I know of and the reason for that is simple. It is useful 
to look at the minimum wage in comparison to the median. 
Historically and for economic and historical reasons, basically 
around half the median is a very sustainable range. If it goes 
up to 80 percent, then it's not.
    Senator Alexander. But wait a minute, you're saying, you 
are using those examples as an example of where it might be, 
where it ought to be. You are suggesting that it could be at 
that, or might be at that, or too bad it's not at that. That 
suggests to me that you are.
    I have some other questions that I would like to ask. I 
want to go back to the costs that a small businessperson has to 
deal with today. I want to focus on the restaurant business. I 
am not trying to ignore you, Mr. Prince. You've got a very 
successful business with 23 employees that is a little 
different than the restaurant business.
    The restaurant and hospitality industry is a large employer 
of low income, and also many minority Americans. Whether a 
proposal like this would hurt those individuals or help those 
individuals who work in restaurants, I think, is important.
    On the new health care law, the head of a large chain 
restaurant association told me recently that because of the new 
health care law and the minimum of $2,000 cost per employee 
that it would impose on the restaurant that the company would 
begin, instead of running its store with 90 employees, to try 
to run it with 70 employees. Does that sound like a familiar 
strategy to you from restaurant owners you have talked about, 
either Mr. Sickler or Mr. Rutigliano?
    Mr. Rutigliano. It is a familiar strategy. The other one is 
to increase and decrease hours so that you fall below the----
    Senator Alexander. Below the 30 hours.
    Mr. Rutigliano [continuing]. What you were going to do. 
Yes, right.
    Senator Alexander. Yes. And the effect of that, though, 
would be that a number of employees would, because of the 
increased costs, there would be fewer jobs.
    Mr. Rutigliano. Clearly.
    Senator Alexander. And you could increase costs a variety 
of ways in a restaurant, right? One way is to increase the 
benefit cost. One way is to increase the cost of an entry level 
wage, correct?
    Mr. Rutigliano. Yes, sir.
    Senator Alexander. These are costs. In your case, you are 
saying as a manager and owner of restaurants, 250 employees, 
will or may, reduce the number of jobs that are available.
    Mr. Rutigliano. It would have to reduce the number of jobs. 
Like I said, we have to remain profitable to my creditors, my 
family, my employees. I must stay in business. That is why I'm 
here.
    I wanted to address turnover. In the restaurant business, 
some turnover is expected and it is warranted. A busboy isn't a 
professional job that somebody is going to have for 30 years. 
You expect them to move on, either become a waiter or move on 
to their other job.
    A lot of our jobs are with high school and college students 
that they do this for extra income while they're doing it. And 
then, after they graduate, they move on. So turnover, some 
turnover in the restaurant business is expected and warranted.
    Senator Alexander. Thank you.
    Senator Warren.
    Senator Warren. Thank you very much, Senator Alexander.
    I appreciate the point, Mr. Rutigliano, but I want to go 
back to the question I had earlier. You are telling us what you 
would do and the National Restaurant Association is telling us, 
as they have before, what would happen.
    Dr. Dube, in the studies of what happens when minimum wages 
have been raised, and you have done the county to county 
matches, were restaurants included in the employers in the 
measurement of whether or not people were laid off?
    Mr. Dube. Restaurants were one of the primary samples that 
we looked at because of the high incidence of minimum wage 
workers. And again, restaurant employment in response to the 
kind of minimum wage changes, did not respond, on average.
    Is it possible that a single employer didn't lay some 
people off? Is it possible some employer didn't actually 
expand? That is difficult to say.
    The point I am making is on aggregate in the restaurant 
industry for the kind of minimum wage changes we saw. We did 
not see employment change noticeably.
    Senator Warren. OK. So the actual behavior of tens of 
thousands of employers did not reflect a loss in jobs or a 
decline in jobs when the minimum wage went up. Is that right, 
Dr. Dube?
    Mr. Dube. That is correct.
    Senator Warren. OK. Thank you.
    The question people were asking earlier, and since Senator 
Alexander went back to it, I would like to go back to it as 
well, is that when productivity has gone up and profits have 
gone up, that the minimum wage has, in fact, declined.
    So, the question I am asking is not what the right dollar 
number is here, but really a very different question: when 
productivity increases, when profits increase, is there a 
reason that the minimum wage should not increase as well? In 
other words, that we all should not participate in this 
increased wealth in our country.
    Mr. Prince, would you like to speak to that?
    Mr. Prince. I completely agree, and I think the thing to 
remember is we all have more customers than we have employees. 
So while, his 258 employees will get a raise, his tens and 
maybe hundreds of thousands of customers will also get a raise, 
and the sort of the velocity of money in the economy will 
increase.
    We are both in the luxury item business. Nobody needs a 
record or a CD, but when I look at the 6,000--well, I think so. 
But when I look at the 6,000 people a week who walk through my 
door and I think that probably if 10 percent of them--if I hold 
the Missouri average--make the minimum wage they could have 
$200 or $300 bucks a month more in their pockets, I know it 
will be good for my business. And increasing that, would also 
allow me to hire some people or to try some new things.
    Capitalism is all about efficiency and a restaurant 
employee or a record store employee who is standing there doing 
nothing because there is no customer walking in because they 
don't have the money is the least efficient thing in any 
business.
    So increasing the wealth of my customers is a really 
important thing to me.
    Senator Warren. Thank you. Thank you, Mr. Prince.
    Mr. Sickler, I was interested in your point about prices, 
and yours too, Mr. Rutigliano. During my Senate campaign, I ate 
a No. 11 at McDonald's many, many times a week, and I know the 
price on that one: $7.19.
    According to the data on the analysis of what would happen 
if we raised the minimum wage to $10.10 over 3 years, the price 
increase on that item would be about 4 cents, so instead of 
being $7.19 it would be $7.23. Are you telling me that is 
unsustainable?
    Mr. Sickler. Senator Warren, not all restaurants are 
created equal. I am in the full-service restaurant business. 
McDonald's has efficiencies and they operate completely 
differently than I do.
    I have many jobs, many jobs that pay well above the minimum 
wage. We have a retirement plan. We offer health insurance to 
our salaried employees. So my business is a little different. I 
can't raise a 4-cent price. I don't operate like a fast food 
restaurant. So I would hope that you'd at least appreciate the 
distinction.
    Senator Warren. I do appreciate the distinction and I am 
not going to be in the business of being a McDonald's 
representative, but I think they would talk about also having 
some higher paid jobs and some opportunities for management and 
advancement as well.
    But I get your point. Maybe it is only 4 cents on $7.19, 
but if your entrees are $14.40, we'll see how fast I can do the 
math. Are you telling me you can't raise your prices by 8 
cents?
    Mr. Sickler. Typically when costs rise, we don't actually 
raise it just 4 cents. We might actually go a little higher. It 
has an inflationary effect on the economy. So you may actually 
be taking away the money you just gave that employee through 
the minimum wage increase and raise prices throughout the 
economy.
    Senator Warren. I have to say, you have now switched your 
argument from what it was going to do to your business, to what 
it is going to do to the economy.
    And I think, Dr. Dube, you have looked at the inflationary 
effects of increasing the minimum wage. Can you just give us a 
quick summary on those data?
    Mr. Dube. I think it is uncontroversial amongst economists 
that a minimum wage increase of this sort would not have a 
noticeable impact on the overall price level because it's just, 
the math doesn't add up. The number of people who are getting 
the raises is not enough for it to show up in some kind of a 
wage-price spiral.
    So the effects on overall price level, very small.
    Senator Warren. Thank you very much. I see my time is up. 
Thank you, Senator Alexander.
    Senator Alexander. Thank you, Senator Warren.
    I want to say this respectfully. When we were debating the 
health care law a couple of years ago, I suggested to my 
colleagues who were for it, I was concerned about the Medicaid, 
the imposition of Medicaid costs on States, and they were less 
concerned about that. And I suggested that anybody who voted 
for the law ought to be sentenced to go serve as Governor and 
actually try to administer it for a few years.
    And I am intrigued here, listening to a very fine 
professional academic study of the restaurant--that includes 
the restaurant business and thinking that maybe everybody who 
studies it ought to have to run one because there seems to be 
such a difference of opinion here.
    I mean, they are telling you that it is good. That 
increasing your labor costs is good for business, right? And 
that is what I am hearing that increasing labor costs by 39 
percent will help you have a better business because more 
people will walk-in the door and buy more food.
    I wonder, Mr. Prince, I agree that if people have more 
money and walk-in to buy more records. But what if the 
restaurant companies hire 70 people per store instead of 90 
people per store, and fewer people can walk in the door? Those 
who do may have more money, but you might have fewer people.
    Mr. Prince. First of all, I think the 39 percent number is 
speculative and specious, that you don't always raise the 
people above your minimum.
    Senator Alexander. That is the amount of the increase in 
the minimum wage.
    Mr. Prince. No, what he is saying is he would have to raise 
everyone in his organization that percent to keep them even, 
and that's not really how you run a business.
    The way we run our business is there are tiered wages and--
--
    Senator Alexander. That is the way he runs his business, I 
think.
    Mr. Prince [continuing]. People earn their way up to them.
    Senator Alexander. But you're saying that's not the way he 
runs his business?
    Mr. Prince. What he is saying is he would have to raise--
the statement says he would have to raise everyone's wages that 
same $2.85.
    Senator Alexander. Well, if you said something about how 
you run your business, I would respect that. Do you not believe 
he is telling the truth?
    Mr. Prince. No, no. I'm just saying it is not a necessity 
and----
    Senator Alexander. How do you know it's not? You're not in 
the restaurant business.
    Mr. Prince. You're right, I'm not. But I am in the 
capitalist business.
    Senator Alexander. Yes.
    Mr. Prince. And the way capitalism works is wages should be 
set based on productivity and their value to the business, and 
not in relation to one another necessarily.
    But the other point you made I thought is much more to the 
point where you were talking about Medicare costs.
    Senator Alexander. Yes.
    Mr. Prince. This is the thing that sticks in my craw the 
worst is that I am paying taxes to subsidize my competitors' 
huge unwillingness to pay realistically high wages.
    I just got this from the State of Missouri last week. In 
Missouri, the Missouri HealthNet, which is our Medicaid 
system----
    Senator Alexander. Because you're paying higher wages, you 
resent that somebody else pays lower wages.
    Mr. Prince. Because I'm subsidizing those lower wages.
    Senator Alexander. But I thought you were paying higher 
wages because it created more loyal employees, less turnover, 
and because it was better for the community.
    Mr. Prince. Yes, what I'm saying though, is I resent the 
fact that part of the taxes I pay go to subsidize my 
competition. The numbers are staggering.
    McDonald's $3.7 million a quarter in Missouri Medicaid is 
paid to McDonald's employees; 6.5 million--Casey's, Dollar 
General, Sonic Restaurants, $1.5 million a quarter; Wendy's, 
Subway, Taco Bell $1 million a quarter. That's $18 million 
dollars a quarter to a not particularly wealthy State like 
Missouri to just the top eight corporations, all of which are 
hugely profitable corporations.
    The minimum wage argument is about the relationship between 
the bottom wage and corporate profits, the bottom wage and the 
top wage. It seems to me that you guys make the rules. You guys 
set the ground rules under which businesses need to compete and 
then our job is to be efficient in competing in them.
    Senator Alexander. But listen----
    Mr. Prince. And if you set fair rules for workers, then we 
learn to be more efficient to compete.
    Senator Alexander [continuing]. There's another rule-setter 
that some of us subscribe to called the market.
    Mr. Price. Yes.
    Senator Alexander. And the market can set the rules. Now, a 
record store is going to be different than a restaurant.
    What would you say to what you just heard, Mr. Rutigliano?
    Mr. Rutigliano. About price--well, it is essentially, he is 
setting price controls. It is no different than setting price 
controls. You are doing that with wages. Does that make sense?
    Senator Alexander. It does to me.
    Mr. Rutigliano. Like you would never tell somebody what to 
sell something for.
    Mr. Prince. I'm actually talking--how can I put this?
    Mr. Rutigliano. It's not really a free economy.
    Mr. Prince. That's not the case. In fact, I deal in an item 
that has been commodified and the price has gone down by 30 
percent in the last 10 years. These are the things in our 
system that you have to address to, that you have to create 
efficiencies to make up for.
    Senator Alexander. This is a tremendous----
    Mr. Prince. The other thing, just so you know, is reach, 
and I'm not talking about just record stores here. I work on a 
street that has 35 independently owned retail establishments. I 
am talking about retail. I don't know the restaurant business, 
but I know a whole lot about retail, and in retail the prices 
are set by the market, by what the market will pay. It is why a 
beer is $10 bucks in Yankee Stadium and $2 bucks across the 
street in Murray's Bar.
    Senator Alexander. And wages are generally set by what the 
market will pay as well.
    Mr. Prince. Except that you set the floor.
    Senator Alexander. Senator Harkin--I beg your pardon?
    Mr. Prince. I'm sorry. I don't mean to interrupt, but you 
guys set the floor and----
    Senator Alexander. Not if I was doing it. I would let the 
market do it.
    Mr. Prince. But I think----
    Senator Alexander. I am for a maximum wage, not a minimum 
wage and my time is up. I have been informed by Senator Harkin 
that he won't be coming back, and we have to go vote. I want to 
personally thank the six witnesses. All of you have gone to a 
considerable effort, one coming all the way from Georgia, I 
think, if that's right.
    Ms. Fleurio. Yes.
    Senator Alexander. Two have driven down from your 
businesses. All six of you, thank you very much for a very 
spirited, informative hearing. We thank you for your written 
comments.
    If you have any additional comments that you would like to 
make, we would like to have those within 10 days.
    I will ask Senator Warren if she has any other comment 
before we conclude, and then we will adjourn the hearing, and 
we will go vote.
    Senator Warren. No, thank you very much, Ranking Member. 
Appreciate it.
    Senator Alexander. OK, Senator Warren. Thank you for 
coming. And thanks to all of you for being here.
    [Additional material follows.]

                          ADDITIONAL MATERIAL

                   National Restaurant Association,
                                      Washington, DC 20036,
                                                    March 28, 2013.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.

Hon. Lamar Alexander, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.

Re: Hearing on ``Keeping up with a Changing Economy: Indexing the 
        Minimum Wage''

    Dear Chairman Harkin and Ranking Member Alexander: Thank you for 
the opportunity to testify on behalf of the National Restaurant 
Association at the March 14, 2013, hearing, ``Keeping up with a 
Changing Economy: Indexing the Minimum Wage.'' I appreciated the 
opportunity to discuss with the committee the negative impact that an 
increase in the minimum wage would have on small business owners like 
me.
    I would like to expand and reply, for the record, about two 
statements made at the hearing. Specifically, it was erroneously stated 
that raising the minimum wage would have no impact on those individuals 
earning above minimum wage. Second, it was suggested that the minimum 
wage should be at $22, ``to keep pace with worker productivity since 
1960,'' or even $33, to keep pace with ``the top 1 percent of income 
earners.''
    As to the first point, it is true that I do not absolutely have to 
raise the wages of my higher paid employees, if the minimum wage forces 
me to pay entry-level workers more. However, if I do not, at the very 
least, the difference between the entry-level wage and the wage for 
those who have earned merit increases would shrink. But, deciding to 
raise or not raise the wages of higher paid employees is not simply a 
matter of efficiency, as it was characterized.
    Employees understand fairness, and that is why I award merit 
increases. To reduce the value of those merit increases by requiring me 
to raise my entry-level wage without raising the wage of other 
employees would limit the amount of opportunities for employees to 
learn the value of a job well-done, and be rewarded for it 
appropriately.
    Furthermore, the difference between the minimum wage--a rate of pay 
at which very few of my crew members remain for very long--and the top 
rate of pay is not great, when compared with the wide range of salaries 
in the corporate world. This fact augments the pressure to increase all 
wages when the entry-level wage goes up. Reducing the difference 
between the entry-level wage and the pay of higher earners does much 
more to devalue my existing employees' efforts than it does to help 
those whose wages would rise. Entry-level workers taking their first 
step in the process of learning how to succeed in the workplace can 
quickly prove and earn their worth.
    Thus, assuming that the impact and cost to an employer of raising 
the minimum wage can be calculated by looking only at those currently 
making the minimum wage is simply being detached from reality.
    The second statement, regarding the idea of coupling minimum wage 
increases to either the increase in the average productivity of 
American workers since 1960 or to increases in earnings of the top 1 
percent of taxpayers, ignores the realities of different industries and 
sectors of the economy. A Senator even asked ``What happened to the 
other $14.75? It sure did not go to the worker!,'' when referring to 
the difference between the current Federal minimum wage ($7.25) and 
what she thought it should be ($22), if it kept up with productivity 
since 1960.
    It is extremely dangerous for policymakers to formulate such broad 
extrapolations in a diverse economy such as ours. For example, Google's 
profit-per-employee in 2011 was $336,000, while the average chain 
restaurant's profit-per-employee was less than $5,000. Thus, while an 
increase in the hourly rate of $14.75 for a full-time employee of 
Google would be barely noticeable, the same increase for an average 
chain restaurant worker would turn a profit-per-employee into a 
deficit-per-
employee.
    In other words, in the case of your average chain restaurant, such 
an increase would turn a profitable business into a non-viable one. I 
was shocked to see how even the rate of a minimum wage increase to $33 
an hour was so carelessly thrown around by proponents of a minimum wage 
increase.
    If I learned anything from participating in this hearing, it is the 
danger of indexing the minimum wage, particularly if doing so back in 
1960 would have led us to a minimum wage of $22 or $33 today. Most 
people want to make more money, but the market dictates the prices of 
my products and how much I can pay my workers, my suppliers, my 
landlords, and others, while still making a profit.
    I thank you again for the opportunity to testify on behalf of the 
National Restaurant Association. I respectfully ask that this letter be 
included in the hearing record.
            Regards,
                                               Mel Sickler.
                                 ______
                                 
       Response to Questions of Senator Alexander by Brad Avakian
    Thank you for the questions and opportunity to discuss Oregon's 
successful experience indexing our State's minimum wage to inflation. 
Below, please find the Oregon Bureau of Labor and Industries responses 
to the committee's questions.
    In your testimony, you claimed of Oregon's experience that ``every 
dime in the increase of the minimum wage is a dime that gets reinvested 
back into community businesses,'' and that ``small businesses in fact 
are dependent on that kind of a local purchasing power.'' A recent 
study by Economist Joseph Sabia found that in lower skilled industries 
sensitive to minimum wage increases--including retail, food service, 
and accommodations--each 10 percent increase in the State minimum wage 
is associated with a 2 to 4 percent decline in State GDP generated by 
these lower skilled industries. Economist and former Chair of President 
Obama's Council of Economic Advisers Christina Romer, writing in The 
New York Times, likewise concluded that any increase in consumer 
spending and consequent output growth resulting from a minimum wage 
increase would be negligible in the context of a $15 trillion economy.

    Question 1. Do you disagree with the conclusions of these 
distinguished economists? What objective economic data prove your claim 
that ``every dime'' of increased minimum wages in Oregon has been spent 
in local businesses? What objective economic data prove the dependence 
of Oregon's small businesses on indexed annual minimum wage increases?
    Answer 1. Consumer spending makes up 70 percent of our country's 
total economy, which is why stagnant wages limit growth and contribute 
to a weak economy.
    One must be careful to not compare the effect local consumer 
spending has on local businesses with its relation to the Nation's 
entire $15 trillion economy, which includes exports, investments, 
securities and other intangible goods. Minimum wage earners do not 
generally participate in those markets.
    The Federal minimum wage--and that of every State--is below the 
Federal poverty threshold, with minimum wage earners spending the vast 
majority of their money on the essentials of life such as housing, 
food, gas or public transportation. It is, therefore, the local 
businesses that are affected by the purchasing power of minimum wage 
earners.
    As an example, Oregon's modest 2013 minimum wage increase of 15 
cents per hour will affect about 127,000 workers. The increase equates 
to about $23 million in new money to minimum wage workers, who in turn 
spend that money on goods and household essentials. This modest 15 cent 
adjustment meant that the average directly affected worker will have 
over $400 more this year to pay for the increased costs of basic 
necessities like food and gas. Without the wage increase, it's a fair 
conclusion that $23 million would not have gone to workers trying to 
keep pace with the rising cost of everyday goods.
    A recent study by the Center for Economic and Policy Research ``Why 
Does the Minimum Wage Have No Discernible Effect on Employment?'' also 
noted the disparity in savings rates between high-wage and low-wage 
workers:

          Particularly when the economy is in a recession or operating 
        below full employment, a minimum-wage increase may also 
        increase demand for firms' goods and services, offsetting the 
        increase in employer costs.
          Since the minimum wage transfers income from employers (who 
        generally have a high savings rate) to low-wage workers (who 
        generally have a low savings rate), a minimum-wage rise could 
        spur consumer spending. This increase in spending could 
        potentially compensate firms for the direct increase in wage 
        costs.

    Question 2. In claiming that businesses depend on the purchasing 
power of minimum-wage earners, you argued that annual inflationary 
adjustments like those in Oregon were necessary to sustain businesses. 
But the minimum wage has built into it a natural inflationary 
adjustment based on demand. Since 2010, the number of hourly workers 
earning the minimum wage in this country has decreased by more than 18 
percent. So, isn't the positive effect you have described already going 
on?
    Answer 2. Oregon does not construe a minimum wage to have a 
``natural inflationary adjustment based on demand.'' In fact, a 
corporation looking to increase shareholder profits might decide to 
stagnate or decrease wages to achieve a greater profit margin. During a 
down economy, the risk increases with greater competition for customers 
and dollars.
    Attaching the minimum wage to the Consumer Price Index so that it 
increases with inflation guarantees that wages will keep pace with the 
rising cost of goods and services. In addition, an indexed minimum wage 
also provides a steady, predictable system businesses can count on for 
projected labor costs. The result is reliable purchasing power for our 
lowest wage earners.

    Question 3. You testified that Oregon law guarantees a minimum wage 
to wait staff, and that Oregon's restaurant industry is doing well. 
However, another witness at the hearing testified that after peaking at 
16.4 employees per establishment in 1996, the average number of workers 
in Oregon's restaurants has continually declined to 13.8 in 2011, a 2.6 
worker decrease. This job loss began when Oregon's minimum wage began 
rising above the Federal level in 1997 and has continued. By contrast, 
on the national level restaurants have maintained a steady level of 
employment since 1996. If Oregon's restaurant staffing levels had 
similarly remained unchanged, Oregon's restaurants would employ 23,500 
more workers today. As the top State labor official, what proof do you 
have that these 23,500 lost jobs in Oregon's restaurant industry were 
not related to Oregon's ever-increasing minimum wage?
    Answer 3. Oregon guarantees a minimum wage to restaurant workers 
out of a sense of basic fairness and belief that servers are not 
overpaid. As such, our State has no plans to impose a ``tip credit'' on 
wait staff or otherwise rollback Oregon's voter-approved minimum wage.
    Under Oregon's successful minimum wage model, the National 
Restaurant Association still projects that the number of Oregon 
restaurant employees will increase 12 percent over the next 10 years 
(Source: National Restaurant Association Fact Sheet, Oregon Restaurant 
Industry At a Glance). Notably, the increase is higher than the 9.1 
percent projected for the Nation as whole, as compiled by the National 
Restaurant Association's State-by-State fact sheets:

 
------------------------------------------------------------------------
                                                               2023
                  State                       Current      Projections,
                                             employees          NRA
------------------------------------------------------------------------
AL......................................         167,200         190,700
AK......................................          27,700          31,600
AZ......................................         262,200         303,800
AR......................................         114,200         130,000
CA......................................       1,475,100       1,615,600
CO......................................         239,400         272,000
CT......................................         144,200         151,400
DE......................................          44,100          50,200
DC......................................          52,800          56,100
FL......................................         844,800         968,500
GA......................................         378,200         431,300
HI......................................          85,100          89,400
ID......................................          57,800          64,000
IL......................................         517,900         553,400
IN......................................         296,100         319,000
IA......................................         140,300         151,000
KS......................................         125,900         137,300
KT......................................         191,300         207,900
LA......................................         197,300         210,800
ME......................................          58,700          63,400
MD......................................         232,700         249,000
MA......................................         313,500         331,700
MI......................................         390,900         414,700
MN......................................         246,300         262,800
MS......................................         109,000         120,300
MO......................................         275,100         294,400
MT......................................          49,700          52,800
NE......................................          88,500          94,400
NV......................................         192,100         220,600
NH......................................          60,900          65,700
NJ......................................         318,200         337,800
NM......................................          83,400          93,800
NY......................................         750,900         801,500
NC......................................         411,800         467,400
ND......................................          39,500          45,300
OH......................................         526,700         558,600
OK......................................         151,200         167,400
OR......................................         171,900         192,600
PA......................................         535,000         561,700
RI......................................          49,600          52,800
SC......................................         196,600         220,300
SD......................................          43,400          47,600
TN......................................         267,600         290,800
TX......................................       1,074,200       1,245,000
UT......................................         103,300         117,700
VT......................................          24,700          26,400
VA......................................         348,100         383,600
WA......................................         280,200         310,200
WV......................................          74,200          78,000
WI......................................         254,100         269,500
WY......................................          26,400          28,200
                                         -------------------------------
    Total...............................      13,110,000      14,400,000
------------------------------------------------------------------------

    If paying Oregon wait staff a fair minimum wage were a 
determinative factor in employment levels, Oregon restaurant employment 
levels would not be projected to rise higher than national averages.
    According to the National Restaurant Association, restaurants 
remain ``a driving force in Oregon's economy.'' In fact, Oregon has 
8,867 restaurants, with total employment in the restaurant sector at 
10-percent of our State's workforce.

    Question 4. At the hearing, you claimed in response to the previous 
data that the job losses Oregon experienced were due to the State's 
dependence on the timber, agriculture, and technology industries and 
the sensitivity of those sectors to the recent recession. But job 
losses in the timber, agriculture, and technology industries do not 
explain the specific job losses in the restaurant industry. The 
recession also would not explain the gradual decline in restaurant 
employment dating back to 1996, well before the recent recession began. 
What evidence do you have that job losses in the timber, agriculture, 
and technology sectors during recessions cause job losses in Oregon's 
restaurant industry even in those years when the economy is performing 
well?
    Answer 4. I do not assert that job losses in timber, agriculture, 
and technology sectors cause job losses in Oregon's restaurant 
industry. Although, it stands to reason that as more families become 
unemployed in various industry sectors, their corresponding decreased 
purchasing power could lead to many fewer restaurant meals and, 
therefore, less revenue to sustain jobs within restaurants.
    It's worth noting that at 172,000 employees, Oregon's restaurant 
sector represents 10 percent of the State's workforce, exactly on par 
with the national average. As noted above, our healthy restaurant 
industry--despite paying its workers a fair wage--will see employment 
numbers increase more than the national average over the next decade, 
according to the National Restaurant Association's projections.
     Response to Questions of Senator Harkin and Senator Alexander 
                       by Arindrajit Dube, Ph.D.
                             senator harkin
    Question 1. In your testimony, you talked about the inefficiency of 
the current practice of long periods of stagnation in the minimum wage, 
followed by sharp increases. Could you please expand on this? What are 
the inefficiencies? Why would indexing the wage to inflation be more 
efficient?
    Answer 1. The nominal Federal minimum wage remained stagnant for 9 
years between 1981 and 1990, and for 10 years between 1997 and 2007. 
The real minimum wage declined during these episodes due to inflation, 
and these decreases were followed by sharp increases in the nominal and 
real minimum wage. These adjustments were largely based on political 
factors, not economic ones. Similarly, State-level increases in the 
minimum wage during these periods of Federal inaction were based more 
on political rather than economic considerations.
    These large swings and variations in minimum wages--both over time 
and across areas--create uncertainties for both businesses and families 
with low-wage workers, and may adversely affect their spending and 
investment decisions. Having a predictable increase in the minimum wage 
from an automatic process would aid families and businesses plan for 
the changes and would mitigate any short-term disruptions such as 
liquidity shortfalls, and would make it easier for consumers to absorb 
any (small) price increases.
    For these and other reasons, whatever the level of the real minimum 
wage may be, using indexation to ensure future changes occur regularly 
and in small increments makes economic sense. For this reason, even 
some minimum wage skeptics such as the economist Daniel Hammermesh 
support indexation.

    Question 2. Some people are concerned that indexing would mean that 
wages would increase even during times of high unemployment. Did your 
research look at periods of high unemployment? What did it find 
regarding the effects of minimum wage increases on employment during 
those times?
    Answer 2. Our research has investigated whether employment of 
highly affected groups (like teens) responds to minimum wages 
differently when the overall unemployment rate is high. We did not find 
any evidence that teen employment was negatively affected by minimum 
wage increases, including during episodes with higher overall 
unemployment. For the range of minimum wage increases we have seen over 
the past few decades, our research suggests that effects on employment 
are small in magnitude--under both relatively soft and relatively 
strong labor market conditions.

    Question 3. I find it very interesting that your work shows that 
raising the minimum wage can reduce the poverty rate. Could you please 
expand on this? Do you expect that indexing the minimum wage will 
maintain poverty reductions into the future?
    Answer 3. In my new research, I find that a 10 percent increase in 
minimum wages would reduce poverty by around 3 percent. This suggests 
that the proposed increase in minimum wage under Harkin-Miller would 
reduce the official poverty rate from by around 1.8 percentage points, 
from 15.1 percent to 13.3 percent--a moderate-sized reduction that 
would mostly reverse the increases in poverty we have seen since the 
onset of the 2007 recession. These estimates are similar to evidence 
present in research conducted by David Neumark and William Wascher 
(2011). Although they do not directly report it, their evidence also 
indicates that a 10 percent increase in minimum wages would reduce 
poverty by around 3 percent for the widest group they studied (18-44-
year-old adults and family heads).
    A reasonably high minimum wage can be a part of an anti-poverty 
policy portfolio, and boosts the efficacy of other policies such as the 
Earned Income Tax Credit. But we should also keep in mind that effects 
of minimum wages are likely to be moderate in size, since many families 
under the poverty level lack any substantial attachment to the labor 
force. Around half of the working age adults in poverty do not work. As 
a consequence, we should not expect the minimum wage to solve the 
problem of poverty by itself. By the same token, just because minimum 
wage increases do not aid poor families lacking ties to the labor 
market should not detract from the ability of the policy to aid low-
income families as a whole.

    Question 4. If the minimum wage had been indexed to inflation since 
1968, what would the economy look like today? How would the economic 
factors that you discuss in your testimony be different?
    Answer 4. Had the minimum wage been indexed to inflation since 
1968, it would stand at $10.60/hour today. The economy would not be 
radically altered, but there would be some important differences. An 
economy with a $10.60/hour minimum wage would be somewhat less unequal 
when it came to wages and family incomes. A minimum wage worker would 
make a little more than half the wage earned by the median U.S. worker. 
The greater purchasing power for low-income families would mean that 
poverty rates would be somewhat lower than they are today, maybe by 
around 2 percentage points. Low-wage workers would tend to stick around 
in their jobs a little longer--so labor turnover would be around 10 
percent lower at those jobs. The overall number low-wage jobs would not 
likely be very different.
    Finally, I would not expect any noticeable difference in macro 
economic conditions such as the unemployment or inflation rates.

    Question 5. In your testimony, you noted that the minimum wage 
would be at $22 per hour if it had kept up with productivity growth, or 
at $33 per hour if it had kept up with the growth in income of the top 
1 percent of earners. Please clarify if you believe that the minimum 
wage should be at those levels today, or if you foresee the minimum 
wage, if indexed, ever reaching those levels (in real terms)?
    Answer 5. It is useful to compare how the earnings of minimum wage 
workers have fared against a host of benchmarks, such as the cost of 
living, the median wage, average productivity, as well as incomes of 
top earners. They show the magnitude of absolute and relative income 
losses of low-wage earners. This is why I provided these comparisons in 
my testimony.
    As I also explicitly stated in my written testimony,

          `` . . . [t]his evidence does not suggest that the minimum 
        wage should be increased to $22 or $24 per hour. Rather, the 
        exercise demonstrates how different the growth rates have been 
        for incomes going to those at the bottom of the labor market as 
        compared to the economy as a whole, and to those at the top end 
        of the distribution. Of course, there are many reasons behind 
        this dramatic rise in inequality, including technological 
        change, falling rates of unionization, de-industrialization, 
        increased trade, deregulation and more. And we certainly cannot 
        expect minimum wages alone to solve the challenge of growing 
        inequality.''

    I specifically recommended comparing the minimum wage to the median 
wage for an economically appropriate determination of the statutory 
minimum--a standard practice among economists.

          ``A comparison to the median wage also clarifies why [a 
        minimum wage] around $10/hour is reasonable while $20/hour is 
        not. The median wage today is around $20/hour. There are no 
        known cases where the minimum wage was set equal to the median 
        in a capitalist economy. However, there are many cases, 
        including here in the United States, where it was set at or 
        slightly above half the median wage.''

    To reiterate, I do not think setting a minimum wage of $22/hour 
would be reasonable. And the minimum wage under the Harkin-Miller would 
never reach those levels in real terms, as indexation to the CPI 
would--by definition--keep the real value of minimum wage around $9.38/
hour in today's dollars, or $10.10 in current dollars at the time of 
full phase-in.
                           senator alexander
    Question 1. Are you aware that fully \2/3\ of Americans age 16 or 
older living below the poverty line do not work at all? Raising the 
minimum wage does not help these people, and it may hurt by eliminating 
job opportunities. Do you agree with Christina Romer's statement that 
``A job may ultimately be the most valuable thing for a family 
struggling to escape poverty''?
    Answer 1. As I stated in my written testimony,

          `` . . . [m]inimum wages tend to increase income going to 
        working class and poor families. However, the anti-poverty 
        aspect of minimum wage is limited by the fact that many 
        families under the poverty line do not have substantial 
        attachment to the labor force.''

    Around half of working age (16-64) individuals in families earning 
below the poverty line do not have jobs.
    For an issue as multi-faceted as poverty, we cannot expect a single 
policy tool to fully solve the problem. This is why it is important to 
enact policies to stimulate spending and jobs, and I agree with 
Professor Romer on that point. It is also why direct support to 
families in poverty with programs such as food stamps is critical.
    However, it is also true--as Professor Romer herself pointed out--
that half of the workers who would be affected by a minimum wage 
increase are in families making less than $40,000 a year. And many of 
them are in families earning below the Federal poverty guideline. The 
best evidence on the topic of minimum wages and family incomes supports 
the view that increases in minimum wages have a moderate but clear 
effect on reducing poverty: the proposed increase under Harkin-Miller 
would be expected to reduce the poverty rate by around 1.8 percentage 
points. It would also increase the effectiveness of another employment-
based poverty-fighting program, the Earned Income Tax Credit--a program 
that Professor Romer and others have proposed expanding.
    An effective solution to the problem of poverty requires a 
portfolio of policies. A reasonably high minimum wage would be a 
valuable, though limited, part of that portfolio.

    Question 2. American ingenuity has created a tremendous surge in 
productivity per employee over the last several decades. New 
technologies and robotic technology have made employees so much more 
productive, that in many industries fewer of them are needed. 
Industrial robot sales increased 38 percent between 2010 and 2012, and 
are expected to set a new record this year. Are you concerned that 
raising the cost of low-skilled labor at a time when the need for it is 
diminishing will eliminate these jobs even faster and hurt the very 
people we are trying to help?
    Answer 2. Labor saving technical change, including the adoption of 
robotic technology, is an ongoing process that has reduced the demand 
for routinized labor. As work by MIT economist David Autor has 
documented, these changes have reduced demand for middle-skill jobs 
while actually boosting employment growth in low-skill service work 
(along with increasing higher skill jobs requiring cognitive and 
analytical skills). This view is widely shared among economists.
    These growing low-skill service jobs--short order cooks, bussers, 
janitors, home health aides--involve non-routine manual tasks. In other 
words, they are less susceptible to replacement by either robots or 
offshore workers, which is precisely why they have grown over the past 
several decades. An increasing number of workers are performing these 
jobs, which tend to pay low wages. Many of these workers are earning at 
or slightly above the statutory minimum wage. Boosting the pay level 
for these low-wage service jobs is actually a fairly effective way of 
helping low-skill workers, given the relatively limited possibilities 
for substituting such workers with technology or offshore labor in the 
near future.

    Question 3. You acknowledge in your testimony that upward 
adjustments of the minimum wage will result in consumer price 
increases, particularly in ``high impact sectors like restaurants.'' 
Christina Romer and other economists have concluded that the price 
increases in some of these businesses, like fast food and discount 
retailers, fall heaviest on consumers with very low incomes, those who 
an increased minimum wage is intended to help. Are you concerned about 
increasing the cost of living for Americans who may live on fixed 
income and or have no income because they cannot find work?
    Answer 3. Because a minimum wage increase will substantially boost 
pay for low-wage workers and their families, the net gain to low-income 
families from the proposed policy outweighs the small price increases 
that would likely occur.
    For example, a family earning an income right around the Federal 
poverty guideline can expect their nominal incomes to rise by around 10 
percent from the proposed policy. The overall price increase from the 
proposed policy would be less than 0.5 percent. So in net, low-income 
families are likely to be substantially better off from the policy than 
without it, even factoring in the small price increases.
        response to questions of senator alexander by lew prince
    Question 1. I saw you quoted in a news article saying you closed 
one store because the economy was poor in that location and you could 
no longer make a profit. One element of the Chairman's bill would 
disallow minimum wage decreases when the Consumer Price Index 
decreases, as it did in 2009, as protection of workers in tough 
economic times. But employers such as you also have to deal with the 
challenges of a bad economy, which can be even worse is specific 
depressed areas. Are you concerned that artificially elevated labor 
costs in the face of deflation could force more struggling businesses 
to close when the economy gets tough, which will eliminate more jobs?
    Answer 1. No. I think this is an academic question as the CPI 
almost never goes down.
    The point of indexing is to help business owners plan wage 
increases into our annual budgeting process. Indexing would have kept 
businesses out of the ``shock'' raise situation we're now in if we'd 
had it since the 1960s. Here in Missouri where we've had indexing since 
2006. I haven't run into one business owner or news story stating that 
the slow, incremental change has had any significant effect on their 
profits.
    Also, higher minimum wages aren't ``artificially high.'' Ideally 
wages would reflect a societal value that a person working 40 hours 
should be able to support a family on a paycheck. The theory I work on 
is that your job in the Congress is to set the rules (wages, safety 
net, child labor, working conditions) based on our national values and 
my job as CEO is to figure out how to make my business work within 
those rules. What bugs me is when I have to compete with businesses 
that are playing by different rules because they have special tax 
breaks because they can afford lobbyists. Or can get away with the 
current artificially low minimum because the taxpayers pick up the 
difference of the real cost of living through financing the safety net 
(food stamps, Medicaid, etc).
    In retail we deal with recession by adjusting our product mix to 
find cheaper items, lowering overhead by negotiating better deals with 
some of our suppliers (they're more pliable when biz is down) and 
occasionally cutting back on labor hours. Mostly, we learn to live with 
less profit. It's just a fact of life. And is usually temporary. If you 
think that you can fine tune any capitalist economy to prevent job loss 
in a recession, you are fooling yourself. The answer to recession is 
stimulus and the biggest stimulus comes from government spending.
    The specifics of the death of our Granite City store was that a 
regional store in a steel mill town became unfeasible. In the time we 
were there (17 years--the first 15 were profitable) the town went from 
three mills working three shifts to one mill working one shift; the 
record industry contracted by about 60 percent. and the price of gas 
more than doubled, so customers driving more than a couple of miles cut 
their number of annual visits significantly. The city offered us free 
prime space in the middle of downtown if we'd stay and the outlook for 
Granite City was so bleak that we declined.

    Question 2. In your statement, you stated ``My bookkeeper and I 
have already begun discussions in anticipation of your actions.'' What 
did you mean by this? What sort of preparations do you anticipate 
having to undertake if the minimum wage raises costs?
    Answer 2. In a situation like this we can either cut costs or 
stimulate growth. Our costs are pretty much cut to the bone, and 
besides, I'm optimistic about the U.S. economy, so Vintage Vinyl 
chooses stimulus.
    We have a projected annual budget and make quarterly adjustments. 
If my labor costs are going up, we look for ways to make up the cost. 
Usually this means increasing our potential profit by upping our risk. 
I run Vintage Vinyl conservatively, so increasing risk would entail 
Debbie (bookkeeper), John, my head buyer and Leon, my store manager, 
and I looking at the product mix and seeing where we can create more 
sales by adding product that we have heretofore forgone as more risky.
    We have about 60,000 titles of LP, CD and DVD in the store. They 
fall into two categories: new and used. The new stuff comes from record 
and movie companies and the used we buy from individuals, institutions, 
and estates.
    The following simplifies a complicated process . . .
    Right now most of the inventory bought brand new from record labels 
and movie companies is on a 30-day billing cycle. In other words, if I 
buy something on the first of the month, the bill comes due on the 
31st. If I haven't sold it, I have to buy it--with money that comes out 
of profit--or return it. Our computer tracks ``days held,'' so we 
usually only reorder items that turned in less than 30 days. That way 
we maximize our ROI (return on investment) on 30-day merchandise.
    To increase profit on these new items by increasing risk, we would 
dip into our credit line to pay for 31-plus day sellers that past 
experience says will sell before the interest on the borrowed money 
eats up the profit. We will work with the staff to choose titles they 
think we can do effective in-store marketing on.
    We also looked at investing more in used LPs, which are sailing out 
the door right now. They are our highest profit items. So we dipped 
into the credit line to increase the depth and breadth of our used LP 
inventory in the hopes of increasing sales. We are buying slightly 
riskier (that is more specialized--slower selling) titles. We offer 
sellers a lower price on these and believe the increased markup will 
cover the cost of the money and that the increased profit will allow us 
to multiply the effect of the borrowed money when we reinvest some of 
it in more copies of these titles. We can do this because we have 
established ourselves as paying the most in the region for used titles.
    We project the increased profit from these strategies will allow us 
to cover getting everyone over $10 per hour by the end of the summer 
and pay back the borrowed money in time to make it available again for 
Holiday Season inventory purchases.
    We also will spend a little to advertise our broader selection in 
hopes of increasing traffic.
    These kinds of options are open to any creative businessperson. 
They differ from industry to industry and are not as cut and dried as I 
put them, but the creative management of risk and reward is the basis 
of success in a capitalist enterprise.
                                 ______
                                 
                   National Restaurant Association,
                                      Washington, DC 20036,
                                                     April 9, 2013.
Hon. Tom Harkin, Chairman,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.

Hon. Lamar Alexander, Ranking Member,
Committee on Health, Education, Labor, and Pensions,
U.S. Senate,
Washington, DC 20510.

Re: Followup Questions from Hearing on ``Keeping up with a Changing 
        Economy: Indexing the Minimum Wage''

    Dear Chairman Harkin and Ranking Member Alexander: On behalf of the 
National Restaurant Association (``the Association''), I thank you, 
once again, for the opportunity to expand on the facts in order to 
better educate the committee on the impact the proposed legislation, 
The Fair Minimum Wage Act of 2013 (S. 460), would have on our 
industry's businesses. I do encourage you to continue this dialog by 
contacting the Association's professional labor and workforce staff.
    The Association is the preeminent representative of an industry 
made up of 980,000 restaurant and foodservice outlets employing 13.1 
million people--about 10 percent of the American workforce. Despite 
being an industry of mostly small businesses, the restaurant industry 
is the Nation's second-largest private-sector employer.
    Some of the issues raised in these questions do not apply to my 
business. In addition, because of the technical nature of the questions 
and the fact that I am not an expert on the historical positions of the 
Association, I am relying on the Association's staff to be able to 
provide the committee with full and detailed answers to some of these 
questions. Thus, I do encourage you to contact them for more details, 
which they would be happy to provide.

    Question 1. Do you think that small, predictable raises in the 
minimum wage that happen once a year are easier to plan for than 
irregular increases every 5 to 10 years?
    Answer 1. Revenues are not predictable. The economy is not 
predictable. Thus, it would be an extreme burden on restaurants, which 
are very labor-intensive, to have the entry level wage increase 
arbitrarily, no matter how predictable. The danger of automatic 
increases became clear during the hearing when it was stated that the 
minimum wage should be at $22, if it had kept pace with worker 
productivity since 1960, or even $33, if it had kept pace with the 
earnings of those in the top 1 percent income bracket.

    Question 2. When the minimum wage goes up, does it also affect your 
competitors? Does a minimum wage increase put you at a competitive 
disadvantage?
    Answer 2. Restaurants do not only compete with other restaurants. 
The products and the experience our members sell are optional. For 
example, a family can always choose to eat at home. Thus, raising menu 
prices and trying to pass the added costs on to their customers is 
simply not a viable option, particularly in this challenging economic 
environment, because many customers will just not get their food from 
restaurants.
    As the following chart shows, also presented in my testimony, even 
a 5 percent increase in menu prices would not be enough to account for 
the sharp increase in labor costs called for in The Fair Minimum Wage 
Act of 2013 (S. 460). That assumes that a 5 percent menu price increase 
would even be possible, which according to the Bureau of Labor 
Statistics hasn't happened since 1982.
    Instead, most restaurants will be forced to reduce their employees' 
hours, postpone plans for new hiring, and/or reduce the number of 
employees in their restaurants. Only a small minority of restaurants 
will be able to handle a 39 percent minimum wage increase without 
taking actions that will harm workers.

                    Bottom Line Impact of an Increase in the Federal Minimum Wage to $10.10 *
                                Typical Restaurant With Annual Sales of $900,000
----------------------------------------------------------------------------------------------------------------
                                                    Before            Public policy impact             After
----------------------------------------------------------------------------------------------------------------
Income
  Food and Beverage Sales.....................        $900,000  Menu Prices (up) 5%.............        $945,000
Expenses
  Cost of Food & Beverage Sales...............        $288,000  Food Costs (up) ??..............        $288,000
  3Salaries, Wages & Benefit..................         306,000  Labor Costs (up) 22%............         374,000
  Utility Costs...............................          31,500  Energy Costs (up) ??............          31,500
  Restaurant Occupancy Costs..................          63,000    ..............................          63,000
  General/Administrative Expenses.............          27,000    ..............................          27,000
  Other Expenses..............................         145,000    ..............................         145,000
                                               -----------------------------------------------------------------
    Total Expenses............................        $860,500    ..............................        $928,500
                                               -----------------------------------------------------------------
Pre-Tax Income................................         $39,500  Pre-Tax Income (down) 58%.......         $16,500
  (Percent of Total Sales)....................            4.4%    ..............................            1.7%
----------------------------------------------------------------------------------------------------------------
Source: National Restaurant Association calculations.
* Also includes an increase in the cash wage for tipped employees to 70 percent of the Federal minimum wage.

    Question 3. Has the National Restaurant Association ever in its 
history supported a minimum wage increase? Does the National Restaurant 
Association believe that there should be a minimum wage at all?
    Answer 3. The staff of the Association went back to look at the 
last time the Senate seriously considered and passed a minimum wage 
increase, in 2007, and found that the Association did not oppose 
passage of that legislation. While the package did not completely 
mitigate the impact of the minimum wage increase, the Association 
commended Congress for recognizing the importance of granting small 
businesses the necessary resources to partially offset the consequences 
of the minimum wage increase.
    The Fair Minimum Wage Act of 2013 (S. 460) contains no mitigating 
provisions. Thus, the Association will continue to oppose S. 460 in its 
current form. In these economic times, Congress should not be trying to 
make it harder for small employers, such as myself, to hire more 
deserving people. Instead, as I asked in my testimony, Congress should 
focus on policies that encourage more people, not fewer, to enter the 
workforce. Our collective goal should be to get our young people hired 
and on the path to achieving the American Dream.
    As to the second part of this question, the Association is not 
aware of legislation introduced calling for the abolishment of the 
Federal minimum wage. Once such legislation is introduced, as they did 
with the minimum wage increase legislation in 2007 and, currently, with 
S. 460, the Association's staff will analyze such legislation in toto 
and decide then whether to take a position on behalf of the industry.

    Question 4. Your testimony states that the median hourly earnings 
of waiters and waitresses range from $16 for entry-level servers to $22 
for more experienced servers after tips. However, data from Bureau of 
Labor Statistics, which is the gold standard for wage data, shows that 
in 2011, waiters and waitresses had a median hourly wage of $8.93 after 
tips. What is the source of your data? Why do the figures in your 
testimony differ so much from the official data? Please provide a copy 
of your source data, including detailed methodology.
    Answer 4. The National Restaurant Association is a frequent user of 
BLS data, and its staff agrees that BLS is typically the gold standard 
when it comes to wage and labor data. However, one shortcoming is the 
wage data for tipped employees in the Occupational Employment 
Statistics (OES) survey, which is the source of the $8.93 figure cited 
in the question above for waiters and waitresses.
    Restaurant industry experts strongly believe the reported OES wage 
data greatly underestimates the actual earnings of waiters and 
waitresses, when tips are included. The National Restaurant Association 
is currently working with BLS field economists to rectify this problem, 
and it would be happy to follow up with the committee when the issue is 
resolved.
    As background, here is a brief summary of the problem. Originally, 
the OES survey, which is fielded among a nationwide sample of 
employers, asked respondents to only report the employer-paid wages, 
and exclude tips. Then, a few years ago, the OES survey began asking 
employers to include both employer-paid wages and tips in their 
responses. However, the data has never reflected an uptick in the 
numbers that would be expected with this change in the survey 
methodology. Once again, the BLS field economists are aware of this 
situation, and they are currently working on a solution.
    Given the shortcomings in the OES data, the National Restaurant 
Association has fielded surveys of restaurant operators to get another 
measurement of tipped earnings for waiters and waitresses. The attached 
file contains the results of the nationwide survey that was fielded in 
2011. Previous iterations of this survey have yielded similar results, 
so the Association is confident that this is a more accurate portrayal 
of the earnings of waiters and waitresses.
    On behalf of the National Restaurant Association, I thank you for 
the opportunity to address your concerns, particularly on the 
shortcomings with current OES data. The Association is confident that, 
once the issues with the OES survey are resolved, the reported wage 
figures for waiters and waitresses will more accurately reflect their 
actual earnings. In the meantime, to expedite a response, please send 
any additional questions or concerns on the data directly to the 
Association, specifically 
to Angelo Amador, Vice President of Labor & Workforce Policy, at 
aamador@
restaurant.org.
            Regards,
                                               Mel Sickler.
                                 ______
                                 
                        2011 Tipped Wage Survey

                           Summary of Results

Median Earnings of Waiters and Waitresses

      On a national level, the median hourly earnings of 
waiters and waitresses range from $16 for entry-level servers to $22 
for more experienced servers.

        Median hourly tips received by waiters and waitresses 
range from $12 for entry-level servers to $17 for more experienced 
servers.
        The median hourly employer-paid wage ranges from $4 for 
entry-level servers to $5 for more experienced servers.



        While these figures represent the overall averages, the 
hourly earnings of servers vary significantly based on the type of 
full-service establishment and the average per-person check size. In 
addition, the employer-paid wages will be higher than the national 
average in States that do not allow the tip credit.
        The figures are based on a nationwide survey of 409 
full-service restaurants that employ waiters and waitresses who earn 
tips.

Research Design

    This summary presents the findings of a telephone survey conducted 
among a national sample of 409 full-service restaurant owner/operators 
in the United States. The interviewing was conducted during December 
2011 by Survey Sampling International, a survey research firm located 
in Orem, UT.
      Response to Questions of Senator Harkin by David Rutigliano
    Question 1. Do you think that small, predictable raises in the 
minimum wage that happen once a year are easier to plan for than 
irregular increases every 5 to 10 years?
    Answer 1. Building in an increase every year only adds to the 
increased costs to a business, regardless of economic conditions, 
business level or commodity prices.

    Question 2. Connecticut law requires that tipped workers receive at 
least 69 percent of the regular minimum wage. My bill would require 70 
percent. Clearly your business has thrived under such a policy. Why do 
you then advocate for lower wages for others, and against a policy that 
would apply equally to all businesses in all States?
    Answer 2. We may see a benefit if other States business cost 
increases. Although I am a Connecticut native I shudder to think of the 
consequences should our Nation follow in our economic footsteps of my 
home State. Connecticut is the poster child for bad economic decisions. 
We rank last in every category of economic growth; we have a major net 
migration of our young people.

    Question 3. When the minimum wage goes up, does it also affect your 
competitors? Does a minimum wage increase put you at a competitive 
disadvantage?
    Answer 3. We in Connecticut are undercapitalized compared to our 
neighboring States, this puts us at a competitive disadvantage in 
regards to regional expansion and growth.

    [Whereupon, at 10:47 a.m., the hearing was adjourned.]

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