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S. HRG. 113–802 

BUILDING A FOUNDATION OF FAIRNESS: 75 YEARS 

OF THE FEDERAL MINIMUM WAGE 

HEARING 

OF THE

COMMITTEE ON HEALTH, EDUCATION, 

LABOR, AND PENSIONS 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON

EXAMINING 75 YEARS OF THE FEDERAL MINIMUM WAGE 

JUNE 25, 2013 

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

( 

Available via the World Wide Web: http://www.gpo.gov/fdsys/ 

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, Illinois 

TIM SCOTT, South Carolina 

PAMELA J. SMITH, Staff Director 

LAUREN MCFERRAN, Deputy Staff Director and Chief Counsel 

DAVID P. CLEARY, Republican Staff Director 

(II) 

CONTENTS 

STATEMENTS 

TUESDAY, JUNE 25, 2013 

Page 

COMMITTEE MEMBERS

Harkin, Hon. Tom, Chairman, Committee on Health, Education, Labor, and 

Pensions, opening statement ............................................................................... 1 

Alexander, Hon. Lamar, a U.S. Senator from the State of Tennessee, opening 

statement .............................................................................................................. 9 

Warren, Hon. Elizabeth, a U.S. Senator from the State of Massachusetts ........ 11 

Murray, Hon. Patty, a U.S. Senator from the State of Washington ................... 13 

Casey, Hon. Robert P., Jr., a U.S. Senator from the State of Pennsylvania ...... 50 

Murphy, Hon. Christopher S., a U.S. Senator from the State of Connecticut .... 54 

Sanders, Hon. Bernard, a U.S. Senator from the State of Vermont ................... 56 

WITNESS—PANEL I 

Harris, Hon. Seth D., Acting Secretary, Department of Labor, Washington, 

DC .......................................................................................................................... 3 

Prepared statement .......................................................................................... 5 

WITNESSES—PANEL II 

Reich, Michael, Ph.D., Professor of Economics and Director, Institute for 

Research on Labor and Employment, University of California at Berkeley, 

Berkeley, CA ......................................................................................................... 17 

Prepared statement .......................................................................................... 19 

Blaire, The Most Reverend Stephen E., Bishop of Stockton, Chairman, Committee on Domestic Justice and Human Development, U.S. Conference of 

Catholic Bishops, Stockton, CA ........................................................................... 24 

Prepared statement .......................................................................................... 26 

Shelton, Hilary O., Washington Bureau Director and Senior Vice President 

for Advocacy and Policy, NAACP, Washington, DC .......................................... 30 

Prepared statement .......................................................................................... 32 

Sherk, James, Senior Policy Analyst in Labor Economics, Heritage Foundation, Washington, DC ........................................................................................... 34 

Prepared statement .......................................................................................... 36 

ADDITIONAL MATERIAL 

Statements, articles, publications, letters, etc.: 

Studies That Show the Negative Economic Effects of Increasing the Minimum Wage .................................................................................................... 63 

Response by Hon. Seth Harris to questions of: 

Senator Harkin .......................................................................................... 63 

Senator Alexander ..................................................................................... 64 

Senator Isakson ......................................................................................... 73 

Senator Scott ............................................................................................. 74 

Response by James Sherk to questions of: 

Senator Harkin .......................................................................................... 75 

Senator Alexander ..................................................................................... 77 

Senator Murray ......................................................................................... 81 

(III) 

(1) 

BUILDING A FOUNDATION OF FAIRNESS: 

75 YEARS OF THE FEDERAL MINIMUM WAGE 

TUESDAY, JUNE 25, 2013 

U.S. SENATE, 

COMMITTEE ON HEALTH, EDUCATION, LABOR, AND PENSIONS, 

Washington, DC. 

The committee met, pursuant to notice, at 2:58 p.m., in room 

SD–430, Dirksen Senate Office Building, Hon. Tom Harkin, chairman of the committee, presiding. 

Present: Senators Harkin, Murray, Sanders, Casey, Murphy, 

Warren, and Alexander. 

OPENING STATEMENT OF SENATOR HARKIN

The CHAIRMAN. The Senate Committee on Health, Education, 

Labor, and Pensions will please come to order. 

Today marks the 75th anniversary of the signing of the Fair 

Labor Standards Act by President Franklin Roosevelt on June 25, 

1938. The FLSA, as it’s known, was a landmark achievement. After 

years of struggle, this national law set a floor on wages, limited 

working hours by requiring overtime pay, and set out to eliminate 

child labor. 

It was born out of the Great Depression, a time of falling wages, 

falling consumption, widespread unemployment, and pervasive poverty and hunger. President Roosevelt and minimum wage proponents of the time knew that a fair minimum wage was a critical 

way to reverse these trends, to end the exploitation of workers, to 

reduce dependence on charity and public assistance, and to raise 

wages and consumption to help the economy. 

Upon signing the Fair Labor Standards Act, President Roosevelt 

said, 

‘‘Except perhaps for the Social Security Act, it is the most 

far-reaching and most far-sighted program for the benefit of 

workers ever adopted here or in any other country.’’ 

The arguments against a minimum wage then were the same 

that we hear today, that it would harm the economy, that it would 

hurt people it was meant to help, that it was antithetical to liberty 

and freedom. 

One opponent from the National Publishers Association declared 

that the impacts of a minimum wage would be akin to the fall of 

Rome, and that the inevitable result would be distress, misery, and 

despair. A House member, Representative Dewey Short of Missouri, similarly predicted economic catastrophe saying, 

2 

‘‘This bill will squeeze the little businessman out of existence, encourage and foster monopoly, increase the cost of living 

to the consumer, and make it impossible for the farmers to employ labor while destroying much of the domestic market for 

his products.’’ 

President Roosevelt had a strong response to these critics. He 

said, 

‘‘Do not let any calamity-howling executive with an income 

of $1,000 a day, who has been turning his employees over to 

the government relief rolls in order to preserve his company’s 

undistributed reserves, tell you that a wage of $11 a week is 

going to have a disastrous effect on all of American industry.’’ 

We know that President Roosevelt was right, and the economic 

catastrophes predicted did not come to pass. Indeed, for decades 

after its passage, the minimum wage was an accepted and lauded 

national policy. President Eisenhower proposed a raise himself. 

Every president since FDR, except for two, President Ford, who 

just had a short term, and President Reagan—every president has 

signed an increase to the minimum wage. Until recently, the debate has always been about how much to raise the minimum wage, 

not whether to raise it at all. 

The protections of the minimum wage have also been expanded 

over the years, covering more and more occupations. Today, the 

FLSA covers 90 percent of the workforce. Interestingly, while the 

law originally exempted occupations that were disproportionately 

held by women and people of color, today, these very workers disproportionately benefit from raises in the minimum wage. 

History shows us the important role that the minimum wage 

plays as a national standard in our economy. For decades, it was 

strong, setting a fair foundation for our economy. It lifted families 

out of poverty, reduced inequality, and kept low-wage workers’ 

wages in line with average wages. 

But as we celebrate the minimum wage today, we must also recognize that it is no longer achieving its potential benefits for many 

workers or our economy. Unfortunately, over the past several decades, the minimum wage has not kept up as the rest of the economy has moved forward. Today, the minimum wage has one-third 

less buying power than it did in 1968, one-third less. 

Workers today cannot afford to live on the minimum wage, let 

alone support a family. The wage today is $7.25 an hour. That 

means about $15,000 a year for full-time, year-round work. Families with full-time minimum wage breadwinners fall nearly 20 percent below the poverty line. I’ve said many times that in a nation 

as rich as ours, no one who works for a living and puts in a full 

day’s work should have to live in poverty, be unable to put food on 

the table, pay their bills, keep up with the rent. 

We understood this fundamental, moral truth in the past, but 

somehow we seem to have forgotten it. That’s why I’ve introduced 

the Fair Minimum Wage Act of 2013 to raise the minimum wage 

to $10.10 per hour in three steps and then to index the minimum 

wage to inflation. This modest increase, which is well-aligned with 

the previous increases throughout history, will give 30 million 

3 

Americans a higher paycheck, including the parents of 18 million 

children. 

Again, we’re fortunate today to have with us in the audience, I 

am told, a group of workers who will directly benefit from a minimum wage increase. I understand that many were at the White 

House this morning, celebrating the FLSA and discussing the need 

to raise the minimum wage. I’m pleased that you could all be with 

us this afternoon, and I thank you for coming. 

Of course, we’re also pleased to have a distinguished panel of 

witnesses, including our Acting Secretary of Labor, Seth Harris. 

Today’s panelists will discuss the past, present, and future of the 

minimum wage and the role that it plays for workers and businesses and in our economy. I look forward to this discussion. 

I will hold the record open for an opening statement by Senator 

Alexander. We were supposed to have a vote at 2:30. It didn’t happen until a quarter to three, that’s why a lot of people are late getting here. 

We have two panels. On the first panel, we welcome Seth Harris, 

Acting Secretary of the Department of Labor. Prior to his nomination as Deputy Secretary in 2009, Mr. Harris served as a professor 

of law at New York Law School, where he was director of the 

school’s Labor and Employment Law programs. 

Mr. Harris served for 7 years at the Department of Labor during 

the Clinton administration, as counselor to the Secretary of Labor, 

and as Acting Assistant Secretary of Labor for Policy, among other 

positions. Mr. Harris is a graduate of Cornell University and the 

New York University Law School, where he was editor-in-chief of 

the Review of Law and Social Change. 

Mr. Harris, welcome again, and as with all the panelists, your 

statement will be made a part of the record. Please proceed as you 

so desire. 

STATEMENT OF HON. SETH D. HARRIS, ACTING SECRETARY, 

DEPARTMENT OF LABOR, WASHINGTON, DC 

Secretary HARRIS. Thank you so much, Mr. Chairman, Senator 

Warren, and other members of the committee. Thank you for the 

opportunity to testify about the urgency of raising the Federal minimum wage. And let me say, Mr. Chairman, thank you so much for 

your outstanding leadership over the many years on this very important issue. 

As you said, Mr. Chairman, just a few hours ago, I was at the 

White House with Vice President Biden for celebration of the 75th 

anniversary of the Fair Labor Standards Act. The FLSA established the first national minimum wage when it was signed into 

law by President Franklin Roosevelt on this day in 1938. 

As you said, joining us at the White House were the men and 

women you see sitting behind me, over my left shoulder, workers 

from around the country who are struggling to get by on the minimum wage or just a little more. They work hard. They take responsibility for themselves and their families. They are not asking 

for a handout. They merely ask for an honest day’s pay in return 

for an honest day’s work. 

Since February, I’ve traveled to 14 cities, to Baltimore and Charlotte, to Philadelphia and Atlanta, to Milwaukee and Boston, to 

4 

Phoenix and Las Vegas, meeting with many of these workers and 

hundreds more like them, workers like Kizzie Simmons, a collegeeducated, State-tested nursing assistant from Cleveland with three 

children. Her oldest daughter has been accepted to the University 

of Cincinnati, but Kizzie doesn’t know if she can afford to give her 

child this opportunity. 

She asked me, ‘‘How am I supposed to tell my daughter, ‘Honey, 

I may not be able to make your tuition payment.’ ?’’ And on top of 

that stress, when I met her in Cleveland, Kizzie’s landlord had just 

raised her rent by $300. 

The CHAIRMAN. Say that name again, Seth. Kizzie? 

Secretary HARRIS. Kizzie Simmons. 

The CHAIRMAN. Where is Kizzie? 

Secretary HARRIS. Right here. 

The CHAIRMAN. Welcome. 

Secretary HARRIS. Now, sitting right next to Kizzie is Pattie 

Federico, who lives in Boston, Senator Warren, and she earns barely above the minimum wage at a local movie theater. When I met 

her, she was living in a freezing home because she had to wait for 

the next week’s paycheck before she could fix a broken nozzle on 

her furnace. 

When I met Pattie, I made the mistake of characterizing her as 

living paycheck to paycheck, and she told me I was wrong. Living 

paycheck to paycheck would be an improvement, she explained. 

She’s doing everything possible not to fall further behind. 

This morning at the White House, Pattie talked about living in 

constant fear of losing her family home, about the new tires for her 

car that she needs but can’t afford, about feeling like the walls are 

closing in, about how even an unforeseen $10 expense can be crippling. 

These powerful and poignant stories are the most compelling argument for a minimum wage increase. As President Obama said in 

his State of the Union address, quoting him, ‘‘In the wealthiest nation on earth, no one who works full-time should have to live in 

poverty.’’ The President has proposed increasing the Federal minimum wage from $7.25 to $9 an hour. For these workers and some 

15 million others, that would mean higher earnings, the ability to 

buy basic necessities, and greater peace of mind. 

The President’s plan, like the bill introduced by you, Senator 

Harkin, and Representative Miller, would also index the Federal 

minimum wage to inflation for the first time ever. Inflation has 

steadily eroded the value of the minimum wage, as you said, Senator, by 30 percent since 1968. By linking wages to the cost of living, Congress can make sure workers’ wages keep pace as prices 

go up at the grocery store, the gas pump, and everywhere else. 

Raising the minimum wage won’t merely help Kizzie and Pattie 

and millions more like them. It will strengthen our economic recovery. When working families have more money in their pockets, they 

pump it right back into their local economies. The small business 

owners I’ve met support a higher minimum wage because they 

know it means more people have more to spend on goods and services, and that, of course, helps their businesses to grow. 

There is a persistent myth out there that a higher minimum 

wage will trigger mass layoffs and have a devastating impact on 

5 

our economy. Senator Harkin, as you said, quoting President Roosevelt, the purveyors of that myth are calamity-howlers. The jobless rate was a staggering 19 percent in 1938. Congress passed the 

Fair Labor Standards Act, President Roosevelt signed it, and employment went up. It increased. 

Since then, Congress has acted on nine occasions, generally with 

bipartisan support, to raise the minimum wage 22 times, and the 

calamity-howlers’ doomsday scenarios never came to pass. In fact, 

study after study from independent economists has found that a 

higher minimum wage has little to no negative effect on employment. And, over time, real GDP per capita has steadily increased, 

even when the minimum wage has been raised. 

So let’s do more than commemorate the past. Let’s assure a better future for Kizzie Simmons’ daughter, who wants a college education; for Pattie Federico, who deserves a chance at the American 

dream. Let’s smooth the path to the middle class by renewing the 

promise of the FLSA and raising the minimum wage. 

Again, Mr. Chairman, I want to congratulate you and applaud 

you and Congressman Miller in the House for getting this debate 

started. The President stands ready to work with you and with all 

the members of this committee and the Members of Congress to get 

this important work done. 

Thank you again. I look forward to answering your questions. 

[The prepared statement of Secretary Harris follows:] 

PREPARED STATEMENT OF HON. SETH D. HARRIS

Good afternoon Chairman Harkin, Ranking Member Alexander, and members of 

the committee. Thank you for the invitation to testify at this hearing on the importance of raising the minimum wage to strengthen the middle class and grow our 

economy. On behalf of the Obama administration, I thank you for getting this important conversation started in Congress. 

The timing of this hearing could not be more appropriate. Today marks the 75th 

Anniversary of the Fair Labor Standards Act (FLSA), legislation enacted to ensure 

‘‘the most minimum standard of living necessary for the health, efficiency, and general well-being of workers.’’ Although the FLSA includes a number of basic wage 

and hour standards affecting employees in the private and public sectors, the national minimum wage may be its best known contribution to economic fairness. As 

the agency charged by Congress to administer and enforce the FLSA, the Labor Department is uniquely equipped to attest to the public benefit of raising the minimum 

wage and the urgency of working together to ensure that it provides a basic level 

of economic security for our Nation’s workers. 

The FLSA was enacted in 1938—in the midst of the Great Depression, and with 

unemployment at a staggering 19 percent. Even in these challenging economic conditions, Congress recognized the critical need to establish minimum wage and overtime compensation for America’s workers and to level the competitive playing field 

for their employers. As the President said in the State of the Union, no one working 

full-time in the richest country on the planet should have to live their life in poverty. It does violence to our values and harms our economy as a whole. Raising the 

minimum wage will help to meet this fundamental American promise. 

In addition to being necessary for the well-being of workers and their families, 

the minimum wage is also essential to a healthy economy. Nearly 70 percent of the 

American economy is built on consumer spending. And when you hear consumer, 

you should think of working families. A higher minimum wage will give low-wage 

workers the additional purchasing power to buy goods and services in their communities thereby stimulating local economies and helping small businesses to grow and 

expand. A 2011 study by economists at the Federal Reserve Bank of Chicago found 

that a $1 minimum wage hike increases household spending by approximately 

$2,800 in the year following the increase—with families purchasing necessary durable goods like automobiles that provide their communities with a real economic 

stimulus. 

6 

Last week, I had the opportunity to speak with a group of small business owners 

from the Washington region, each of whom pays their employees more than the current minimum wage. Their anecdotes confirmed that many small business owners 

favor increasing the minimum wage. Small business owners understand that raising 

the minimum wage is good for the economy and good for their businesses, as well 

as being the right thing to do. 

With the passage of FLSA, the first minimum wage was set at 25 cents per hour. 

Since that time, the minimum wage has been raised 22 times. Most recently, the 

2007 amendments to the FLSA called for an increase phased in over 3 years, bringing it in 2009 to its current $7.25 per hour. Unfortunately, for workers who earn 

most of their wages through tips the wage their employers are required to pay them 

has not been raised since 1991—that is 22 long years ago. Needless to say, it is time 

to raise the minimum wage again. 

Over the past 30 years, modest minimum wage increases have not kept pace with 

the higher costs of basic necessities for working families—everything from a gallon 

of milk to a gallon of gas. This trend isn’t new—the real value of the minimum wage 

has steadily decreased since the early 1980s. In fact, the minimum wage has fallen 

30 percent in value since 1968. While the wealthiest Americans have seen their incomes rise dramatically in the last three decades, middle class and minimum wages 

have stagnated, leaving too many families struggling to stay, or get into, the middle 

class. In the words of President Franklin Roosevelt: 

‘‘The test of our progress is not whether we add more to the abundance of 

those who have much; it is whether we provide enough for those that have too 

little.’’ 

There are two myths about the minimum wage that I would like to dispel. Many 

of these arguments have been heard time and again over the decades as proposals 

were offered to raise the minimum wage. The first is that raising the minimum 

wage will suppress employment or lead to layoffs. But study after study from independent economists has shown that raising the minimum wage has a small or no 

effect on employment. A second myth holds that the typical minimum wage worker 

is a middle-class teenager earning weekend spending money. In fact, only around 

19 percent of those earning between $7.25 and $9.00 per hour are teenagers. Sixty 

percent are working women, many of whom are raising children. 

Contrary to popular belief, many minimum wage workers are adults supporting 

families and heading households. In 2011, minimum wage workers brought home 

46 percent of their household’s income. Their wages pay for utility bills, car maintenance, and rent. They are parents struggling as hard as they can to provide a better 

life for their children. They are under enormous stress, often facing wrenching 

choices about which bills to skip each month, or whether to fix the heat in the dead 

of winter, or fix the car they need to get to work. They know what it’s like to clip 

coupons and say ‘‘no’’ to their children, to be late with the bills and hope that their 

electricity won’t be shut off. They know what it’s like to live just one small setback 

away from personal disaster. 

For the past 4 months, I’ve been traveling around the country talking with workers who have an important stake in President Obama’s proposal to raise the Federal 

minimum wage from $7.25 per hour to $9 per hour. I’ve been to 14 cities, from 

Philadelphia to Phoenix, from Akron to Atlanta. At every stop, I heard stories of 

extraordinary struggle and sacrifice. 

• In Boston I met Pattie, a woman who earns just above the minimum wage 

working at a local movie theater. And she needs every penny. Like many Americans, 

she struggles to make ends meet, but Pattie constantly feels like she is falling even 

further behind. When I spoke with her, I made the mistake of classifying her as 

someone who lives paycheck-to-paycheck. She corrected me, pointing out that living 

paycheck-to-paycheck would mark a significant improvement in her life. Every day 

she wonders, do I have enough money to fill my car with gas to get to work? If my 

car breaks down, do I skip this month’s heating bill to pay for the necessary repairs? 

• I met Tanvanel in Orlando. He is 35 years old and has a wife and four children. 

Tanvanel reports that it’s simply impossible to support his family on his full-time 

minimum wage salary working at Wendy’s. ‘‘It’s very difficult to pay for health insurance for my family,’’ he said. ‘‘I can’t afford a car, and even if I could, I couldn’t 

pay for the gas or the necessary insurance.’’ 

• While in Tampa, I met Grace. She is a single mother whose husband died several years ago. She has a young daughter with a disability, and is often forced to 

choose between going to her daughter’s school to meet with her teachers and ensure 

she has an effective education plan and keeping hours at work. ‘‘Sometimes,’’ says 

Grace, ‘‘for dinner, I can only afford a hamburger from McDonald’s and some water. 

I give my daughter the meat and the water, and I just eat the bun.’’ 

7 

• During my trip to Cleveland I met Kizzie, a State-tested nursing assistant. 

She’s a mother of three. Her daughter has been accepted to the University of Cincinnati, but Kizzie worries about whether she can afford it. ‘‘How am I supposed 

to tell my daughter that I’m not going to make the tuition payment,’’ she asked. 

On top of it all, Kizzie’s landlord raised her rent $300 per month this year. ‘‘I come 

to work sometimes broken, but you would never know,’’ she said. ‘‘I don’t show it.’’ 

I heard stories like these in every city I’ve visited. These workers have enormous 

pride and dignity. They don’t want hand-outs. They simply want an honest day’s 

pay for an honest day’s work. 

More take-home pay for these workers will provide a boost to our entire economy. 

The President has called for a raise in the minimum wage to $9.00 per hour, which 

would boost the earnings of about 15 million low-wage workers across the country 

and restore the minimum wage to its early-1980s real value. The President has also 

proposed indexing the minimum wage to inflation, so future workers do not see 

their earnings eroded by cost-of-living increases. Increasing the minimum wage and 

the purchasing power of low-wage families will help bolster the middle class and 

strengthen our economic recovery. 

The minimum wage is as important today as it was in 1938. Yet the wage floor 

it creates is in danger of falling so low that it no longer provides a basic level of 

economic security for our Nation’s working families. Laws like the FLSA recognize 

the value and dignity of all work, providing working people the means to support 

and nurture strong families. It is an affirmation of these American values that the 

FLSA and its minimum wage requirement have stood the test of time, despite all 

of the changes that have taken place over the past 75 years. Evidence of our shared 

commitment to this responsibility is the fact that minimum wage increases have 

historically garnered bipartisan support in Congress and been signed by Democratic 

and Republican presidents alike. It is our responsibility to strengthen the FLSA and 

sustain its promise over the next 75 years. 

In a nation as wealthy as ours, far too many full-time workers are living below 

the poverty line. Minimum wage workers drive our kids to school; serve our food; 

provide care to our parents, young children and people with disabilities. The President believes they should earn enough to support their families and live a decent 

life. Raising the minimum wage is good for workers, their families, and for our economy. It would give hard-working people the raise they need and deserve. He applauds Senator Harkin, as well as Representative Miller, for getting this debate 

started in Congress. He stands ready to work with Congress to pass legislation to 

increase the minimum wage as soon as possible. 

Thank you again for the opportunity to testify today. I am happy to answer your 

questions. 

The CHAIRMAN. Thank you very much, Mr. Secretary. And, 

again, I thank you for your great leadership of the department now 

and in the past and for your commitment to the kind of economic 

and social justice that we’ve fallen behind on in this country. I really appreciate your leadership. 

We’ll begin a round of questions, 5 minutes each. Here’s one. I 

was just thinking about this the other day. In looking at the history of the passage, my staff found a lot of business opposition to 

the bill, but they found a lot of business support. In the last year 

or so, we’ve seen several business firms come out in favor of raising 

the minimum wage—Costco, Starbucks, several associations of 

thousands of small businesses, business publications like The Economist, Crain’s New York Business, Bloomberg News. 

Why are an increasing number of business voices now coming out 

wanting to raise the minimum wage? Do you think that would not 

be in their best interest? I don’t know. 

Secretary HARRIS. I’ll venture a guess, and tell you what I’ve 

heard from small business owners, in particular, two reasons. One 

is more money in consumers’ pockets means more money for business. Seventy percent of the American economy is built on consumer demand. Consumers, these folks sitting behind me—those 

8 

are consumers. More money in their pockets means more money for 

businesses to grow, and it’s also good for our economy overall. 

The second thing is responsible businesses, the businesses that 

are paying a fair wage, a responsible wage, are kind of sick and 

tired of being undercut by employers who are trying to squeeze 

every last penny out of every worker who comes through the door. 

They want everyone to be held to a basic minimum, not something 

lavish or something that will put workers on Easy Street, but some 

basic minimum so that competition is fair. 

The logic of the original Fair Labor Standards Act was fair competition among businesses, as much as it was about helping workers. So my sense is that those are the two reasons. 

The CHAIRMAN. Mr. Harris, could you also address yourself to 

this aspect of tipped wages, tipped workers? We haven’t raised that 

since, I think, 1991. 

Secretary HARRIS. That’s right. 

The CHAIRMAN. And I don’t have it in front of me, but I think 

it’s around $2 and—— 

Secretary HARRIS. Thirteen cents. 

The CHAIRMAN. It’s $2.13 an hour right now. And when I tell 

people that, it’s incredible. They say, ‘‘No, no, no, that’s not right.’’ 

And I say, ‘‘Yes, it is.’’ So part of our bill is to raise that tipped 

wage up and then to index it, also. Could you address yourself to 

the necessity of increasing the tipped wages? 

Secretary HARRIS. Yes. I’m in strong agreement with you that 

the cash wage for tipped workers needs to be increased. The way 

the law works right now, employers are required to pay a minimum of $2.13 to waiters and waitresses and other people who get 

tips, as long as their tips bring them up to the Federal minimum 

wage. 

In essence, what’s happening is those of us who go out to restaurants and get wonderful service from a waiter or waitress, and 

we leave money on the table as a way of saying, ‘‘Thank you. We 

really appreciate the terrific service that you gave us,’’ we’re actually subsidizing the employer’s wage to that worker. 

For waiters and waitresses, that cash wage, that $2.13 wage, has 

declined in value by 40 percent since the last time it was increased 

in 1991. I think it’s really very difficult to justify doing that. So the 

President agrees with you and Congressman Miller. We’d like to 

see the tipped minimum increased so that those folks get rewarded. 

They’re assured of being rewarded with a higher wage. 

The CHAIRMAN. Very good. I just have one more quick statement, 

and then I’ll recognize Senator Alexander. 

Entry level—a lot of times we hear that minimum wage jobs are 

just entry level. No one really stays there. It’s a training ground 

for teenagers. They get raises and move on to higher paying jobs. 

So it’s an entry kind of level, but no one ever stays there very long. 

I guess Kizzie and Pattie might disagree with that, but we hear 

this all the time. 

What have workers been telling you about this? Do they stay 

there just a short time and move on, or are there a lot of people 

in our society that kind of get in those minimum wage jobs and 

they just are there for a long time? 

9 

Secretary HARRIS. It’s the latter, Senator. The workers I’ve met 

around the country—first of all, they’re not overwhelmingly teenagers. In fact, only one in five of the people who would benefit from 

this increase are teenagers. Most are adults. Sixty percent are 

working women. A large number of them have children that they’re 

supporting. 

But I’ve met workers who have been in their jobs sometimes 3 

or 4 years, and perhaps they’ve gotten a raise, but if they started 

at the minimum wage, they’ve maybe gone from $7.25 to $7.75 or 

$8 an hour. And I’ve met some workers who are still earning $8 

an hour after 15 or 20 years at their job. 

It’s a consequence of what their employer is willing to pay. 

They’re not being rewarded for their loyalty to the employer. 

They’re not being rewarded for what they’ve learned from being in 

the job or their higher productivity. So this raise would actually assure those workers that they’re able to lift themselves out of poverty, their families out of poverty, and that they get the reward 

they deserve. 

The CHAIRMAN. Thank you very much, Secretary Harris. 

Now I’ll recognize Senator Alexander. 

OPENING STATEMENT OF SENATOR ALEXANDER

Senator ALEXANDER. Thanks, Mr. Chairman. Excuse me for 

being a little late. I was voting for one of the President’s cabinet 

nominees, which I thought you would want me to do. 

The CHAIRMAN. Did she get through? 

Senator ALEXANDER. I’m sure she did, since we always try to 

support most of the President’s nominees. 

Welcome, Mr. Secretary. I’m glad you’re here. 

Mr. Chairman, I thank you for calling this hearing. This is the 

second hearing on minimum wage. My problem with the hearing 

is that it’s a hearing on how to pay fewer people more money instead of how to get more new jobs, which is what we need in this 

country with such a high rate of unemployment. I would rather see 

hearings, although I don’t have the prerogative as the chairman 

does of setting the agenda—I’d rather see hearings on creating an 

environment in which we can grow the largest number of good new 

jobs and make those more accessible. 

We always seem to have economists—and we’ll probably have 

some more today—who contend with each other about the effect of 

the so-called minimum wage. One example is a study, Minimum 

Wages and Employment: A Review of Evidence From the New Minimum Wage Research 2006, authored by a professor at the University of California-Irvine and an economist at the Board of Governors of the Federal Reserve System. And I’ll ask consent to put 

others in the record, also. 

[The information referred to can be found in additional material.] 

Senator ALEXANDER. This study compared 100 minimum wage 

studies published since the 1990s. Nearly two-thirds of the studies 

found negative employment effects of minimum wage increases 

while only eight studies found positive effects. In other words, negative employment effects mean fewer jobs. Positive effects mean 

more jobs. 

10 

Eighty-five percent of the, ‘‘most credible’’ studies showed negative employment effects, which were most pronounced in studies of 

less skilled employee groups. Studies showing positive employment 

effects generally relied on an economic model which is based on the 

dubious economic assumption of an upward sloping labor supply 

curve. 

That’s one review of a number of prestigious studies that have 

tried to prove what the effect of minimum wage is. From my point 

of view—and I think the point of view of many on our side of the 

aisle—what the minimum wage is is a good-sounding attempt to fix 

the price of labor. And in a market system, what that usually does 

is create a shortage. It creates less. 

We had testimony at the first of the minimum wage hearings. 

We had one economist, and then we had two individuals who actually ran businesses. The economist was talking about his academic 

research about how to run a business, and one guy that runs the 

business was actually talking about running a business, and he 

said, unquestionably, that if the cost of labor is more, that will permit him to hire fewer people. That’s what he said. 

And there are a number of other costs that small businesses 

have, one being the proposed cost of healthcare that is going into 

effect October 1. When you add to that an increase in the minimum 

wage, all those costs add up to a level of costs that has to be subtracted from the revenue, and if there’s less money there to pay 

employees, there are fewer employees. That was the testimony we 

received. 

I’ve had a little experience in trying to create jobs in the private 

sector, in helping to build a company that eventually ended up on 

NASDAQ and became the world’s largest provider of worksite 

daycare. As a Governor, when I came to a State that had the third 

lowest family incomes in America, I looked around for ways to help 

our State, which is a poor State, improve those incomes. And the 

last thing from my mind was to try to say, ‘‘What I ought to do 

is just pass a law in Tennessee that says everybody ought to be 

paid more.’’ 

I knew from my own experience that companies had to make the 

money to pay higher wages, and companies wouldn’t come and 

couldn’t grow in Tennessee if that were the requirement. So we set 

about in another direction, and that was to create an environment 

in which they could succeed. 

That meant, for example, getting rid of the usury limit, which we 

had in the State at the time, which kept capital from coming in. 

It meant maintaining and defending a right-to-work law, which 

gave employees freedom to choose and created an opportunity for 

the American automobile industry to come to Tennessee and compete in this marketplace. 

Suddenly, we went from a situation where we had no auto jobs 

to one where a third of our manufacturing jobs are auto jobs. And 

the whole center of the American automobile industry has moved 

to the South, where you have the Saturn plant, which is 16 miles 

away, and that’s a UAW partnership; or the Nissan plant, which 

does not have a union. But you have that choice. 

Creating an environment in which we could grow the largest 

number of good new jobs had to do with creating a banking system 

11 

that would be responsive to the needs of the State. And more than 

anything else, it had to do with education. We became the first 

State to pay teachers more for teaching well and had 10,000 master teachers who voluntarily went up a career ladder. 

Now, I don’t know whether all those kinds of things that we did 

in the 1980s made a difference. It’s hard to measure that. But I do 

know that over the 1980s and into the 1990s, we had the fastest 

growing family incomes of any State. And I do know that our current Governor and legislature are continuing to create an environment where companies can come and, without excessive mandates, 

create jobs to make a profit. 

So my attitude toward the so-called minimum wage is that it basically cuts the bottom rung off of the economic ladder onto which 

we hope Tennesseans and Americans will step so they can then 

climb up the ladder, and that our focus ought not to be on cutting 

that rung off so fewer people can get on the ladder. Our focus ought 

to be on helping people move up the ladder, and that means giving 

a choice of whether or not to join a union, giving them a choice of 

going to a good school instead of a bad school if they’re poor, giving 

them a choice of paying teachers more for teaching well—as many 

of these attitudes as we can think of. 

I would throw into that, Mr. Chairman, that we built the best 

four-lane highway system in the country in order to attract business. So I think the hearing is on the wrong subject. I think it’s 

on the question of fewer jobs. I’d like to see the hearing be on more 

jobs. When my time for questions comes, I’ll have some questions 

to ask on that subject. 

I thank the chairman. 

The CHAIRMAN. Senator Warren. 

STATEMENT OF SENATOR WARREN

Senator WARREN. Thank you very much, Mr. Chairman. I appreciate your holding this hearing. I think it’s an important hearing. 

Thank you, Secretary Harris, thank you for being here. I really 

appreciate it. I’m glad you’re here. 

Pattie from Boston and Kizzie, I’m glad you’re here, too, and everyone who came for this important hearing. 

I also want to say thank you to the chairman again for all of 

your leadership on minimum wage. You’ve made something a national issue again that needs to be a national issue. 

We’re here today, I think, to focus on tipped workers, the waiters 

and waitresses who serve our meals, staff our hotels, wash our 

cars. Over 3 million Americans work such jobs that rely on tips. 

About 45 percent of those who rely on tips are over the age of 30, 

and over 70 percent are women, many with children. 

It’s been more than 20 years since we increased the minimum 

wage for tipped workers, as you said. In fact, the minimum wage 

for tipped workers now sits at an absurdly low $2.13, which means 

that inflation has eaten it away, as you said, Secretary Harris. The 

minimum wage for tipped workers covered 50 percent of the minimum wage for other workers when it was enacted. It now covers 

only 29 percent. We can do better than that. 

Here’s what I want to start with. What does the Department of 

Labor data tell us happened the last time we increased wages for 

12 

tipped workers back in 1991? We hear the argument, ‘‘Oh, it’s 

going to destroy jobs.’’ What happened when we increased the minimum wage for tipped workers back in 1991? 

Secretary HARRIS. I’m not sure we have data specifically about 

tipped workers. But the overwhelming weight of the evidence now, 

as I understand it—I’m not an economist, but my understanding is 

that the overwhelming weight of the evidence is if you institute a 

moderate minimum wage increase, we don’t see the kind of negative employment effects that Senator Alexander is talking about. 

And Professor Reich will have a lot more to say about this than I, 

because he is in the field. 

But there’s been study after study after study comparing jurisdictions where the minimum wage has gone up and jurisdictions 

where the minimum wage has not gone up, and you don’t see differential employment effects in those two jurisdictions. Professor 

Reich co-authored one of those studies. Earlier today, Dr. Alan 

Krueger, who’s the chair of the President’s Council of Economic Advisors, talked about the evolution in the economics field and how 

the conclusion that he found back in 1995 has been validated time 

and time again, that we don’t see a negative employment effect 

from increasing the wage. 

Senator WARREN. So let me ask, then, about the current law on 

minimum wage for tipped workers. As I understand the current 

law, someone goes out, they’ve got their $2.13 on their paycheck, 

and if the tips don’t bring them up to minimum wage, then it is 

the responsibility under Federal law of the employer to fill in the 

difference, to make sure, in other words, that everyone reaches the 

Federal minimum wage. 

The question I want to ask you is how successful have you been 

at enforcing that? 

Secretary HARRIS. We have a great deal of difficulty enforcing 

that for the obvious reasons, and that is counting the value of tips 

that are collected in a particular workplace on a particular night 

is an extremely difficult activity. And what tips are distributed— 

because they’re often distributed in cash—is an extremely difficult 

activity. 

The Wage and Hour Division, which has 1,000 inspectors to protect 140 million workers in more than 7 million workplaces, including the waiters and waitresses you’re talking about, has a gravely 

difficult time trying to figure out who’s gotten what and how much, 

and whether it’s from the right tip pool, and who’s been included 

in that. It’s actually quite complicated. It’s very, very difficult to 

enforce. 

Senator WARREN. In other words, we don’t have a lot of confidence that the Federal law as it currently exists is enforced. I 

think what we’ve got right now is this: when you look at the poverty data, it turns out that workers who are employed as waiters 

and waitresses are nearly three times more likely to be below the 

poverty line than other workers, which suggests something isn’t 

working here. 

It sounds to me like the only option we have that works is that 

we have to raise the floor on the minimum wage for tipped workers. Otherwise, these are people who have no recourse. 

13 

Secretary HARRIS. I agree that that’s true. The only way to assure that these workers are going to get more money is to raise the 

cash wage the employer has to pay that goes on a pay stub that 

my investigators can check. 

Senator WARREN. All right. Good. Thank you very much, Mr. 

Secretary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Warren. 

Senator Murray. 

STATEMENT OF SENATOR MURRAY

Senator MURRAY. Mr. Acting Secretary Harris, it’s great to see 

you here. 

Mr. Chairman, thank you so much for this. 

In your testimony, I love the stories of workers who are struggling to make ends meet. I understand several of them are with 

you today, and I really appreciate you sharing your stories and how 

increasing the minimum wage increases the quality of life that you 

have. 

We heard here, and I’ve heard it before, that we’re just talking 

about a few workers. How many people are on minimum wage in 

this country? 

Secretary HARRIS. This increase, the President’s proposed increase, would benefit about 15 million workers. 

Senator MURRAY. Fifteen million people? 

Secretary HARRIS. The higher proposal that Senator Harkin and 

Congressman Miller have made, I understand, would benefit about 

27 million. 

Senator MURRAY. Twenty-seven million? 

Secretary HARRIS. Either 27 million or 30 million, depending 

upon how you count it. 

Senator MURRAY. Between 15 million and 27 million, depending 

on the proposal. 

Secretary HARRIS. Yes. 

Senator MURRAY. Talk to me a little bit about how that increase 

in their minimum wage not only helps them as an individual, but 

helps the economy around them as well. 

Secretary HARRIS. It’ll put billions of dollars into the pockets of 

the people in our society who are most likely to spend those dollars. 

Economists talk about propensity to consume. What that means is 

when you get your money, do you spend it? 

As I’ve traveled around the country, what these workers here 

have told me is every dollar, every single dollar they get from this 

increase they’re going to spend in the local grocery store, in the 

local gas station. They’re going to use it to pay their rent or their 

bills or their utilities, simply because they don’t have any savings. 

I jokingly asked everybody, ‘‘How many of you have offshore 

bank accounts in the Cayman Islands and you’re going to put your 

money in that?’’ Nobody ever raises their hands, because it’s going 

to go right back into low-wage communities, where these folks live. 

Senator MURRAY. The pizza parlor, the grocery store, buying diapers for their kids, the things that they stretch every single day. 

So it helps local businesses as well, I’m assuming. 

Secretary HARRIS. Absolutely. 

14 

Senator MURRAY. We’re actually seeing the exact opposite of this 

today with sequestration, where in communities that I know of, civilian and military employees are getting cut back on furloughs. 

The pizza factories, the little shops, the movie theaters are all seeing a huge loss of income right now, because it just has a huge impact on people like this. So I think this affects a lot more people 

than 15 million to 27 million. It affects a lot of businesses, small 

businesses, communities, and their economy. 

I wanted to ask you—one key aspect of Senator Harkin’s proposal and the President’s proposal is indexing the minimum wage 

to inflation so the value doesn’t erode over time. This is an important part of my home State, Washington State’s minimum wage. I 

am proud to say we are 1 of 10 States that index our minimum 

wage. Can you talk a little bit about why tying the minimum wage 

to the cost of living is so important? 

Secretary HARRIS. I think it’s critical, and the workers tell me it’s 

critical. The price of gas, the price of milk, the price of rent and 

utilities keeps going up, and minimum wage workers, with all respect, have to wait for Congress to give them a raise before they 

get a higher minimum wage. 

It’s been 4 years since the last increase. Before that, it had been 

10 years since the last increase in the minimum wage, and the 

value declines because of inflation. Even with very low inflation, 

like we have now, you still see the real value of the minimum wage 

decline, so they’re able to buy less. They’re less able to support 

their families. 

Raising the minimum wage to a more reasonable level and then 

indexing it will allow them to keep up. It’ll also, frankly, take it 

out of politics a little bit. It will make it more about the cost of living. 

Senator MURRAY. Right, and we certainly have found that in my 

State, for sure. Thank you very much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Murray. 

Senator Alexander. 

Senator ALEXANDER. Thanks, Mr. Chairman. 

Mr. Harris, on the subject of creating more jobs, on October 21, 

OSHA issued a letter of interpretation concluding that a union representative who is not an employee may accompany an OSHA inspector during a walk-around inspection of a work site and may 

even be designated as the employee representative in a non-union 

workplace. So you’ve got a non-union workplace, and the OSHA inspector can bring in a union representative to walk around with 

him or her. Did you review and approve this letter of interpretation? 

Secretary HARRIS. I didn’t. That came from OSHA after consultation with the solicitor’s office. 

Senator ALEXANDER. Well, how would you make sure that a rule 

like this doesn’t involve OSHA in the employer’s labor-management 

relations? I mean, let’s say you’ve got a company without a union 

in Tennessee, and OSHA comes in with a United Auto Workers 

representative and starts walking through the plant. How does 

that not affect labor-management relations? 

15 

Secretary HARRIS. I can’t assure that it doesn’t affect it, Senator. 

But walk-around rights have been a part of the operation of the 

Occupational Safety and Health Act, I believe, since its inception 

back in the 1970s. 

Senator ALEXANDER. Walk-around rights for whom? 

Secretary HARRIS. Walk-around rights for workers and their representatives. So workers have been able to choose representatives 

for some time now. The question was raised with us, as I understand it—again, I wasn’t involved in this decisionmaking. This is 

not the kind of thing that would typically come to my level. OSHA 

was asked for an interpretation and whether or not this was an appropriate action for a worker to undertake, to select a union representative or somebody else who’s not in the workplace to engage 

in the walk-around with them—— 

Senator ALEXANDER. But OSHA’s own regulation says, ‘‘Representatives authorized by employees shall be an employee of the 

employer.’’ That’s OSHA’s own regulation. How can you get the 

UAW organizer to walk around with you if he’s not an employee 

of the employer? 

Secretary HARRIS. I’ll have to get back to you on that, Senator, 

because I’m not familiar with that particular language that you’re 

reading to me. That’s not my recollection of the description that I 

got from OSHA. 

Senator ALEXANDER. OSHA is in the Department of Labor. 

Right? 

Secretary HARRIS. Right. 

Senator ALEXANDER. In December 2011 the Department of Labor 

proposed a new rule that would narrow the application of the companionship exemption under the Fair Labor Standards Act so that 

many in-home caregivers would have to be paid overtime. We had 

a pretty big discussion about that here with Secretary Solis. 

The effect of that, I and others were afraid, would have the effect 

of increasing the cost of in-home companionship, which is paid by 

Medicaid, and Medicaid includes a large component of State funds. 

That’s about 40 percent. 

We were wanting to know whether this will mean that there are 

fewer people who can afford to have in-home companionship. Many 

older people need that. Will there be fewer jobs for home caregivers 

because of that? And what will the cost be to States under the 

Medicaid plan? 

Medicaid is the most rapidly growing part of State governments. 

It’s now 26 percent of State governments. The new healthcare law 

is causing States to scramble in every direction to figure out how 

to pay for it. 

On March 14, I asked former Secretary Solis, in front of my Appropriations Subcommittee, if she had consulted with any State 

Medicaid directors about the impact of the proposed rule, and, if 

not, whether she was willing to meet with them. I never heard. So 

do you know if Secretary Solis met with any State Medicaid directors about this proposed rule? 

Secretary HARRIS. Can I speak to the department as a whole 

rather than Secretary Solis, personally? 

Senator ALEXANDER. Sure. 

16 

Secretary HARRIS. Because I didn’t track her schedule that closely. But let me say we are very deeply engaged with the Centers for 

Medicare and Medicaid Services. We also worked with CMS on 

joint outreach to State Medicaid directors. We’ve had a number of 

calls, including one call where 26 States represented by 38 State 

Medicaid program representatives participated. Let me also say 

during the notice—— 

Senator ALEXANDER. Now, who had that call? 

Secretary HARRIS. That was jointly the CMS and the Wage and 

Hour Division, which is the division in the Labor Department 

that’s responsible for the crafting of that rule. 

Let me also say during the Administrative Procedures Act open 

notice and comment process, we received comments from a number 

of State Medicaid directors, including the Tennessee State Medicaid director and those from Arkansas, California, Virginia, Oregon, and Washington State. And we have received comments from 

the National Association of Medicaid Directors and the California 

State Association of Counties. They all submitted written comments during the APA process. 

We have been as deeply engaged as we feel we can be with the 

Medicaid community both at the Federal level and at the State 

level. And their comments are being taken very, very seriously, I 

can assure you, in this regulatory drafting process. 

Senator ALEXANDER. Thank you for your response. And you’re 

still planning to finalize that rule? 

Secretary HARRIS. That’s our hope. We’re working on it. 

Senator ALEXANDER. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

Again, Secretary Harris, thank you very, very much for being 

here and for your excellent testimony and for your outstanding 

leadership of the Department of Labor. We appreciate it very 

much. 

Secretary HARRIS. Thank you so much, Mr. Chairman. 

The CHAIRMAN. Now we’ll move to our second panel. Dr. Michael 

Reich is director of the Institute for Research on Labor and Employment and professor of economics at the University of California 

at Berkeley. He has authored over 100 books and other publications on labor economics and political economy, including the economic effects of the minimum wage. Dr. Reich received his bachelor’s in mathematics from Swarthmore College and his Ph.D. in 

economics from Harvard University. 

The Most Reverend Stephen E. Blaire is the Bishop of the Catholic Diocese of Stockton, CA, and chair of the Committee on Domestic Justice and Human Development of the U.S. Conference of 

Catholic Bishops. Bishop Blaire attended St. John’s College and 

Seminary in Camarillo, CA, and was ordained to the priesthood in 

1967. Pope John Paul II appointed Bishop Blaire as the Bishop of 

Stockton in 1999. 

Bishop Blaire, you and I met about a year ago, and it’s very good 

to see you here again, and welcome. 

Hilary O. Shelton is director of the Washington Bureau and senior vice president for Advocacy and Policy of the NAACP, the National Association for the Advancement of Colored People. Mr. 

Shelton has spent his career advocating for civil rights protections 

17 

in the United States. He previously worked with the United Negro 

College Fund and the General Board of Church and Society of the 

United Methodist Church. He is the recipient of numerous awards 

from civil rights and faith-based communities for his service. Mr. 

Shelton holds degrees from Howard University, the University of 

Missouri, and Northeastern University. 

James Sherk is the senior policy analyst in Labor Economics at 

the Heritage Foundation. Mr. Sherk received a master of arts degree in economics from the University of Rochester and a bachelor’s 

degree from Hillsdale College in Hillsdale, MI. 

Thank you all for being here. Each of your testimonies will be 

made a part of the record in their entirety. We’d ask you to sum 

it up in 5 to 7 minutes, and then we’ll open it for rounds of questions. 

Dr. Reich, welcome and please proceed. 

STATEMENT OF MICHAEL REICH, Ph.D., PROFESSOR OF ECONOMICS AND DIRECTOR, INSTITUTE FOR RESEARCH ON 

LABOR AND EMPLOYMENT, UNIVERSITY OF CALIFORNIA AT 

BERKELEY, BERKELEY, CA 

Mr. REICH. Thank you, Chairman Harkin and all the members 

of the committee, for the privilege of speaking to you today. My 

task is to provide an overview of the impact of minimum wage legislation enacted 75 years ago today and the Fair Labor Standards 

Act of 1938 and amended subsequently on many occasions. 

I do this as a labor economist. I’ve had over 40 years of experience studying low-wage labor markets, especially the role of employee turnover in low-wage labor markets. And I’ve been, in the 

last half dozen years or so, the author or co-author of quite a few 

studies of minimum wages and their effects from many different 

angles. 

In the longer prepared statement, I argue that the national minimum wage has had important positive effects upon living standards—that’s what it’s designed to do—without shooting ourselves 

in the foot, that is, without reducing employment. It has also had 

other positive effects, especially in previous decades. 

In the 1930s, money, wages, and prices were spiraling downward, prolonging and deepening the Great Depression. By creating 

a floor that would increase automatically, at least until 1945, the 

Fair Labor Standards Act helped stabilize the economy and helped 

to end the Great Depression. And since then, it’s been much more 

difficult to cut wages in the United States, or employers have been 

reluctant to do it, and that situation seems to be changing more recently, however. 

After World War II, when we had several decades of shared prosperity, that is, we had rapid economic growth and wage growth 

that was roughly equal throughout the wage distribution, Congress 

increased the real minimum wage quite a few times to stay in the 

range of middle-class wages, 50 percent to 55 percent of middleclass wages. So the minimum wage rose in real terms and was an 

important pillar of the shared prosperity economic model that we 

followed in those years. And we had much higher growth rates in 

those years than we’ve had subsequently. 

18 

From the 1980s until the Great Recession that began in 2006, 

the economic terrain is different, with wage stagnation now for the 

middle class—median wages have only gone up about 5 percent in 

the last 35 years—and wage declines for low-wage workers and increases in pay inequality especially at the top. In this context, my 

studies have shown that minimum wage policy has, nonetheless, 

increased pay without adversely affecting employment and has also 

reduced poverty and wage inequality. 

In the course of my studies, I’ve also looked at the question of 

indexation that Senator Murray raised, as well as more recently 

looking at tip credits. Now, since the onset of the Great Recession 

and the weak economic recovery that has followed, tens of millions 

of middle-class workers have suffered deep declines in their annual 

earnings or lost their jobs altogether. This is a context of increasing 

middle-class insecurity, if not destruction of middle class. 

In this context, the value of the minimum wage forms an ever 

more important reference point for insecure workers, a reference 

point. My own research shows that minimum wages of $10 or more 

today—those are the levels now in two of the most prosperous cities in the United States, San Francisco and San Jose, CA—do not 

have negative employment effects. That’s based on the full range 

of States. 

Vice President Biden mentioned this morning my study, which 

compared employment effects across State borders, where one 

county had a minimum wage that was higher than the other. And 

there, we looked at hundreds and hundreds of counties over a period of 20 years, and we found no minimum wage effect using what 

is a very intuitive control, namely, the wage and employment level 

in the county across the State border. 

The reason that minimum wages don’t reduce employment, in 

my view, with over 40 years of research, is that they reduce employee turnover. Employers who are low-wage employers have very 

high turnover, over 100 percent. That doesn’t mean everyone leaves 

in a year, because there are multiple departures, short-term tenure. And raising the wage has a very demonstrated effect on reducing turnover. That makes it easier for employers to recruit and to 

retain workers, recruit and retain workers. Those policies then reduce turnover costs. 

The way I think of this is not that minimum wage has killed 

jobs, but it kills job vacancies to make it easier for employers to 

fill their vacancies and they have shorter vacancies or fewer vacancies. George Stigler, a Chicago economist, noted this in 1946 in an 

article, ‘‘The Economics of Minimum Wage Legislation,’’ where he 

emphasized mainly that in a competitive labor market, a purely 

competitive labor market—that’s one of our Econ 101 models we 

teach—that the demand curve slopes downward and an increase in 

minimum wage is going to reduce employment. 

But he was a smart economist. He pointed out this other model, 

where if employers have trouble recruiting workers, if it cost them 

some—and I don’t mean it cost them a lot per worker in a lowwage—McDonald’s or a similar context—but rather that they multiply that by hundreds and hundreds of workers who turn over 

every year. In that context, an increase in the minimum wage, 

19 

even in Stigler’s theoretical models, can even increase employment 

a bit, and it certainly might not affect employment at all. 

That’s another way of saying that the minimum wage makes it 

easier for employers to reduce their recruitment costs and workers 

stay on longer in the same job. That model is referred to as monopsony. It’s in every undergraduate labor economics textbook. It’s 

only in the last few decades that we’ve actually begun to study that 

model and its implications, and also that we’ve been able to get 

credible studies of how minimum wages affect employment. 

I talked about my border-controlled study. The reason that’s important is that minimum wage States are not randomly selected. 

They are clustered geographically. If you don’t have local controls, 

your study is a bad study. With that, you can show that minimum 

wages reduced employment 2 years before the minimum wage went 

into effect. 

Critics of minimum wage, Nuemark and Wascher, make this 

point and have criticized our study as saying the border controls 

aren’t valid. We’ve just issued a 75-page paper saying the opposite. 

We’ve gone head to head at a recent conference sponsored by the 

Bank of Portugal. It’s very clear who won. I won’t leave you in suspense. It was us. 

Let me close because the time is up. The Great Recession and the 

subsequent weak job market recovery have eliminated and endangered millions of middle-class jobs. In this new era, young workers 

can no longer count so much on minimum wage jobs as stepping 

stones into middle-class careers as they used to be able to. And 

middle-class workers are increasingly looking at minimum wage 

rates, as I’ve said, as key reference points for their own level of economic security or insecurity. In this new context, the case for minimum wage increases is as compelling as ever. 

Thank you very much. 

[The prepared statement of Dr. Reich follows:] 

PREPARED STATEMENT OF MICHAEL REICH, PH.D. 

1. INTRODUCTION

Thank you Chairman Harkin, and all the members of the committee, for the privilege of speaking to you today. My task is to provide an overview of the impact of 

minimum wage legislation, enacted exactly 75 years ago in the Fair Labor Standards Act of 1938 and as amended subsequently on numerous occasions. I do so as 

a labor economist with over 40 years of research on low-wage labor markets and 

as the author or co-author of numerous recent studies on minimum wage effects. 

My work has been published in the top refereed economics journals; in March 2013, 

the Economic Report of the President referred to my work in this area as ‘‘particularly compelling.’’ 

Congress passed the FLSA only after a long and heated political campaign. Similarly to much other landmark legislation, the initial law represented a compromise 

with significant exemptions, many of which were closed only in subsequent decades. 

Nonetheless, in his Fireside Chat of June 24, 1938, President Roosevelt had no 

doubts about the importance of the FLSA. Roosevelt made three key points: (http:// 

millercenter.org/president/speeches/detail/3314). 

‘‘Except perhaps for the Social Security Act, it [the FLSA] is the most farreaching, far-sighted program for the benefit of workers ever adopted here or 

in any other country. Without question it starts us toward a better standard 

of living and increases purchasing power to buy the products of farm and factory.’’ 

Roosevelt then referred to whether businesses could afford a wage floor, a topic 

that still forms the core argument of the policy’s critics: 

20 

1Later extensions increased coverage much farther, to more retail and service workers, to 

public sector workers, to medium and large farms and to some domestic workers, although also 

adding a credit for tipped workers. 

‘‘Do not let any calamity-howling executive with an income of $1,000.00 a day, 

who has been turning his employees over to the Government relief rolls in order 

to preserve his company’s undistributed reserves, tell you—using his stockholders’ money to pay the postage for his personal opinions—tell you that a 

wage of $11.00 a week is going to have a disastrous effect on all American industry.’’ 

Roosevelt closed his discussion of the bill with an argument that one does not 

hear as often today: 

‘‘Fortunately for business as a whole, and therefore for the Nation, that type 

of executive is a rarity with whom most business executives most heartily disagree.’’ 

Was President Roosevelt correct about the far-reaching effects of the minimum 

wage provisions of the FLSA? In my comments today I argue that the national minimum wage has had important positive effects, but it is important to distinguish 

those effects according to the changing times. The minimum wage had a major and 

positive transformative effect upon the national economy in the 1930s and 1940s. 

After World War II, the minimum wage became an important pillar of the Nation’s 

shared prosperity, which characterized the national economy through the 1970s. 

Since the 1980s, the economic terrain shifted markedly: wage stagnation for the 

middle class, wage declines for low-wage workers and increases in pay inequality, 

especially at the top. In this context, minimum wage policies have nonetheless increased pay of low-wage workers without adversely affecting employment, and they 

have reduced both poverty and wage inequality. 

I will also review economists’ recent research on minimum wage effects in the United States. My own research shows that minimum wages as high as $10.60 

today do not have negative employment effects. These findings make sense if we 

take into account the very high levels of employee turnover, often in excess of 100 

percent per year, and large numbers of job vacancies at any particular time, that 

characterize low-wage industries. In this too-often ignored context, economic theory 

as well as empirical evidence shows that minimum wage policies reduce turnover 

costs and job vacancies, but not employment. 

2. THE MINIMUM WAGE FROM 1938 THROUGH THE 1970S

The 1938 Act replaced a patchwork of 25 State minimum wages (mostly limited 

to women) with a uniform national floor covering about half of the workforce (agriculture and retail were excluded). The creation of a wage floor of $.25, together with 

the anticipation of the scheduled further increases, to $0.30 in 1939 and to $0.40 

in 1945, helped end the downward spiral of money wages in the 1930s. 

That downward spiral, as Keynes argued at the time, had prolonged and deepened 

the Great Depression. Stabilizing wages (and therefore also prices) had been a major 

concern among many business executives. And most American economists in that 

period were not opposed to establishing a national wage floor. Indeed, the then-current conventional wisdom, called the doctrine of high-wages, argued that higher 

worker purchasing power would create more economic growth. 

In the immediate postwar decades, increases in the floor brought its level to a peak that is the equivalent of about $10.60 in today’s dollars, or 46 percent higher 

than today’s minimum of $7.25. Moreover, amendments in the 1960s and 1970s expanded coverage to nearly 80 percent of the nonagricultural private sector workforce 

by 1973 (Welch 1973, Table 2).1

In addition to helping reverse the downward national spiral of money wages, the 

national minimum wage helped transform many low-wage industries. These effects 

were most evident in the South, a region that was both much poorer than the rest 

of the United States and poorly integrated with the national economy. As the eminent Stanford economic historian Gavin Wright has shown, the FLSA-created floor 

was highly binding in Southern industry. But nonetheless, a more prosperous South, 

one with more employment growth and at higher wages, began to emerge after the 

passage of the Act. This transformation was not foreseen by the bill’s opponents, 

many of whom represented Southern States and districts. An equally dramatic upsurge in the South’s fortunes occurred in the 1960s, after the FLSA extensions and 

the Civil Rights revolution (Wright 1986, 2013). 

While the South gained relative to the national economy, the postwar era also was 

one of shared and rapid growth overall. Although it may seem surprising today, 

minimum wage increases then were designed not only to keep pace with inflation, 

21 

2For example, according to Seltzer (2002), the establishment of the FLSA led directly to high 

wages and higher employment in the Virginia tobacco industry in the 1930s. Seltzer interprets 

these results using the monopsony model. In 1974, as Gordon (1981) finds, the extension of minimum wage coverage to housekeepers reduced the decline in employment in that occupation. The 

1974 extension did not include home care workers. According to the BLS’ Occupational Employment Survey, in May 2012 home care workers earned about $1 less than housekeepers. 3 An exhaustive review article by Brown, et al. 1982 concluded that significant effects were 

limited to teens; for this group a 10 percent increase in the wage floor was associated with a 

1–2 percent decline in employment. Reviews of later research studies (for example, Brown 1999; 

Neumark and Wascher 2008) reached the same conclusion. 

but also to maintain equity with the growth of median wages—the wages received 

by the middle-class. Indeed, from 1939 through the 1970s, the Federal minimum 

wage increased almost every 5 years, not only leapfrogging inflation, but also keeping a ratio of 48 to 55 percent for the minimum wage as a percent of the median 

wage (Welch 1973, Table 1; Dube 2013, Figure 6). 

In the early postwar years, economists’ thinking about the minimum wage 

changed significantly. In a 1946 theoretical paper, Chicago economist George Stigler 

noted that when the labor market is perfectly competitive a higher minimum wage 

had to reduce employment. Stigler also examined a very different labor market case: 

one in which recruiting workers incurs significant costs for employers. When ‘‘friction’’ replaces the costless adjustment mechanism assumed by perfect competition, 

a wage floor can reduce employers’ recruitment costs, and a higher minimum wage 

could then increase employment.2

As a consequence, the actual effect of minimum wages could be known only by 

empirical research. Stigler’s argument, referred to by economists as monopsony, became a feature of every undergraduate labor economics textbook. Most general 

economists, however, believing that the monopsony case was a quaint exception, 

were persuaded that minimum wages had to have negative employment effects. 

Actual empirical research with microeconomic data on minimum wage effects 

began in the 1970s. These early studies were hampered by statistical issues that 

made it difficult to distinguish correlations from causal effects. Nonetheless, they 

suggested disemployment effects that were surprisingly small and limited primarily 

to teens.3 Small effects could mean that the benefits to those receiving higher pay 

outweighed the costs to those displaced from jobs. And in a context of low overall 

unemployment, any displaced workers would get others relatively easily. More 

economists began to approve of minimum wage policy for these reasons. 

3. MINIMUM WAGE EFFECTS SINCE THE 1980S

The economic terrain shifted radically in the 1980s, to one of lower overall economic growth, stagnating real median wages and increased higher wage inequality. 

In the past three decades, Federal minimum wage increases have not kept up with 

the real median wage. As a result, the ratio of the Federal minimum wage to the 

median wage fell substantially, to a low of 32 percent in 2006. The ratio stands at 

39 percent today, much lower than the 48–55 percent range of four decades ago. In 

response to the declining level and reach of the Federal minimum wage, States have 

acted increasingly on their own and proposals to raise the Federal floor and to close 

some of the remaining exemptions are again on the table. 

As has been the case for several decades, the primary question is whether minimum wages create disemployment effects. Economists today can provide more credible studies than in previous years. We have much-improved statistical tools, better 

data and more elaborated understandings of frictional labor markets. 

Federal increases, which by definition are national in scope, do not afford economists sufficient variation to credibly identify the causal effects of minimum wage 

increases. But State policies since 1985 and especially in the 2000s have generated 

increased variation in time and space in minimum wages. This increased variation 

gives economists greater ability to study the causal effects of minimum wages. 

However, it is import to use controls that reduce rather than reinforce the confounding effects of other economic variables. The question of proper statistical controls arises because States that are more likely to adopt minimum wages are not 

randomly distributed; they are geographically clustered and differ in other labor 

market respects from States that are less likely to adopt minimum wage policies. 

The clustering is shown in Figure 1. 

In a series of five papers using five different data sets and six different statistical 

approaches, my colleagues and I have used local controls, similar in spirit to those 

used in the famous David Card and Alan Krueger papers of the 1990s. To provide 

just one example: In Allegretto, Dube, Reich and Zipperer (2013) we compare all the 

pairs of counties that straddle a State border and that have had a minimum wage 

22 

4Our emphasis on the importance of local controls has been recently criticized by Neumark, 

Salas and Wascher (2013). However, as our newest paper (Allegretto et al. 2013) thoroughly documents, our further examination of this question and even their own results show that local 

controls are indeed valid and that their proposed new methods are incorrect. 5http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SVlbr0IEq 

5a9E77NMV. 

policy discontinuity in the past 20 years. (This study updates the Dube, Lester and 

Reich 2010 study that the Economic Report of the President and many economists 

have praised.) Figure 2 shows the counties that are included in such a study. 

We find that failing to include controls for local labor market conditions creates 

a bias toward finding disemployment effects that are not there. This problem 

plagues dozens of studies, including almost all of those of David Neumark and William Wascher. When we include such controls, we do find evidence that minimum 

wages increase actual wages, but no evidence that they reduce employment. 

In a followup paper (Dube, Lester and Reich 2012), my colleagues and I examine, 

for the first time with U.S. data, the effects of minimum wages on rates of employee 

hires and separations. This study thus looks at worker flows in and out of jobs. We 

find that minimum wages have large negative effects on both types of worker flows. 

In other words, employers now have an easier time recruiting and retaining their 

workforce. This makes sense, given the large frictions—costs of recruitment and retention—among high-turnover low wage employers.4

4. SUMMARY AND CONCLUSIONS

This whirlwind review of minimum wage effects since 1938 confirms President 

Roosevelt’s view that the FLSA was both far-reaching and far-sighted. Minimum 

wage policy helped to eliminate the downward pattern of money wages in the 1930s, 

thereby removing one of the forces that had deepened and prolonged the Great Depression. In the immediate postwar decades, minimum wage increases were important in creating shared prosperity. In more recent decades, minimum wages have 

not kept up with inflation, but they nonetheless have increased low-wage workers’ 

pay without creating negative employment effects. 

I do not have here the space to discuss studies that have examined its other major 

effects, such as on poverty and pay inequality. Suffice it to say that careful studies 

show that the minimum wage reduces both (Dube 2013; Autor, Manning and Smith 

2010). 

A recent poll of high-ranking economists in all fields showed that a significant 

plurality now support minimum wage increases.5 Put together with other polling 

studies, it seems clear that economists as a group, who were once more likely to 

oppose minimum wages, are now much more likely to support minimum wage increases. 

The Great Recession and the subsequent weak job market recovery have eliminated and endangered millions of middle-class jobs. In this new era, young workers 

can no longer count so much on minimum wage jobs as stepping stones into middleclass careers. And middle-class workers are increasingly looking at minimum wage 

rates as key reference points for their own level of economic security. This new context makes the case for minimum wage increases as compelling as ever. 

REFERENCES

Allegretto, Sylvia, Arindrajit Dube, Michael Reich and Ben Zipperer. ‘‘Credible Research Designs for Minimum Wage Studies.’’ Working Paper 1480–13. University 

of California Berkeley. Institute for Research on Labor and Employment. http:// 

www.irle.berkeley.edu/workingpapers/148-13.pdf. 

Autor, David, Alan Manning and Christopher Smith 2010. ‘‘The Contribution of the 

Minimum Wage to U.S. Wage Inequality over Three Decades. A Reassessment.’’ 

Working Paper 3279. Department of Economics, MIT. 

Brown, Charles 1999. ‘‘Minimum Wages, Employment, and the Distribution of Income.’’ Pp. 2101–216 in Orley Ashenfelter and David Card eds. Handbook of Labor 

Economics v. 3B. Amsterdam: Elsevier. 

Brown, Charles, Curtis Gilroy and Andrew Kohen 1982. ‘‘The Effects of the Minimum Wage on Employment and Unemployment.’’ Journal of Economic Literature 

20: 487–528. 

Dube, Arindrajit 2013. ‘‘Statement to the U.S. Senate Committee on Health, Education, Labor, and Pensions.’’ March 14. 

Gordon, Kenneth 1981. ‘‘The Impact of Minimum Wages on Private Household 

Workers.’’ Pp. 191–209 in Simon Rottenberg, ed. The Economics of Legal Minimum Wages. Washington, DC. American Enterprise Institute. 

23 

NELP 2012. ‘‘The Low-Wage Recovery and Growing Inequality.’’ Data Brief. http:// 

www.nelp.org/page/-/JoblCreation/LowWageRecovery2012.pdf?nocdn=1. 

Neumark, David and William Wascher 2008. Minimum Wages. Cambridge, MA: 

MIT Press. 

Neumark, David, Ian Salas and William Wascher 2013. ‘‘Revisiting the Minimum 

Wage and Employment Debate: Throwing out the Baby with the Bathwater?’’ 

NBER Working Paper 18681. 

Seltzer, Andrew 2002. ‘‘Monopsony and Minimum Wages: Historical Evidence from 

the Tobacco Leaf-Processing Industry.’’ Essays in Economic and Business History 

20: 167–81. 

Stigler, George 1946. ‘‘The Economics of Minimum Wage Legislation.’’ American 

Economic Review 36, 3: 358–65. 

Welch, Finis 1973. ‘‘Minimum Wage Legislation in the United States.’’ http:// 

www.rand.org/content/dam/rand/pubs/papers/2008/P5145.pdf. 

Wright, Gavin 1986. Old South, New South. New York: Basic Books. 

Wright, Gavin 2013. Sharing the Prize: The Economics of the Civil Rights Revolution. Cambridge, MA: Harvard University Press. 

Notes. State means and variances calculated using annual State minimum wage 

data over 1990–2012. The shading on the maps partitions the States into above- and 

below-median values. 


20296-1.eps
24 

Notes. A: Red and blue colored counties indicate cross-State border county pairs. 

Counties colored red are part of pairs with minimum wage variation between the 

counties at some point in time in the sample. Darker shades indicate balanced sample. Balanced sample are those counties with employment and earnings information 

for all quarters, 1990–2010. Unbalanced sample includes those with limited information during that period. B: Red and blue colored counties constitute cross-State 

commuting zones. Counties colored red are part of commuting zones with minimum 

wage variation within the commuting zone at some point in time in the sample. 

The CHAIRMAN. Thank you, Dr. Reich. 

Bishop Blaire, welcome and please proceed. 

STATEMENT OF THE MOST REVEREND STEPHEN E. BLAIRE, 

BISHOP OF STOCKTON, CHAIRMAN, COMMITTEE ON DOMESTIC JUSTICE AND HUMAN DEVELOPMENT, U.S. CONFERENCE OF CATHOLIC BISHOPS, STOCKTON, CA 

Bishop Blaire. Thank you. Good afternoon, everyone. Chairman 

Harkin, Ranking Member Alexander, and members of the committee, on behalf of the U.S. Conference of Catholic Bishops, I 

thank you for the invitation to address you today. I am pleased to 

be here today to commemorate the Fair Labor Standards Act. 

For the Catholic Bishops of the United States, advocating a just 

minimum wage is foundational. I was reminded today about MonVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 S:\DOCS\20296.TXT DENISE

20296-2.eps
25 

signor John Ryan, who was very instrumental in gaining support 

and crafting and the passage of the Fair Labor Standards Act. 

Every time that Congress or an administration has suggested 

raising the minimum wage, the bishops have been supportive simply because it is consistent with our teaching, and we see the effects firsthand in the families of our parishioners and in our own 

communities. I am not an economist, but rather a pastor and a 

teacher concerned with the protection of human life and dignity. I 

will not speak to the specifics of policies, but rather to the conditions that must emerge to make these policies just. 

A just wage is a moral issue. For me, it is also personal. My own 

father, after being a widower twice in life and raising 11 children, 

remarried at the age of 59. At the age of 70, he was compelled to 

re-enter the workforce to keep food on the table for his wife and 

three children of which I was one. So after a lifetime of professional 

work and then retirement, he had to work again until he was 80 

packing groceries. And without this job, we would not have had 

enough to eat or a roof over our heads. 

The church teaches that human labor has an inherent dignity, so 

wages gained from work should affirm that dignity. A just wage 

confirms the dignity of the worker. And, conversely, a wage that 

does not even allow a worker to meet basic needs demeans human 

dignity. That means the worker becomes just another commodity. 

Mr. Chairman and members of the committee, wages must also 

support families. If families are the fundamental seed of society, 

then decent jobs with just wages are the water that allows them 

to grow. Work should be a ladder out of poverty for families. It 

should not trap them in poverty. Yet this is where we find ourselves today, with a growing number of working families struggling 

to survive. 

Our diocese of Stockton in the San Joaquin Valley of central 

California includes some of the deepest and most pervasive poverty 

in our country. Every day, I see working families struggling to survive. What do they pay for this month, school clothes for the kids 

or gasoline to get to work, fresh produce for a healthy diet or the 

rent? No family should be faced with such extreme choices. And 

while they are grateful for community or government support, they 

do not want to rely on the generosity of others. They want to be 

self-sufficient. 

Employers have a moral obligation to pay a just wage, and the 

government has an obligation to ensure it. One of the great challenges of business leaders today is to bring moral values and ethics 

into the business world, so that the economy truly serves the person. Businesses certainly need to be profitable, but that profit must 

not come at the expense of workers. 

Catholic teaching has always endorsed the potential benefits and 

freedoms of a market economy. But it also points out that the considerable energies and powers of the market shall not go unchecked 

and must protect human life and dignity while advancing the common good. Setting a just minimum wage is merely one way the government has acted to do that. 

To conclude, I am increasingly concerned with the growing 

scourge of inequality. Americans believe we already have an intolerable level of inequality and would like to live in a more equal soVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00029 Fmt 6633 Sfmt 6601 S:\DOCS\20296.TXT DENISE
26 

1Pope Leo XIII, Rerum Novarum, 46, 1891. Available: http://www.vatican.va/holylfather/ 

leolxiii/encyclicals/documents/hfll-xiiilencl15051891lrerum-novarumlen.html. 2Determined by taking the amount of unemployed persons plus the amount of persons involuntarily working part-time in April 2013 (Available: http://www.bls.gov/news.release/archives/ 

empsitl05032013.pdf) and dividing by the number of job openings (Available: http:// 

www.bls.gov/news.release/pdf/jolts.pdf). All data from the Bureau of Labor Statistics. 3Social Security Administration, Wage Statistics for 2011, 2013, Available: http:// 

www.ssa.gov/cgi-bin/netcomp.cgi?year=2011. 4 United States Census Bureau, Income, Poverty, and Health Insurance Coverage in the United 

States: 2011, 2012. Available: http://www.census.gov/prod/2012pubs/p60-243.pdf. 

ciety. Addressing these severe imbalances will take a steadfast 

commitment on the part of everyone to placing the common good 

above self-interest. 

We can begin the process of fixing our economy by returning the 

workers to the center of economic life with decent jobs that pay decent wages. Increasing the minimum wage to a level that reflects 

the real economic reality faced by families is one way to draw a circle of protection around them and build a just economy. 

Thank you again, and I will welcome any questions you may 

have. 

[The prepared statement of Bishop Blaire follows:] 

PREPARED STATEMENT OF THE MOST REVEREND STEPHEN E. BLAIRE

Chairman Harkin, Ranking Member Alexander, and members of the committee, 

on behalf of the United States Conference of Catholic Bishops (USCCB), I thank you 

for the invitation to address you today. I am Stephen Blaire, Bishop of the Catholic 

Diocese of Stockton, CA and Chairman of the Committee on Domestic Justice and 

Human Development at the United States Conference of Catholic Bishops. 

We are here today to celebrate the 75th anniversary of the Fair Labor Standards 

Act, signed in 1938, which codified for the first time a national minimum wage and 

other important worker protections, and all but eliminated child labor. It is very appropriate that we undertake this discussion in the current economic and political 

climate. I will address later the bishops’ support for the Fair Labor Standards Act 

and subsequent efforts to raise the minimum wage, but here I will mention that the 

support is rooted in Pope Leo XIII’s seminal encyclical Rerum Novarum, which stated that a worker’s wages, to be just and consistent with human dignity, must be 

sufficient to support a family in comfort and even leave some for savings.1

I testify before you today not as an economist, a statistician, or a labor market 

expert, but rather as a pastor and teacher concerned with human development and 

the protection of human dignity. I will not speak to the specifics of policies, but 

rather to the conditions that must emerge in society and in the family to make those 

policies just. 

A just wage is a moral issue; however for me it is also a personal one. After being 

a widower twice in life and raising 11 children, my father in 1939 remarried at the 

age of 59. Eleven years later, at the age of 70, he was compelled by economic factors 

to re-enter the workforce to keep food on the table for his wife and three children, 

of which I was one. After a lifetime of professional work and retirement, he worked 

again until he was 80 packing groceries. Without this job we would not have had 

enough to eat or a roof over our heads as a family, and when he died there would 

have been no Social Security benefits earned for the surviving family. 

Five years into a desperately slow economic recovery, deep economic problems persist: 

• Over 4 million people have been jobless for over 6 months, and that does not 

include the millions more who have simply given up looking for work; 

• The gap between unemployed/underemployed job seekers and open positions is 

extraordinary: for every available job, there are as many as five people vying for 

it; 2

• Millions of families live with anxiety and uncertainty as they cope with stagnant or falling wages, forcing them to take second or third jobs and even forcing 

some teenage children into the workforce prematurely to help support the family; 

• Half of the jobs in this country pay less than $27,000 a year,3 and 

• Poverty remains high: there are over 46 million people living in poverty, 16 million of them children. In other words, over one in five children in our country lives 

in poverty.4

27 

5Pope John Paul II, Laborem Exercens, 3, 1981. Available: http://www.vatican.va/ 

holylfather/johnlpaullii/encyclicals/documents/hfljp-iilencl14091981llaborem- exercenslen.html. 6Pope Francis, ‘‘General Audience,’’ May 1, 2013. Available: http://www.vatican.va/ 

holylfather/francesco/audiences/2013/documents/papa-francescol20130501ludienza-gener 

alelen.html. 7Pope Francis, ‘‘General Audience,’’ June 5, 2013. Available: http://en.radiovaticana.va/ 

news/2013/06/05/popelatlaudience:lcounterlalcultureloflwastelwithlsolidarity/en1– 

698604. 8The Working Poor Families Project, ‘‘Low-Income Working Families: The Growing Economic 

Gap,’’ 2012. Available: http://www.workingpoorfamilies.org/wp-content/uploads/2013/01/Winter–2012l2013-WPFP-Data-Brief.pdf. 9This report defines ‘‘working poor’’ as 200 percent of the Federal poverty level, or $45,622 

for a family of four. 

The causes of poverty and our broken economy are many, but as Pope John Paul 

II noted in Laborem Exercens: 

. . . human work is a key, probably the essential key, to the whole social question, if we try to see that question really from the point of view of man’s good. 

And if the solution—or rather the gradual solution—of the social question, 

which keeps coming up and becomes ever more complex, must be sought in the 

direction of ‘‘making life more human,’’ then the key, namely human work, acquires fundamental and decisive importance.5

In other words, if we are going to fix the American economy, then a discussion 

of workers’ wages is a good place to start. 

Work has an inherent dignity, so just wages gained from work support 

that dignity. Insufficient wages violate it. 

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

‘‘[w]ork, to use a metaphor, ‘anoints’ us with dignity, fills us with dignity, 

makes us similar to God, who has worked and still works, who always acts; it 

gives one the ability to maintain oneself, one’s family, to contribute to the 

growth of one’s own nation.’’ 6

Hence the importance of the worker’s wage: since work has an inherent dignity, 

then there must be little doubt that wages are more than a mere product of the 

economy. A just wage confirms the dignity of the worker. And conversely, a wage 

that does not even allow a worker to support a family or meet basic human needs 

tears her down and demeans her dignity. The worker becomes just another commodity. 

I think this is the type of situation Pope Francis was talking about when he said 

earlier this month: 

‘‘Man is not in charge today, money is in charge, money rules. God our Father 

did not give the task of caring for the earth to money, but to us, to men and 

women: we have this task! Instead, men and women are sacrificed to the idols 

of profit and consumption: it is the ‘culture of waste.’ If you break a computer 

it is a tragedy, but poverty, the needs, the dramas of so many people end up 

becoming the norm.7

The Working Poor Families Project recently reported that in 2011 there were 10.4 

million low-income working families.8 9 Those families include 23.5 million children. 

Work should be a ladder out of poverty for families, it should not trap them in poverty. Yet this is where we find ourselves—a growing number of families are working 

but do not make enough to live in dignity. It is a scandal that the richest country 

in the world has allowed over 23 million children in working poor families to become 

the norm. These families struggle to provide their children with the adequate nutrition, school supplies, clothes, and security they need for their educational, social, 

and emotional development. I am sure members of the committee will agree that 

we must not tolerate so many children living under such circumstances. 

Many of these low-income workers have to rely on charity or the safety net to supplement their wages in order to meet basic needs. For example, as you know funding for the Supplemental Nutrition Assistance Program (SNAP, formerly known as 

food stamps) is currently being debated. Many people do not know that the majority 

of SNAP households with a capable, working-age adult are working. The percentage 

goes up in households with children. It is not difficult to identify the problem here: 

unjust wages. If Congress is concerned with rising costs in the SNAP program, Congress should raise the wages of those working families, so they can afford food on 

their own. 

28 

10 United States Conference of Catholic Bishops, Economic Justice for All, 13, 1986. Available: 

http://www.usccb.org/upload/economicljusticelforlall.pdf. 11Libreria Editrice Vaticana, Catechism of the Catholic Church, 2434, 1992. Available: http:// 

www.usccb.org / beliefs- and- teachings / what- we-believe / catechism / catechism- of- the- catholicchurch/epub/index.cfm#. 12 United States Census Bureau, Income, Poverty, and Health Insurance Coverage in the 

United States: 2011, p. 49. 2012. Available: http://www.census.gov/prod/2012pubs/p60-243.pdf. 

The family is the fundamental unit of society, and work is the principal 

means by which families gain the resources to form and sustain themselves. 

The importance of the family for individual human development on all levels has 

been well established. It is in and among our family that we learn to love and accept 

love, forgive and be forgiven, argue and reconcile—we learn how to interact with 

each other as humans. 

In a certain sense, the family is organized around work. Without the remuneration that comes from our work, humans would not have the resources to form or 

sustain families. It was true two thousand years ago with the family that lived in 

Nazareth; it was true in 1891 at the time of Pope Leo XIII; and it is as apparent 

as ever now. If families are the fundamental seed of society, then decent jobs with 

just wages are the water that allows them to grow. 

Our diocese of Stockton, in the San Joaquin Valley of Central California, includes 

some of the deepest and most pervasive poverty in our country. Every day, I see 

families struggling to survive under the weight of too little food and too many bills. 

What do they pay for this month—school clothes for the kids or gasoline to get to 

work? Fresh produce for healthy diets or the rent? No family should be faced with 

such extreme choices. 

So it is not just a lack of work that creates this pressure, but for many it is a 

lack of decent wages. Many if not most of the families I encounter with these problems have an income, but it is not enough to support them. Mom works at the supermarket. Dad has two jobs as a short order cook. And the people who are unemployed are desperate for work. Many families I encounter in this position, although 

they are grateful for the support of food pantries, donation centers, and the government, do not want to rely on the generosity of others. They want to be self-sufficient. 

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

Catholic teaching has long recognized that everyone and all institutions in an 

economy have an obligation to protect human life and dignity, and advance the common good. As the Catholic bishops have pointed out, 

‘‘We judge any economic system by what it does for and to people and by how 

it permits all to participate in it. The economy should serve people, not the 

other way around.’’ 10

A vital piece of the conversation that I believe has been missing is the obligation 

of employers to pay just wages. The Church teaches: 

A just wage is the legitimate fruit of work. To refuse or withhold it can be 

a grave injustice. In determining fair pay both the needs and the contributions 

of each person must be taken into account. 

‘‘Remuneration for work should guarantee man the opportunity to provide 

a dignified livelihood for himself and his family on the material, social, cultural, and spiritual level, taking into account the role and the productivity 

of each, the state of the business, and the common good.’’ 

Agreement between the parties is not sufficient to justify morally the amount 

to be received in wages.11

Unfortunately, too many families are forced to work two or more jobs just to make 

enough money to purchase basic needs. Possibly this is because the current minimum wage yields an annual salary of about $15,080. This amount is below the poverty level for any size family that includes even one child, according to the Census 

Bureau.12 When the minimum wage does not even permit a family to raise a child, 

it has failed to guarantee a worker ‘‘the opportunity to provide a dignified livelihood 

for himself and his family.’’ This is unacceptable. 

Private enterprises, at their best, create decent jobs, contribute to the common 

good, and pay wages that help workers form and nurture families. Some businesses, 

unfortunately, chase profits and success at the expense of workers’ dignity and, in 

the most tragic cases—as we have seen recently in Bangladesh, Texas, Arizona, and 

Louisiana—their lives. Business leaders, who have been given much and have a legitimate vocation, must fight the urge to live a 

29 

13Pontifical Council for Justice and Peace, Vocation of the Business Leader, 10, 2011. Available: http://www.stthomas.edu/cathstudies/cst/conferences/Logic%20of%20Gift%20Semina/ 

Logicofgiftdoc/FinalsoftproofVocati.pdf. 14Pope John XXIII, Mater et Magistra, 20, 1961. Available: http://www.vatican.va/ 

holylfather/johnlxxiii/encyclicals/documents/hflj-xxiiilencl15051961lmaterlen.html. 15Pontifical Council for Justice and Peace, Compendium of the Social Doctrine of the Church, 

89, 2004. Available: http://www.vatican.va/romanlcuria/pontificallcouncils/justpeace/documents/rclpcljustpeaceldocl20060526lcompendio-dott-soclen.html. 

‘‘divided life. . . . Dividing the demands of one’s faith from one’s work in 

business is a fundamental error which contributes to much of the damage done 

by businesses in our world today, including overwork to the detriment of family 

or spiritual life. . . .’’ 13

One of the great challenges of business leaders today is to bring moral values and 

ethics into the business world, so that the economy truly serves the person. Businesses certainly need to be profitable for the economy to function properly, but that 

profit must not come at the expense of workers. 

The government has an obligation to ensure it. 

Mr. Chairman, I have been discouraged by those in Congress, with some notable 

exceptions, who seem to not have a real concern with the enduring decent jobs crisis 

in this country. There are some in Congress who seem to think our current situation 

is acceptable. While it is certainly the primary responsibility of employers to pay 

workers a just wage, it is proper for government to take steps to ensure this takes 

place. Catholic teaching has always endorsed the potential benefits and freedoms of 

a market economy. It also points out that the considerable energies and powers of 

the market shall not go unchecked, and must always be oriented toward protecting 

human life and dignity, and advancing the common good. 

Blessed John XXIII wrote about the obligation of the State: 

As for the State, its whole raison d’etre is the realization of the common good 

in the temporal order. It cannot, therefore, hold aloof from economic matters. 

On the contrary, it must do all in its power to promote the production of a sufficient supply of material goods, ‘‘the use of which is necessary for the practice 

of virtue.’’ It has also the duty to protect the rights of all its people, and particularly of its weaker members, the workers, women and children. It can never be 

right for the State to shirk its obligation of working actively for the betterment 

of the condition of the working man.14

Setting a just minimum wage is merely one way government has historically 

acted to protect the dignity of the worker, encourage family formation, and ensure 

children have access to basic human needs. 

The Catholic Church has been a consistent and vocal supporter of just 

wages, in teaching and in action. 

Mr. Chairman, I am pleased to be here to commemorate the 75th anniversary of 

the Fair Labor Standards Act (FLSA) because of its central importance in the history of protecting worker rights in this country. FLSA was a vital step in acknowledging the dignity of the worker, and it dovetailed with the established Church 

teaching on workers. 

In 1891, when Pope Leo XIII wrote Rerum Novarum in the context of the Industrial Revolution, his ‘‘central theme [was] the just ordering of society.’’ 15 He established the necessity to safeguard the dignity of the worker, the moral imperative 

of a just wage, and the vital role of the government to assuring this. These principles of Leo have been affirmed and expanded by succeeding popes, the conference 

of Catholic bishops here in the United States and bishops around the world, and 

has been raised up in multiple forms by influential Catholic thinkers. 

In 1919 the National Catholic War Council, a precursor to our current USCCB, 

issued its recommendations for rebuilding America after World War I in its ‘‘Program for Social Reconstruction.’’ In it, the bishops unequivocally supported a living 

wage, saying: 

‘‘. . . a living wage is not necessarily the full measure of justice. All the 

Catholic authorities on the subject explicitly declare that this is only the minimum of justice. . . . Since our industrial resources and instrumentalities are 

sufficient to provide more than a living wage for a very large proportion of the 

workers, why should we acquiesce in a theory which denies them this measure 

30 

16 Administrative Committee of the National Catholic War Council, Social Reconstruction: A 

General Review of the Problems and Survey of the Remedies, p. 14, 1919. 17Michael I. Norton and Dan Ariely, ‘‘Building a Better America—One Wealth Quintile at a 

Time,’’ Perspectives on Psychological Science 6 (2011). 18Pope Benedict XVI, Caritas in Veritate, 32, 2009. Available: http://www.vatican.va/ 

holylfather/benedictlxvi/encyclicals/documents/hflben-xvilencl20090629lcaritas-in-veri 

tatelen.html. 19 Congressional Budget Office, Trends in the Distribution of Household Income Between 1979 

and 2007, 2011. Available: http://www.cbo.gov/publication/42729. 20Lowrey, Annie, ‘‘Incomes Flat in Recovery, but not for the 1%,’’ New York Times, February 

15, 2013. Available: http://www.nytimes.com/2013/02/16/business/economy/income-gainsafter-recession-went-mostly-to-top–1.html. 

of the comforts of life? Such a policy is not only of very questionable morality, 

but is unsound economically.’’16

For the Catholic bishops of the United States, advocating a just minimum wage 

is foundational. Every time Congress or an Administration has suggested raising 

the minimum wage, the bishops have been supportive simply because it is consistent with our teaching and we see the effects firsthand in the families of our parishioners and our own communities. 

The Church will continue to be on the side of workers and their families 

in the struggle to build a just and fair economy. 

Mr. Chairman, to conclude, I am increasingly concerned with the growing scourge 

of inequality in our country. Recently, a study came out about Americans’ attitudes 

about inequality.17 The results were jarring: Americans believe we already have an 

intolerable level of inequality, and would like to live in a more equal society. The 

reality is much more severe than the perception, which makes our desired society 

even further away from the reality. 

Pope Emeritus Benedict XVI, in Caritas in Veritate, gave us a very clear measure 

of a just economy: 

The dignity of the individual and the demands of justice require, particularly 

today, that economic choices do not cause disparities in wealth to increase in 

an excessive and morally unacceptable manner, and that we continue to 

prioritize the goal of access to steady employment for everyone. . . . Through 

the systemic increase of social inequality . . . not only does social cohesion suffer, thereby placing democracy at risk, but so too does the economy, through the 

progressive erosion of ‘‘social capital’’: the network of relationships of trust, dependability, and respect for the rules, all of which are indispensable for any 

form of civil coexistence.18

He could have been speaking about the United States. In recent decades, gains 

from economic growth have been spread very unevenly. Last year, the Congressional 

Budget Office reported that over the past 30 years, the average income of the 

wealthiest 1 percent has increased 275 percent. The income of the poorest 20 percent among us increased, on average, by less than 20 percent.19 Most recently, the 

disparity has grown more extreme. Over the last 2 years, median household income 

has flatlined for the poorest workers, but for the middle class it has actually gone 

down.20

Mr. Chairman, these severe imbalances are not inevitable, but the solutions are 

varied, numerous, and complicated. Addressing what ails our economy will take patience, persistence, and a steadfast commitment on the part of everyone to placing 

the common good above self-interest. 

We can begin the process of fixing our economy by returning the worker to the 

center of economic life. One of the best ways to do that is with decent jobs that pay 

just wages, thereby honoring human dignity and restoring hope to workers and families. Increasing the minimum wage to a level that reflects the real economic reality 

faced by families today would go far in building an economy worthy of the humans 

that operate in it. 

The CHAIRMAN. Thank you very much, Bishop Blaire. 

Mr. Shelton, welcome and please proceed. 

STATEMENT OF HILARY O. SHELTON, WASHINGTON BUREAU 

DIRECTOR AND SENIOR VICE PRESIDENT FOR ADVOCACY 

AND POLICY, NAACP, WASHINGTON, DC 

Mr. SHELTON. Thank you and good afternoon, Chairman Harkin, 

Ranking Member Alexander, and members of this esteemed comVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00034 Fmt 6633 Sfmt 6601 S:\DOCS\20296.TXT DENISE
31 

mittee, including our good friends, Senators Warren, Casey, and 

Murphy. I greatly appreciate being invited to testify before this storied panel to discuss the minimum wage, the Fair Labor Standards 

Act, and the impact these policies have had on communities of 

color, including African-Americans. 

I’d also like to thank you, Mr. Chairman, for all that you are 

doing and all that you have done to highlight the Fair Labor 

Standards Act, the minimum wage, and the need for legislation to 

increase the current minimum wage and index it to inflation. 

My name is Hilary Shelton. As you mentioned, I’m also 16 years 

as the Director of the NAACP’s Washington Bureau and Federal 

legislative and policy arm of the National Association for the Advancement of Colored People. Founded in 1909, the NAACP is our 

Nation’s oldest, largest, and most widely recognized grass rootsbased civil rights organization. We currently have more than 2,200 

membership units across the Nation with members in every one of 

the 50 States. 

The NAACP strongly supports the Fair Minimum Wage Act, 

S. 450 and H.R. 1010 in the 113th Congress. In order to fully understand our current position, let me begin by putting our support 

in a historical context. 

In 1932, when the Congress was first considering the Fair Labor 

Standards Act, Walter White was our association’s executive director. He recognized the potential positive impact a minimum wage 

could have on racial and ethnic minority workers, especially African-Americans, and thus worked tirelessly to ensure that all workers were covered by key provisions in that act, including a 40-hour 

work week, mandatory overtime pay, and a minimum wage. 

In fact, Executive Director White strongly supported a version of 

FLSA which covered all workers. And while we were disappointed 

that the initial law did not cover agricultural and domestic workers, two areas which at the time were dominated by African-American laborers, in order to appease the segregationist element of the 

U.S. Senate, we were, nevertheless, pleased with the new law. 

Since that time, we have been strong supporters for increasing 

the minimum wage, expanding its reach, and tying it to inflation 

so not to get caught up in the whims of petty partisan politics. And 

while we are encouraged by the fact that the minimum wage has 

increased since its initial 25 cents an hour, we continue to fight to 

ensure that the buying power of the minimum wage keeps up with 

the cost of living in the United States and that minimum wage 

earners, by definition, hard-working men and women, are able to 

keep their families out of poverty. 

Mr. Chairman, members of the committee, as you know, throughout the past 75 years, every time we debate increasing the minimum wage, we hear the argument that an increase in the minimum wage will result in a decrease in available jobs. Given the 

consistently high unemployment rate among African-Americans, we 

take these arguments very seriously. The NAACP is very careful 

to not advocate for any policy which would contribute to a higher 

unemployment rate. 

What we have found, however, is that the opposite of this argument is actually true. When American workers have a higher income and more income security, they’re likely to spend more, thus 

32 

creating more jobs. In fact, the NAACP believes that the Fair Minimum Wage Act of 2013 would generate more than $32 billion in 

new economic activity, translating into 140,000 new full-time jobs. 

Furthermore, although African-Americans make up just a little 

over 12 percent of the U.S. population, we are over 14 percent of 

those who will see a much-needed increase in their salaries. Among 

those who will particularly benefit from an increase in the minimum wage are women of color. Women represent nearly two-thirds 

of the minimum wage workers across the country. Furthermore, African-American women were just under 13 percent of all employed 

women in 2012, but more than 15 percent of women who made a 

minimum wage were African-American. 

Given that more women of color are the primary breadwinners 

for their families than their Caucasian counterparts, the end result 

is the perpetuation of poverty among families of color. According to 

the 2011 census data, African-American women are the heads of 

their household almost 29 percent of the time, compared to white 

women, who are heads of their household less than 9 percent of the 

time. 

Furthermore, an increase in the minimum wage would have a 

tremendous impact on children as well, given that the majority of 

African-American children nationwide, 54 percent, are being raised 

by single mothers. An African-American woman who works fulltime year-round at the current minimum wage earns just $14,500 

annually. That’s nearly $3,600 below the Federal poverty line for 

a mother with two children. The NAACP will continue to advocate 

for policies that we strongly believe will help working AfricanAmericans and, indeed, all Americans who work, such as the Fair 

Minimum Wage Act. 

In closing, Mr. Chairman, I’d like to thank you again for your 

courage and your leadership on this issue. The NAACP stands 

strongly in support of your legislation, the Fair Minimum Wage 

Act, S. 450, and I stand ready to answer your questions. I look forward to that dialog. 

[The prepared statement of Mr. Shelton follows:] 

PREPARED STATEMENT OF HILARY O. SHELTON

Good afternoon, Chairman Harkin and Ranking Member Alexander and members 

of this esteemed committee. I greatly appreciate being invited to testify before this 

storied panel to discuss the minimum wage, the Fair Labor Standards Act, and the 

impact these polices have had on communities of color, specifically African-Americans. I would also like to thank you, Mr. Chairman, for all that you are doing and 

all that you have done to highlight the impact of the Fair Labor Standards Act, and 

the Minimum Wage on American workers, and the need for legislation to increase 

the current minimum wage and index it to inflation. 

My name is Hilary Shelton, and I am the director of the NAACP Washington Bureau and the senior vice president for Policy and Advocacy. Founded more than 104 

years ago, in 1909, the National Association for the Advancement of Colored People, 

the NAACP, is our Nation’s oldest, largest, and most widely recognized grassrootsbased civil rights organization. We currently have more than 2,200 membership 

units across the Nation, with members in every one of the 50 States. For almost 

16 years now, I have been the director of the NAACP Washington Bureau, our Association’s Federal legislative and political advocacy arm. 

The NAACP currently strongly supports The Fair Minimum Wage Act, S. 450/ 

H.R. 1010 in the 113th Congress. 

But in order to fully understand our current position, let me begin by putting our 

support in historical context. 

33 

1 Bracey, Jr., John H. & Meler, August, general editors, Papers of the NAACP part 10 Peonage, Labor and the New Deal, 1913–39. University Publications of America, pp. vii–viii. 2Mishel, Lawrence, Economic Policy Institute, ‘‘Declining value of the federal minimum wage 

is a major factor driving inequality,’’ February 21, 2013. 

When the Congress was considering the Fair Labor Standards Act (FSLA) in the 

mid-1930s, Walter White was our association’s executive director. Walter White recognized the potential positive impact a minimum wage could have on racial and ethnic minority workers, especially African-Americans, and thus worked tirelessly to 

ensure that all workers were covered by the key provisions of that Act—a 44-hour 

work week; protections against child labor; overtime protections; and a minimum 

wage. 

A review of NAACP archives shows that during congressional consideration of 

various ‘‘New Deal’’ legislative proposals, the NAACP spent considerable time and 

energy expanding our legislative advocacy efforts to ensure that proposals such as 

the FSLA and the National Recovery Act did not contain provisions which would 

prevent the benefits of the new laws from reaching African-Americans.1 In fact, 

White strongly supported a version of the FLSA which covered all workers, and 

while we were very disappointed with the fact that the initial law did not cover agricultural or domestic workers—two areas which at the time were dominated by African-American laborers—we were nevertheless pleased with enactment of this law. 

Continued advocacy efforts by the NAACP on behalf of African-American workers, 

including the strengthening and expansion of the FSLA and stronger labor laws, led 

to the creation of the NAACP Washington Bureau in 1941 with the first director, 

Clarence Mitchell, who had previously worked for the Federal Fair Employment 

Practice Committee. 

Since that time, we have been strong supporters of increasing the minimum wage 

and expanding its reach. As early on as 1945, we testified before the House Labor 

Committee in support of increasing the minimum wage to 75 cents per hour. 

The original minimum wage, which was signed into law 75 years ago today, was 

25 cents per hour. While I am pleased to report that the minimum wage has increased substantially since then, we are continuing to fight battles to ensure that 

the buying power of the minimum wage keeps up with the cost of living in the 

United States, and that minimum wage earners, who by definition are working men 

and women, are able to keep their families out of poverty. 

I should be very clear: throughout the past 75 years, every time we have had a 

debate about increasing the minimum wage, we hear the argument that an increase 

in the minimum wage will result in a decrease in available jobs. Given the consistently high unemployment rate among African-Americans, we take this argument 

very seriously. We at the NAACP are very careful to not advocate for any policy 

which would contribute to higher unemployment rates. What we have found, however, is that the opposite of this argument is true: when American workers have 

a higher income, and more income security, they are likely to spend more, thus creating more jobs. And while I understand that another one of my colleagues will be 

testifying at length on this issue, suffice it to say that the NAACP has never found 

an increase in the minimum wage to lead to higher unemployment. In fact, as written, the NAACP believes that the Fair Minimum Wage Act of 2013 would generate more than $32 billion in new economic activity, translating to 140,000 new full-time 

jobs as higher sales lead businesses to hire more employees. 

As I said earlier, the NAACP has consistently been a strong advocate for an increase in the minimum wage, which in turn will lead to greater economic security 

for millions of Americans, a disproportionate number of whom are African-American. While African-Americans have made great strides in terms of opening doors 

and making our way up the employment ladder to better paying jobs, we are nevertheless still overrepresented in the area of minimum wage workers. African-Americans and other people of color are disproportionately represented among low-wage 

workers with African-Americans making up approximately 14.1 percent of those 

working jobs that earn a minimum wage compared to being approximately 12 percent of the U.S. population.2

The minimum wage needs to be increased: what started as 25 cents an hour is 

now $7.25 an hour. Yet if it were to keep up with inflation over the past 40 years 

alone, it would be $10.69 per hour. Contrary to stereotypes, low-wage workers 

whose pay scales are affected by the minimum wage are overwhelmingly adults, 

many who support families. According to the Bureau of Labor Statistics, three quarters of minimum wage earners are 20 years of age or older. The percentage is even 

higher for low-wage workers earning $9.00 or $10.00 per hour, whose pay scales 

would rise if the minimum wage were restored to its historical level. In fact, the 

median worker age is close to 40 for home health care workers, one of the Nation’s 

34 

3Found at http://www.census.gov/population/race/data/ppl-ba11.html. 4 National Women’s Law Center: ‘‘Closing the Wage Gap: How Raising the Minimum Wage 

Promotes Fair Pay for Women’’ June 3, 2013. 5 Ibid. 

6Paul Taylor et al., Twenty to One: Wealth Gaps Rise to Record Highs Between Whites, Blacks 

and Hispanics (Washington, DC: Pew Research Center Social and Demographic Trends, 2011). 

top-growth low-wage occupations. Especially after the recent economic hardships 

faced by most in the Nation, more and more Americans are spending their careers 

in low-wage jobs where the minimum wage helps set pay scales. 

Among those who would particularly benefit from an increase in the minimum 

wage are women of color. In 2012, more than 7 percent of African-American women 

and 8 percent of Hispanic women worked in jobs that paid at or below the Federal 

minimum wage, such as home health aides, maids and housekeepers, and servers, 

compared to less than 4 percent of white men. 

Given that more women of color are the primary breadwinners for their families 

than their Caucasian counterparts, the end result is the perpetuation of poverty 

among families of color. According to the 2011 Census data, African-American 

women are the heads of their households almost 29 percent of the time, compared 

to White women, who are the heads of their households less than 9 percent of the 

time.3

An increase in the minimum wage has a tremendous impact on children as well, 

given that the majority of African-American children nationwide—54 percent—are 

being raised by single mothers. In 2011, an African-American or a Hispanic woman 

working full-time, year round who was a relatively low-wage earner (at or below the 

25th percentile) for her ethnic group and gender did not earn enough to bring a family of four above the Federal Poverty Level.4

A higher minimum wage would disproportionately help women: They constitute 

a majority (54.5 percent) of those who would benefit, greater than their 48.3 percent 

share of the workforce. The vast majority (87.9 percent) of those who would be affected by the higher minimum wage are age 20 or over; thus, it is clear the increase 

would not mainly benefit teenagers. Similarly, single parents would disproportionately benefit from a higher minimum wage: 10.4 percent of those who would be affected are single parents, higher than their 7.5 percent share of the workforce.5

Mr. Chairman, members of this committee, there exists today an unacceptable 

wealth gap which currently exists between races: a 2011 study by the Pew Foundation showed that wealth in White households exceeds that of Hispanic households 

by a staggering 18 to 1 ratio and by a completely unacceptable 20 to 1 for AfricanAmerican households.6 We as a nation and a society can and must do better. The 

NAACP will continue to advocate for policies that we strongly believe in as helping 

working African-Americans, and indeed all Americans who work, rise out of poverty, 

including the Fair Minimum Wage Act. 

Mr. Chairman, members of the committee, I thank you again for inviting me to 

testify before you today. It has been an honor. I welcome any questions you may 

have about the NAACP’s long-standing support for the FLSA or the minimum wage 

or the Fair Minimum Wage Act. 

The CHAIRMAN. Thank you very much, Mr. Shelton. 

And now we’ll turn to Mr. Sherk. 

STATEMENT OF JAMES SHERK, SENIOR POLICY ANALYST IN 

LABOR ECONOMICS, HERITAGE FOUNDATION, WASHINGTON, DC 

Mr. SHERK. Chairman Harkin, Ranking Member Alexander, and 

members of the committee, thank you for inviting me to testify. My 

name is James Sherk, and I’m a senior policy analyst in Labor Economics at the Heritage Foundation. The views expressed in this 

testimony, however, are my own and are not an official position of 

the Heritage Foundation. 

This afternoon, I want to explain to you why minimum wage increases often hurt disadvantaged workers and do not alleviate poverty. The minimum wage does not help its intended beneficiaries 

for several reasons. 

35 

The first reason is that it reduces job opportunities. One of economics most well-established findings is that higher prices cause 

people to buy less. This applies to businesses hiring workers, too. 

No enterprise will pay its employees more than the value of what 

they produce. American Samoa’s recent experience illustrates this 

fact. 

The U.S. territory’s average income is one-fifth of the mainland 

United States, and the tuna canning industry dominates its private 

sector. Until recently, American Samoa had its own minimum 

wage. However, Congress applied the 2007 increase to it as well, 

gradually raising its minimum wage to the Federal rate. This was 

the economic equivalent of raising the U.S. minimum to about $20 

an hour. 

In May 2009, the Samoan minimum wage was increased to $4.76 

an hour, only part way through the scheduled increase. But it now 

covered two-thirds of the workers in the island’s two tuna canneries. This did not boost the Samoan economy. Instead, one cannery laid off workers, cut benefits, and froze hiring. The other 

closed entirely. Samoan unemployment went from 5 percent to 36 

percent. Real wages fell by 11 percent. 

American Samoa’s Democratic Governor, Togiola Tulafona, 

begged Congress to stop raising the minimum wage, when he said, 

‘‘We are watching our economy burn down. Our job market 

is being torched. Our businesses are being depressed. Our hope 

for growth has been driven away. How much does our government expect us to suffer?’’ 

Congress hurt the very workers it intended to help. 

Now, the U.S. minimum wage applies to far fewer workers, and 

so it has far less dramatic effects. But the large majority of economic studies find that it costs jobs among the workers it applies 

to. 

The second reason is that the minimum wage causes employers 

to replace adult employees with teenagers, making it harder for inexperienced adults to gain skills. Higher minimum wages draw 

more workers with outside support, like suburban teenagers, into 

the labor market. As they apply for job openings, they crowd out 

lower-income adults. Research shows that minimum wage hikes 

have larger effects on adult employment than on total employment. 

Even the studies that conclude that the minimum wage does not 

reduce total employment, like David Card’s in the 1990s, find employers substitute teenage workers for adults. Researchers at Boston University found that an increase covering one-fifth of restaurant workers would increase the odds that a high school student 

got hired at a restaurant instead of an adult by 25 percent. 

This effect makes it harder for disadvantaged adults to gain the 

skills necessary to rise out of poverty, because minimum wage jobs 

are entry level positions. They provide new workers with skills and 

experience that make them more productive and enable them to 

command higher pay in the future. 

Over half of American workers once made within a dollar of the 

minimum wage, but few stayed there for long. Two-thirds of minimum wage workers earn a raise within a year. These are learning 

wage jobs, an important first rung on many workers’ career ladders. Adults who did not acquire these skills earlier particularly 

36 

need access to this first rung if they are to advance. Raising the 

minimum wage crowds them out of this opportunity. 

The third reason is that the minimum wage provides little financial benefit to poor families. In part, this happens because few minimum wage workers live in poor families. But the deeper reason is 

that the structure of America’s social assistance programs deprives 

low-income workers of the fruits of their labors. 

We have many overlapping programs that assist the poor, and 

they phase out as income rises. However, the government has not 

coordinated the phase-outs, so poor families face effective confiscatory tax rates as they lose benefits from multiple programs at 

once. 

A poor family generally benefits if the head of the household 

starts working and takes a full-time minimum wage job. But earnings beyond that level produce little additional net financial benefit 

until their earnings exceed 150 percent of the poverty level. 

Urban Institute calculations showed that a single parent with 

one child, working a minimum wage job full-time, faces an effective 

marginal tax rate of 91 percent. That same parent with two children would face a tax rate of 79 percent. And in some States, a 

raise will cost poor families money. Not even French millionaires 

face these tax rates. 

Now, consider Patty Jones, a hypothetical unemployed single 

mother in Des Moines, offered a minimum wage job. The Urban Institute calculates that taking that full-time job raises her family’s 

net monthly income by $700. However, a raise to $10.10 an hour 

decreases her income by over $260. While she makes almost $500 

more, she will lose $71 in EITC refunds, pay $37 more in payroll 

taxes, and $45 more in State income taxes. She also loses $88 in 

SNAP benefits and $528 in child care subsidies. She would be better off without the raise. 

Minimum wage increases make it more difficult for disadvantaged adults to find jobs and gain experience. But the poor workers 

who do benefit from the jobs actually see little net income gain. A 

better way to reduce poverty would be to restructure aid programs 

to reduce the disincentives to work. Few Americans at any income 

level would work longer hours when facing tax rates exceeding 50 

percent. 

Thank you. I appreciate the opportunity to explain that the minimum wage often hurts disadvantaged workers and does not alleviate poverty. 

[The prepared statement of Mr. Sherk follows:] 

PREPARED STATEMENT OF JAMES SHERK

Chairman Harkin, Ranking Member Alexander, and members of the HELP Committee, thank you for inviting me to testify this afternoon. My name is James Sherk. 

I am a senior policy analyst in Labor Economics at The Heritage Foundation. The 

views I express in this testimony are my own, and should not be construed as representing any official position of The Heritage Foundation. 

Supporters of the minimum wage intend it to lift low-income families out of poverty. Unfortunately, despite these good intentions, the minimum wage has proved 

ineffective at doing so. Indeed, it often holds back many of the workers its proponents want to help. Higher minimum wages both reduce overall employment and 

encourage relatively affluent workers to enter the labor force. Minimum wage increases often lead to employers replacing disadvantaged adults who need a job with 

suburban teenagers who do not. 

37 

1 Heritage Foundation calculations using data on State minimum wage rates from the Department of Labor, Wage and Hour Division. The figure is a weighted average, where the weights 

are each State’s respective share of hourly employees in the United States. 2Source: Heritage Foundation calculations using data from the Department of Labor, Wage 

and Hour Division. Inflation adjusted using the Personal Consumption Expenditures (PCE) price 

index. 3 Analysis inflation adjusting historical minimum wage rates with the Consumer Price Index 

(CPI) will report higher real rates. The CPI estimates higher inflation than the PCE index and 

other chained measures of inflation do. This results in a larger upwards to historical rates to 

account for inflation. Using the CPI the minimum wage stood at $10.60 an hour in 1968. However, economists widely agree that the Laspreyes fixed-basket methodology the CPI utilizes produces less accurate estimates than a chained-index methodology. Consequently this paper uses 

the PCE index to adjust for past inflation. See for example Clinton McCully, Brian Moyer, and 

Kenneth Stewart, ‘‘Reconciliation between the Consumer Price Index and the Personal Consumption Expenditures Price Index,’’ Bureau of Economic Analysis Papers, September 2007. 

This can have long-term consequences. Minimum wage positions are typically 

learning wage positions—they enable workers to gain the skills necessary to become 

more productive on the job. As workers become more productive they command 

higher pay and move up their career ladder. Two-thirds of minimum wage workers 

earn a raise within a year. Raising the minimum wage makes such entry-level positions less available, in effect sawing off the bottom rung of many workers’ career 

ladders. This hurts these workers’ career prospects. 

Even if minimum wage workers do not lose their job, the overlapping and uncoordinated design of U.S. welfare programs prevents those in need from benefiting 

from higher wages. As their income rises they lose Federal tax credits and assistance. These benefit losses offset most of the wage increase. A single mother with 

one child faces an effective marginal tax rate of 91 percent when her pay rises from 

$7.25 to $10.10 an hour. Studies also find higher minimum wages do not reduce 

poverty rates. Despite the best of intentions, the minimum wage has proved an ineffective—and often counterproductive—policy in the war on poverty. 

Congress could do more to help low-income families by restructuring and coordinating welfare programs and their associated phase-out rates. No one in America— 

and especially not low-income workers—should face tax rates in excess of 50 percent. 

HISTORY OF THE MINIMUM WAGE

Congress instituted the minimum wage in 1938 as part of the Fair Labor Standards Act (FLSA). The first minimum wage stood at 25 cents an hour. The last minimum wage increase occurred in 2007, when Congress raised the rate in steps from 

$5.15 an hour that year to $7.25 an hour in July 2009. The District of Columbia 

and 19 States have also established local minimum wages higher than the Federal 

rate. The highest State minimum wage in the country occurs in Washington State 

at $9.19 an hour. The average minimum wage in the U.S.—including higher State 

rates—currently stands at $7.57 an hour.1

Over the past 65 years the minimum wage has varied considerably in inflationadjusted buying power. It has averaged $6.60 an hour in purchasing power in 2013 

dollars. But it has ranged from a low of $3.09 an hour in late 1948 to a high of 

$8.67 an hour in 1968.2 Today’s minimum wage buys somewhat more than the minimum wage has historically, although it remains over a dollar an hour below its historical high.3

38 

4Department of Labor, Bureau of Labor Statistics, ’‘‘The Employment Situation,’’ April 1990, 

August 1996, May 2007. 5 Although the economy has slipped into recessions after minimum wage increases (such as 

in 2007), these contractions were not expected when Congress voted. 6 Heritage Foundation analysis of data from the Current Population Survey (CPS). The Census Bureau and Bureau of Labor Statistics jointly conduct the CPS. All numbers, except average 

family income and poverty status, come from analysis of the 2011 and 2012 Merged Outgoing 

Rotation Group (MORG) file of the CPS. Minimum-wage earners were defined as hourly employees paid $7.25 an hour or less. Poverty and family income statistics come from the March supplement to the 2011 and 2012 CPS data. Data available for download at http:// 

thedataweb.rm.census.gov/ftp/cpslftp.html and https://cps.ipums.org/cps/. 7The 2.9 percent figure includes both salaried and hourly employees. Approximately 5 percent 

of hourly employees get paid the Federal minimum wage. 8These numbers include workers who also earn tip income. Many of those earning less than 

the minimum wage work in restaurants and make more than the minimum wage after taking 

tips into account. 9 50.5 percent of minimum wage earners are between the ages of 16 and 24. 

Congress typically raises the minimum wage only during times of healthy economic growth and low unemployment. In 1990, Congress enacted a minimum wage 

hike that took effect on April 1 of that year, when unemployment stood at 5.4 percent. Congress voted to raise the minimum wage again in August 1996—when unemployment stood at 5.1 percent. The next vote to raise the minimum wage occurred 

in May 2007, when unemployment stood at 4.4 percent.4 Congress has not voted to 

raise the minimum wage when unemployment stood above 7.5 percent since the 

Great Depression ended.5

WHO EARNS THE MINIMUM WAGE?

Stereotypes of minimum wage earners range from teenagers holding summer jobs 

to single mothers struggling to support their family. Bureau of Labor Statistics 

(BLS) data sheds light on who actually makes the minimum wage. 

Relatively few Americans do so. In 2011 and 2012, 3.7 million Americans reported 

earning $7.25 or less per hour—just 2.9 percent of all workers in the United 

States.678 Those who do work in minimum-wage jobs fall into two distinct categories: young workers, usually in school, and older workers who have left school. 

Most minimum-wage earners fall into the first category; just over half are between 

the ages of 16 and 24.9 The rest are 25 or older. Table 1 shows the characteristics 

of minimum wage workers overall, and broken down by age groups. 


20296-6.eps
39 

10 Heritage Foundation calculations using the 2011 and 2012 Current Population Survey. The 

months of June, July, and August were excluded to avoid conflating summer breaks with nonenrollment. 11 Heritage Foundation analysis of data from the Current Population Survey (CPS). A single 

parent is defined as someone who reports that he or she has one or more of his or her own 

children present in the household and who is widowed, divorced, separated, or never married. 

Full-time employees are classified as those working 35 or more hours a week. 

Table 1.—Demographic Characteristics of Minimum-Wage Workers 

All Employees 

Minimum-wage employees 

All Age 16–24 Age 25+ 

Female .......................................................................................... 48% 63% 60% 67% 

White ............................................................................................. 80% 78% 80% 76% 

Black ............................................................................................. 13% 15% 14% 17% 

Asian ............................................................................................. 4% 3% 2% 4% 

Married .......................................................................................... 47% 23% 5% 41% 

Wage and Income Characteristics: 

Working Part Time .................................................................... 19% 67% 79% 54% 

Average Family Income ............................................................ $79,534 $53,113 $65,896 $42,462 

At or Below Poverty Line .......................................................... 6% 23% 22% 24% 

Above 150 percent of the Poverty Line ................................... 89% 65% 68% 62% 

Educational Attainment: 

Less than High School ............................................................. 8% 28% 34% 22% 

High School Graduate .............................................................. 27% 30% 23% 37% 

Some College ............................................................................ 28% 34% 40% 29% 

Bachelor’s Degree .................................................................... 23% 6% 3% 10% 

Graduate Degree ...................................................................... 13% 1% 0% 2% 

Source: Heritage Foundation calculations based on data from U.S. Census Bureau, Current Population Survey (CPS), 2011 and 2012 

monthly surveys. Poverty and family income data are from the March Supplement to the 2011 and 2012 CPS. Minimum wage workers are those who report hourly earnings of $7.25 an hour or less. 

Minimum-wage workers under 25 are typically not their family’s sole breadwinners. Rather, they tend to live in middle-class households that do not rely on 

their earnings—their average family income exceeds $65,000 a year. Generally, they 

have not finished their schooling and are working part-time jobs. Over three-fifths 

of them (62 percent) are currently enrolled in school.10 Only 22 percent live at or 

below the poverty line, while two-thirds live in families with incomes exceeding 150 

percent of the poverty line. These workers represent the largest group that would 

benefit directly from a higher minimum wage, provided they kept or could find a 

job. 

Adults who earn the minimum wage are less likely to live in middle- and upperincome families. Nonetheless, three-fourths of older workers earning the minimum 

wage live above the poverty line. They have an average family income of $42,500 

a year, well above the poverty line of $23,050 per year for a family of four. Most 

(54 percent) of them choose to work part-time, and two-fifths are married. 

Many advocates of raising the minimum wage argue it will help low-income single 

parents surviving on it as their only source of income. Minimum-wage workers, however, do not fit this stereotype. Just 4 percent of minimum-wage workers are single 

parents working full-time, compared to 5.6 percent of all U.S. workers.11 Minimumwage earners are actually less likely to be single parents working full-time than the 

average American worker. 

Though some minimum-wage workers do struggle with poverty, they are not representative of the typical worker in minimum-wage jobs. The data simply does not 

support the stereotype of minimum-wage workers living on the edge of destitution. 

LEARNING WAGE POSITIONS

Most minimum wage jobs are entry-level positions filled by workers with limited 

education and experience. As Table 1 shows, almost three-fifths of minimum wage 

workers have no more than a high school education. They work for the minimum 

wage because they currently lack the productivity to command higher pay. 

Minimum-wage jobs give these workers experience and teach them essential job 

skills. Sometimes these skills are unique to an individual job, such as how to operate a particular piece of equipment. More often they pertain to general employability: the discipline of waking up early to go to work each day, learning how to 

interact with customers and coworkers, how to accept direction from a boss. These 

40 

12David Macpherson and William Even, ‘‘Wage Growth Among Minimum Wage Workers,’’ 

Employment Policies Institute, June 2004, p. 3–5, at www.epionline.org/studies/macpherson 

l06–2004.pdf. 13William Carrington and Bruce Fallick, ‘‘Do Some Workers Have Minimum Wage Careers,’’ 

Monthly Labor Review, May 2001, pp. 17–27, Table 2. 14Macpherson and Even, ‘‘Wage Growth Among Minimum Wage Workers,’’ pp. 8–11. 15Daniel S. Hamermesh, Labor Demand (Princeton, N.J.: Princeton University Press, 1993). 16 Although studies typically find workers with greater skills have a smaller elasticity of demand. 17Government Accountability Office, American Samoa and the Commonwealth of the Northern 

Mariana Islands: Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began, Report No. GAO–11–427, June 2011, Figure 11. 18 Ibid., Table 4. 

skills are essential to getting ahead in the workplace, but difficult to learn without 

actual on-the-job experience. 

Once workers gain these skills they become more productive, and most quickly 

earn raises. Over two-thirds of workers starting out at the minimum wage earn 

more than that a year later.12 Minimum-wage jobs are learning wage jobs—they 

teach inexperienced employees skills that make them more productive. They are the 

first step on many workers’ career ladders. 

While very few Americans currently work for the minimum wage, a substantial 

number once did so. Over half of Americans started their careers making within $1 

of the minimum wage.13 Most quickly get promoted as their productivity increases. 

Workers have a say in how quickly they get promoted. Most minimum-wage earners work part time, and many are students and young adults who desire this flexibility. But minimum-wage workers who choose to work longer hours gain more 

skills and experience than those who work part-time and, as expected, earn larger 

raises. A typical minimum-wage employee who works 35 hours or more a week is 

13 percentage points more likely to be promoted within a year than is a minimumwage worker putting in fewer than 10 hours per week.14

The notion that workers are trapped earning $7.25 an hour for much of their 

working lives is mistaken and ignores the primary value of minimum-wage jobs. 

Their importance lies not so much in the low wages they pay in the present, but 

in making workers more productive so they can command higher pay in the future. 

LABOR DEMAND FALLS AS PRICES INCREASE

One of the central premises of economics is that ‘‘demand curves slope downwards’’—when prices rise people buy less of a good or service. When gasoline becomes more expensive Americans drive less, and when it becomes less costly Americans drive more. The same applies to business owners. When the price of goods or 

services they use in production rises, they buy less of them. This includes labor 

costs—when wages rise employers hire fewer workers. Economists estimate the 

long-run elasticity of labor demand in the U.S. economy at around ¥0.3. 15 In other 

words, a 10 percent increase in labor costs causes employers to cut their workforce 

by 3 percent. Higher compensation costs without corresponding increases in productivity cause employers to hire fewer workers. 

This finding applies to employers of both highly skilled and unskilled workers.16

Employers will not pay a worker more than their productive value to a firm. Businesses that do so quickly go out of businesses. 

AMERICAN SAMOA

The recent experience of American Samoa dramatically illustrates how wage increases reduce employment. The tiny Pacific island chain has been an American territory for over a century. However, American Samoans have a largely separate economy and considerably lower incomes than residents of the continental United 

States: the average Samoan worker made $12,000 in 2009.17 The tuna canning industry makes up a significant portion of their private sector. 

Until recently American Samoa had a different minimum wage schedule than the 

continental United States. A committee within the Department of Labor set Samoan 

wage minimums according to local economic conditions. In January 2007 the minimum wage in the canning industry stood at $3.26 an hour. Unfortunately for American Samoa, Congress applied the 2007 Federal minimum wage increase to the territory. The legislation aligned the Samoan minimum wage with the U.S. rate of $7.25 

an hour in 50 cent annual increments.18

41 

19Government Accountability Office, American Samoa and the Commonwealth of the Northern 

Mariana Islands, p. 63. 20 U.S. Department of Labor, Impact of Increased Minimum Wages on the Economies of American Samoa and the Commonwealth of the Northern Mariana Islands, January 2008. 21 Heritage Foundation calculations using data from the Outgoing Rotation Groups of the 2012 monthly current population survey. $20.00 an hour is the 80th percentile for workers paid hourly wages. 22Government Accountability Office, American Samoa and the Commonwealth of the Northern 

Mariana Islands p. 63. 23 Ibid., p. 40. 24 Ibid., Table 2. 25Testimony of American Samoa Governor Togiola Tulafona before the Subcommittee on Fisheries, Wildlife, Oceans and Insular Affairs of the Committee on Natural Resources, U.S. House 

of Representatives, September 23, 2011. Opening statement available online at http:// 

americansamoa.gov/index.php/news-bottom/30-gov-togiola-tells-u-s-congress-minimum-wage-increase-will-destroy-as-economy. 26 Ibid., Written Testimony, Table 3. 27 Ibid., opening statement. 28Department of Labor, Bureau of Labor Statistics, ‘‘Characteristics of Minimum Wage Workers—2012,’’ Tables 1 and 4, at http://www.bls.gov/cps/minwage2012tbls.htm. 

Almost every hourly worker in the tuna canning industry makes less than $7.25 

an hour.19 At that level the minimum wage would cover 80 percent of the islands’ 

hourly workers.20 This would be the economic equivalent of raising the minimum 

wage to $20.00 an hour in the continental United States.21

By May 2009 the third scheduled minimum wage increase in Samoa took effect, 

rising to $4.76 an hour and covering 69 percent of canning workers. This did not 

increase purchasing power, stimulate demand, and raise living standards, as many 

minimum wage proponents theorize. Instead StarKist—one of the two canneries 

then located in Samoa—laid off workers, cut hours and benefits, and froze hiring.22

The other cannery—Chicken of the Sea—shut down entirely in September 2009.23

The Government Accountability Office reports that between 2006 and 2009 overall 

employment in American Samoa fell 14 percent and inflation-adjusted wages fell 11 

percent. Employment in the tuna canning industry fell 55 percent.24 The GAO attributed much of these economic losses to the minimum wage hike. 

The Democratic Governor of American Samoa, Togiola Tulafona, harshly criticized 

this GAO report for understating the damage done by the minimum wage hike. Testifying before Congress Governor Tulafona objected that ‘‘this GAO report does not 

adequately, succinctly or clearly convey the magnitude of the worsening economic 

disaster in American Samoa that has resulted primarily from the imposition of the 

2007 U.S. minimum wage mandate.’’ 25 Governor Tulafona pointed out that American Samoa’s unemployment rate jumped from 5 percent before the last minimum 

wage hike to over 35 percent in 2009.26 He begged Congress to stop increasing the 

islands’ minimum wage: 

‘‘We are watching our economy burn down. We know what to do to stop it. 

We need to bring the aggressive wage costs decreed by the Federal Government 

under control. But we are ordered not to interfere . . . Our job market is being 

torched. Our businesses are being depressed. Our hope for growth has been 

driven away . . . Our question is this: How much does our government expect 

us to suffer, until we have to stand up for our survival.’’ 27

Samoan employers responded to higher labor costs the way economic theory predicts: by hiring fewer workers. Congress hurt the very workers it intended to help. 

Fortunately, Congress heeded the Governor’s plea and suspended the future scheduled minimum wage increases. 

MINIMUM WAGE EMPLOYMENT EFFECTS

Virtually no economist doubts that raising the minimum wage to $20.00 an hour 

in the mainland United States would have similar consequences. Economists only 

debate the consequences of small minimum wage increases. 

In part this is because, at current rates, the minimum wage affects very few 

workers, so it has relatively small effects on the overall economy. Even groups considered highly affected by the minimum wage have few minimum-wage workers 

overall. Just one-fifth of teenagers and restaurant employees work for the Federal 

minimum wage.28 Raising the minimum wage by $1.00 an hour—as many States 

have done—has little effect on most workers, even most teenagers. Consequently, 

a moderate increase in the minimum wage will have only small effects on the U.S. 

economy. It affects too few workers to have a larger impact. A law eliminating a 

tenth of minimum-wage jobs would raise overall unemployment by less than 0.3 perVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00045 Fmt 6633 Sfmt 6621 S:\DOCS\20296.TXT DENISE
42 

29The increase in unemployed would probably be less—many of these workers, especially 

teenagers and college students, would probably drop out of the labor market altogether and no 

longer count as unemployed. 30 Charles Brown, Curtis Gilroy, and Andrew Kohen, ‘‘The Effect of the Minimum Wage on 

Employment and Unemployment,’’ Journal of Economic Literature Vol. 20, No. 2 (June 1982), 

pp. 487–528. 31David Card and Alan Krueger. ‘‘Minimum Wages and Employment: A Case Study of FastFood Industry in New Jersey and Pennsylvania,’’ American Economic Review, Vol. 48, No. 4 

(1994), pp. 772–93. 32David Neumark and William Wascher, Minimum Wages (Cambridge, MA: The MIT Press, 

2008). 33See for example Sylvia Allegretto, Arindrajit Dube, and Michael Reich, ‘‘Spatial Heterogeneity and Minimum Wages: Employment Estimates for Teens Using Cross-State Commuting 

Zones,’’ Berkeley, CA: Institute for Research on Labor and Employment, 2009; Sylvia Allegretto, 

Arindrajit Dube, and Michael Reich, ‘‘Do Minimum Wages Really Reduce Teen Employment? Accounting for Heterogeneity and Selectivity in State Panel Data,’’ Industrial Relations, Vol. 50, 

No. 2, pp. 205–40; Arindrajit Dube, T. William Lester, and Michael Reich, ‘‘Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties,’’ Review of Economics and 

Statistics, Vol. 92, No. 4 (2010), pp. 945–64. 34David Neumark, Ian Salas, and William Wascher, ‘‘Revisiting the Minimum Wage-Employment Debate: Throwing Out the Baby with the Bathwater?’’ National Bureau of Economic Research Working Paper No. 18681 (2013), http://www.nber.org/papers/w18681. 35 Ibid., pp. 27–28. 

centage point. 29 Congress should not conflate small effects with no effect. The minimum wage does hurt the prospects of the relatively small number of workers it covers. Until the mid-1990s, labor economists had a consensus that a 10 percent increase 

in the minimum wage reduced employment of impacted groups (like teenagers) by 

about 2 percent.30 Research by David Card of the University of California-Berkeley 

challenged this conclusion.31 His research, focusing on case studies of States that 

raised the minimum wage and States that did not, concluded the minimum wage 

had no adverse effect on employment. This spurred an explosion of research on the 

topic. This research coincided with a significant number of States raising their minimum wages above the Federal level in the 1990s and 2000s. These State increases 

created far more case studies for economists to analyze and permitted panel studies 

utilizing variation in minimum wage rates across all U.S. States. 

Two-thirds of the studies in this ‘‘new minimum wage research’’ utilizing State 

variation in minimum wages came to the same conclusion that previous economists 

had: higher minimum wages reduce the employment of less-skilled workers.32

Among the most methodologically rigorous studies, 85 percent came to this conclusion. 

A recent line of papers by Michael Reich, Arindrajit Dube, and Sylvia Allegretto 

contest these findings.33 They argue that States that raised their minimum wage 

above the Federal level (typically in the Northeast and West Coast) have slower underlying employment growth than States that did not raise their minimum wage 

(typically in the South and Mountain West). They contend that studies finding negative employment effects conflate these pre-existing trends with the effects of higher 

minimum wages. They find that once researchers control for State or regional trends 

the negative relationship goes away. They then compared counties that border each 

other across a State line and concluded higher minimum wages have negligible employment effects on teenagers and restaurant employees. 

David Neumark of the University of California-Irvine and William Wascher of the 

Federal Reserve Board strongly dispute this critique.34 They show that the evidence 

for pre-existing trends biasing previous studies is weak. They demonstrate that it 

takes very specific controls to make the relationship between the minimum wage 

and job losses disappear. Using more general specifications favored by economists 

produces the standard conclusion that minimum wage increases cost jobs. 

Neumark and Wascher also argue that the many counties compared across State 

borders have very different economic climates. For example, Dube et al., compare 

urban Leon County in Florida (the home county of Tallahassee) with its population 

of 275,000 to rural Grady County, GA—population 25,000. Neumark and Wascher 

used statistical tests to analyze how closely the labor markets of these cross-border 

counties resemble each other. They find that among reasonable candidates for comparison, the cross-border counties ‘‘appear no better than a random draw.’’ 35

They conclude that economists should look at data from all States, not just crossborder comparisons, and use standard specifications to control for pre-existing 

trends. Doing so produces the usual finding that minimum wage increases cost jobs. 

Raising the price of unskilled labor causes employers to hire fewer unskilled workers. 

43 

36Laura Giuliano, ‘‘Minimum Wage Effects on Employment, Substitution, and the Teenage 

Labor Supply: Evidence from Personnel Data,’’ The Journal of Labor Economics, Vol. 31, No. 

1 (January 2013), pp. 155–94. 37David Neumark and William Wascher. ‘‘The Effects of Minimum Wages on Teenage Employment and Enrollment: Evidence from Matched CPS Surveys,’’ in Solomon Polchek, ed. Research in Labor Economics, Vol. 15 (Greenwich, Conn.: JAI Press, 1996). 38Kevin Lang and Shulamit Kahn, ‘‘The Effect of Minimum-Wage Laws on the Distribution 

of Employment: Theory and Evidence,’’ Journal of Public Economics, Vol. 69, No. 1 (July 1998), 

pp. 67–82. 39This assumes an employment elasticity of ¥0.2. 

CROWDING OUT DISADVANTAGED WORKERS

The minimum wage especially hurts disadvantaged workers’ job prospects. Higher 

minimum wages encourage employers to replace less-skilled workers with more productive employees. Given the choice between hiring an unskilled worker for $10.10 

an hour and a worker with more experience for the same rate, companies will always choose the more experienced and productive employee. 

Higher minimum wages also make working in such jobs more attractive, drawing 

greater numbers of workers with outside sources of income into the labor market. 

Many suburban teenagers and college students enter the labor market when the 

minimum wage rises. As they apply for job openings they crowd out urban teenagers 

and disadvantaged adults who would have sought the jobs at the previous wages. 

Overall, the minimum wage reduces disadvantaged workers’ employment much 

more than it reduces overall employment. It causes the very workers, minimum 

wage advocates most want to help, to have the greatest difficulty finding jobs. 

Empirical research consistently bears this out. One recent study examined administrative data from a large retail chain.36 When the minimum wage rose, the chain 

slightly reduced overall employment. Surprisingly, however, teenage employment 

rose in several stores. These teen employment gains came at the expense of larger 

job losses among adults. The composition of teenage employment also changed, with 

more teens coming from wealthier neighborhoods and fewer from low-income neighborhoods. The higher wages prompted many suburban teenagers to apply for work. 

They crowded many low-income adults and youth out of jobs. 

Another study examined how teenage employment and school enrollment changed 

after States raised their minimum wage.37 It found that when States raised their 

minimum wage, younger teens and those who had dropped out of school were more 

likely to become unemployed. At the same time, higher-skill teenagers were more 

likely get jobs. When they have to pay higher wages, businesses hire higher-skill 

workers, freezing the least productive workers out of the job market. 

Even studies that find the minimum wage has negligible overall employment effects find it decreases the employment of disadvantaged workers. Kevin Lang and 

Shulamit Kahn of Boston University examined how restaurant employment changed 

after minimum wage hikes in the late 1980s and early 1990s.38 They found no evidence that the minimum wage reduced total restaurant employment, but they did 

find that it dramatically changed the mix of workers that restaurants hired. Teenage and student employment rose, while adult employment dropped. 

A higher minimum wage is great news for a high school student working part 

time to buy an iPhone. It hurts lower-skill adult workers who need work to support 

themselves and perhaps their families. Making entry-level jobs less available makes 

it harder for them to gain the skills and experience necessary to advance to better 

paying jobs. The minimum wage effectively saws off the first rung on their career 

ladder. 

LITTLE BENEFIT TO FAMILIES IN POVERTY

The minimum wage raises the pay of many workers at the cost of some jobs. A 

lot of advocates for minimum wage increases consider this a good tradeoff. They 

argue that the gains for the workers who benefit far outweigh the costs to those 

who lose out. For example, raising the minimum wage by 40 percent—from $7.25 

an hour to $10.10 an hour—would cost roughly 8 percent of heavily affected worker 

groups their jobs (although losses would be larger among the most disadvantaged 

workers).39 At first glance this may seem like a good deal. 

However, this analysis ignores the way American tax and welfare programs claw 

back wage gains made by low-income workers. Congress has created many overlapping means-tested benefit programs: the supplemental nutrition assistance program 

(SNAP, formerly called food stamps), temporary assistance for needy families 

(TANF), the Earned Income Tax Credit (EITC), child-care subsidies, housing vouchers, and Women, Infants, and Children (WIC) benefits. The government also proVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00047 Fmt 6633 Sfmt 6621 S:\DOCS\20296.TXT DENISE
44 

40 Congressional Budget Office, ‘‘Effective Marginal Tax Rates for Low- and Moderate-Income 

Workers,’’ November 2012, http://www.cbo.gov/sites/default/files/cbofiles/attachments/11-15- 

2012-MarginalTaxRates.pdf. 41 Ibid., Summary Figure 1. 42 Elaine Maag, C. Eugene Steuerle, Ritadhi Chakravarti, and Caleb Quakenbush, ‘‘How Marginal Tax Rates Affect Families at Various Levels of Poverty,’’ National Tax Journal, Vol. 65, 

No. 4 (December 2012), pp 759–82. 

vides extensive in-kind health care benefits: Medicaid, SCHIP, and the soon to be 

operating health care exchange subsidies. 

These benefits phaseout at different rates as income rises. Earning an additional 

dollar of income reduces SNAP benefits by 24 cents. Workers in the EITC phaseout range lose 21 cents for each additional dollar they earn. Housing vouchers 

phaseout at a 30 percent rate. Low-income workers must also pay payroll (15 percent) and income taxes (10–15 percent) on each additional dollar of income. Medicaid operates with a cliff: when workers’ incomes exceed a certain threshold, they 

lose all benefits. 

Congress did not coordinate these benefit phase-outs across programs. Consequently low-income workers can face very high effective tax rates as they lose benefits from multiple programs. Consider workers both losing SNAP benefits and landing in the EITC phaseout range. For each additional dollar they earn they pay 15 

cents in additional payroll taxes, 15 cents in income taxes, an average of 5 cents 

in State income taxes, as well as losing 21 cents of their EITC benefit and forgoing 

24 cents of SNAP benefits—an effective marginal tax rate of 80 percent. Each extra 

dollar earned increases their net income by only 20 cents. Not even millionaires pay 

such high tax rates. 

The Congressional Budget Office studied this issue in a report released last 

year.40 It found that a single parent with one child earning between $15,000 to 

$25,000 experiences almost no financial benefit from working additional hours or 

getting a raise.41 What they gain in market income they lose in reduced benefits, 

leaving them no better off. 

The academic literature concludes that low-income families financially benefit 

when the head of the household enters the labor force and takes a job that pays 

near the poverty level. However, additional hours of work—or higher wages—beyond that generally produce little additional net benefit until earnings exceed 150 

to 200 percent of the poverty level.42

Unfortunately, minimum-wage workers with incomes below the poverty level fall 

into this earnings dead zone. A childless adult working full-time for the minimum 

wage earns $15,080 a year, above the poverty level for one person ($11,490). That 

adult (or a teenager) qualifies for relatively few Federal benefits. But a single parent working the same job would fall below the poverty level for either one ($15,510) 

or two ($19,530) children. That single parent qualifies for many means-tested Federal benefits. If the Federal minimum wage rose to $10.10 an hour ($21,008 a year 

for a full-time job) benefit reductions would claw back the majority of his or her 

raise. 

Table 2 shows the effective marginal tax rates facing full-time workers in various 

family situations whose incomes rise from $7.25 an hour to $10.10 an hour. The figures come from the Urban Institute’s Net Income Change Calculator. Some columns 

show the effective tax rates when workers participate in all programs for which they 

are eligible. Others show the tax rate when workers only participate in food stamps 

and pay their taxes. Note that these figures understate the effective marginal tax 

rates because they exclude the loss of health care benefits like Medicaid and SCHIP. 

Even without including health benefits, workers lose at least 50 percent of their 

benefits and in some cases much more. 

45 

Source: Urban Institute, Net Income Change Calculator, http://nicc.urban.org/ 

netincomecalculator/ (accessed June 20, 2013). Figures are based on the following assumptions: 

Individual works for 40 hours a week and their hourly wage increases from $7.25 per hour to 

$10.10 per hour. Parent has a child age 3 or two children ages 3 and 7. the parent pays $700 

a month in child care expenses and $600 a month in rent. Program assumptions: Families participating in ‘‘All Programs’’ are assumed to pay State and Federal taxes, including EITC, and 

participate in Food Stamps/SNAP, TANF, available child-care subsidies, WIC, and housing 

vouchers. These programs exclude all health-related benefits, including Medicaid, SCHIP, and 

Obamacare exchange subsidies. Families participating in just SNAP are assumed to recieve food 

stamps and Earned Income Tax Credit payments, but otherwise not participate in any other 

State or Federal means-tested programs. 

Nationwide, the average single parent with one child who participates in all programs for which they are eligible faces an effective marginal tax rate of 91 percent. 

The same parent with two children faces an effective tax rate of 79 percent. In some 

States the raise would actually financially hurt families. 


20296-7.eps 20296-8.eps
46 

43 All assumptions are the same as for a single parent with one child as explained in the footnotes of Table 2. 44 Note that this does not follow directly from the preceding section. Poverty calculations exclude non-cash benefits like Medicaid, SNAP, and housing vouchers. 45 John Addison and McKinley L. Blackburn, ‘‘Minimum Wages and Poverty,’’ Industrial and 

Labor Relations Review Vol. 52, No. 3 (1999), pp. 393–409. 46David Neumark, Mark Schweitzer, and William Wascher, ‘‘The Effects of Minimum Wages 

on the Distribution of Family Incomes: A Non-Parametric Analysis,’’ Journal of Human Resources Vol. 40, No. 4 (2005), pp. 867–94. 47 Richard V. Burkhauser and Joseph J. Sabia, ‘‘Minimum Wages and Poverty: Will a $9.50 

Federal Minimum Wage Really Help the Working Poor?’’ Southern Economic Journal, Vol. 77, 

No. 3 (January 2010); Richard Vedder and Lowell Gallaway, ‘‘Does the Minimum Wage Reduce 

Poverty?’’ Employment Policies Institute, June 2001; Jill Jenkins, ‘‘Minimum Wages: The Poor 

Are Not Winners,’’ Employment Policy Foundation, January 12, 2000; Ronald B. Mincy, ‘‘Raising 

the Minimum Wage: Effects on Family Poverty,’’ Monthly Labor Review Vol. 113, No. 7 (July 

1990); Richard Burkhauser, and Joseph J. Sabia, 2007. ‘‘ The Effectiveness of Minimum Wage 

Increases in Reducing Poverty: Past, Present, and Future,’’ Contemporary Economic Policy Vol. 

25, No. 2 (2007), pp. 262–81; Craig Gundersen, and James Patrick Ziliak, 2004. ‘‘Poverty and 

Macroeconomic Performance Across Space, Race, and Family Structure,’’ Demography Vol. 41, 

No. 1 (2004), pp. 61–86; David Neumark, and William Wascher. 2002. ‘‘Do Minimum Wages 

Fight Poverty?’’ Economic Inquiry Vol. 40, No. 3(2002) pp. 315–33. 48David Card and Alan B. Krueger, Myth and Measurement: The New Economics of the Minimum Wage (Princeton, N.J.: Princeton University Press, 1995). 49 Burkhauser and Sabia, ‘‘Minimum Wages and Poverty: Will a $9.50 Federal Minimum 

Wage Really Help the Working Poor?’’ 50 U.S. Census Bureau, Historical Poverty Tables, Table 25, ‘‘Work Experience and Poverty 

Status for People 16 years Old and Over: 1987–2011,’’ at http://www.census.gov/hhes/www/ 

poverty/data/historical/hstpov25.xls. 

Consider a Patty Jones, a hypothetical single mother in Des Moines, IA, who gets 

an offer for a job at minimum wage. 43 If she goes from not working to working fulltime, her monthly income rises from $1,146 to $1,838. However, if she gets a raise 

to $10.10 an hour, her monthly income falls to $1,574. She loses over $260. While 

her market income rises by $494, she loses $71 in EITC refunds, pays $37 more 

in payroll taxes and $45 more in State income taxes. She also loses $88 in food 

stamp benefits and $528 in child-care subsidies. Patty would be better off without 

the raise. 

This system makes it very difficult to lift families out of poverty by raising the 

minimum wage. Higher minimum wages make it more difficult for disadvantaged 

adults to find jobs. This hurts their finances. However, for those living below the 

poverty line who keep their job, the raise provides little net benefit. Much or all of 

what they gain in higher pay gets clawed back as reduced benefits. 

College students and teenagers with jobs do benefit from a higher minimum wage; 

they have few government benefits to lose. But Congress does not raise the minimum wage to help teenagers buy jeans or iPhones. It does so to help families struggling below the poverty line. Current law makes it almost impossible to achieve that 

goal. 

NO EFFECT ON POVERTY

Economic research further shows that raising the minimum wage does not reduce 

poverty.44 Economists have studied changes in aggregate State poverty rates when 

States raise their minimum wage. They have also examined micro-data on individual families’ finances when the minimum wage changes. A study finds minimum 

wages reduce poverty.45 One other study finds the opposite result.46 But the overwhelming balance of recent research finds no effect of the minimum wage on poverty.47 Even David Card, a researcher celebrated by minimum wage advocates, 

comes to this conclusion.48

This should come as a little surprise. Besides reducing job opportunities and the 

perverse structure of the welfare state, very few poor families have any minimum 

wage workers. Only 11 percent of the workers who would gain from raising the minimum wage to $9.50 an hour live at or below the poverty line.49

In fact, very few poor families have any full-time workers at all. Only 9 percent 

of adults living below the poverty line work full-time year round. One quarter work 

part-time. Two-thirds of adults living below the poverty line do not work at all.50

Raising the minimum wage hurts their job prospects but does nothing to increase 

their earnings—they have none. 

If Congress wants to reduce poverty it should focus on restructuring the welfare 

state to remove the current disincentives to work. For too many low-income families 

additional work does not pay. Few Americans at any income level would work longer 

hours when faced with a tax rate exceeding 50 percent. 

47 

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is privately supported and receives no funds from any government at any level, nor 

does it perform any government or other contract work. 

The Heritage Foundation is the most broadly supported think tank in the United 

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supporters representing every State in the United States. Its 2012 income came 

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of its 2012 income. The Heritage Foundation’s books are audited annually by the 

national accounting firm of McGladrey & Pullen. A list of major donors is available 

from The Heritage Foundation upon request. 

Members of The Heritage Foundation staff testify as individuals discussing their 

own independent research. The views expressed are their own and do not reflect an 

institutional position for The Heritage Foundation or its board of trustees. 

The CHAIRMAN. Thank you very much, Mr. Sherk. 

Thank you all for your testimonies. We’ll start a round of 5- 

minute questions. 

Mr. Reich, we’ll start with you. We have conflicting studies here. 

Mr. Sherk mentioned some studies. My colleague from Tennessee 

mentioned studies earlier. If there are studies that show that raising the minimum wage costs jobs, what’s wrong with those studies? 

Is there anything wrong with them, or have we just got two different studies that show different things? What is this? 

Mr. REICH. You make a very good point, Senator Harkin, namely, 

that there are studies and there are studies, just like there are— 

what is it—lies, damned lies, and statistics. The fact is—well, let 

me give you an example. 

I was interviewed a couple of months ago by a TV reporter from 

San Jose who said, ‘‘You know, teen employment has gone way 

down in the last several years while the minimum wage went 

up’’—I mean, in the period from 2007 to 2009. And I said, ‘‘Yes, but 

the economy went down the toilet. Don’t you think that had a bigger effect than the minimum wage?’’ So the key thing in these 

studies is to have the right controls, and econometrics has really 

advanced in the last several years. There’s just a lot of bad studies 

out there. 

But newer methods really do show the negative biases in the 

older studies, and that’s why our paper has been accepted and published in one of the top general economics journals, not in one of 

the third or fourth-tier journals; why the White House has several 

times, including this morning, went out of its way to refer to our 

studies as particularly compelling; and why a lead group of economists who were polled by the University of Chicago Business 

School a couple of months ago found that they favored by 4 to 1 

the Harkin-Miller bill. This is a very big change in economists’ 

thinking over previous years, and we didn’t have as good methods. 

The CHAIRMAN. Is there anything succinctly that you can say or 

point to as to why some of these studies that Mr. Sherk mentioned 

are—— 

48 

Mr. REICH. States that have not had minimum wage increases 

have been growing faster than States that do, not because of the 

minimum wage. It can’t have that big of an impact. They have 

been growing for many other reasons, like sunbelt States. And if 

you don’t include for the kind of local controls in your studies, 

you’re comparing States that are in very different economic circumstances. 

It’s not a random assignment like we have in medical trials when 

we say, ‘‘Well, this group is going to get the real drug, and the 

other half ’’—and it’s randomized which is getting the placebo. 

That’s not the case in real life, in the minimum wage policy context. 

What we do is we get rid of all these—we call them preexisting 

effects, so we get a cleaner study. I think that’s the new standard 

that econometrics allows us to follow. The intuitive comparison is 

these—— 

The CHAIRMAN. If you raise the minimum wage, and you do it 

broadly—I mean, everybody has to pay it—raise everything up, so 

the competitive forces would be the same out in society. 

Mr. REICH. Yes, and that’s another kind of point that a lot of 

business people—I’ve seen them testify many times at hearings in 

California. They’ll say, ‘‘Well, I’ll go out of business if I have to pay 

the extra amount. Nobody will want to pay $20 for a hamburger.’’ 

That might be the perspective from their own books. But you have 

to look in terms of the market as a whole. 

And from the point of view of how the labor will adjust, they’re 

going to have an easier time finding workers. Their turnover is 

going to go down. It’s possible their prices will go up a little bit, 

maybe 10 cents on a $10 entree, but that’s not going to—that’s how 

the economy absorbs minimum wage increases. 

The CHAIRMAN. Bishop Blaire, some people say that raising the 

minimum wage won’t help the poor because most minimum wage 

workers aren’t poor. In fact, Mr. Sherk said—and I wrote it down— 

few minimum wage workers live in poor families. Well, should a 

fair minimum wage be a part of a national effort to address poverty, then? 

Bishop BLAIRE. Of course, different data and different statistics 

are being presented here. I think our main argument is that there 

is an inherent dignity in work. And, therefore, when you work, you 

should be paid a just salary and compensation. Whether you’re a 

teenager or 30 years old or 70 years old, you deserve appropriate 

compensation and not to be exploited. 

I would say myself, because we are so deeply concerned about the 

conditions of poverty in the United States, and from my own experience, that people who live in poverty want to have enough of an 

income so that they don’t have to depend on all these other resources from the government, and the more that they can be responsible for themselves. And while it is a small number of people 

at the present time who are at minimum wage or below minimum 

wage, when you raise the minimum wage, people’s salaries will go 

up, and it will help people to address the issue of poverty. 

The CHAIRMAN. Thank you, Bishop Blaire. My time has well run 

out. 

Senator Alexander. 

49 

Senator ALEXANDER. Thanks, Mr. Chairman. 

Thanks to each of you for coming today. 

Mr. Sherk, let me ask you to elaborate on the comment that Senator Harkin asked about, that the minimum wage seems to have 

no effect on poverty. Are there other government programs that 

have more effect on relieving poverty than a proposal to raise the 

minimum wage? 

Mr. SHERK. Well, again, only about 11 percent of workers in households earning between the current minimum wage and $9.50 

an hour was in the paper that was recently published examining 

this. Only about 11 percent of the adults affected came from families at or below the poverty level. The vast majority of workers who 

would benefit from the minimum wage increase are not below the 

poverty line. So you can’t reduce overall poverty if you’re not benefiting the people who are poor. 

One of the huge problems we see facing low-income families is 

that there are very strong disincentives to work. If you’re a single 

mother working 20 hours a week, and you’re getting $8 or $9 an 

hour, you could maybe work full-time hours, but your family income in many States is not going to increase. The example I gave 

from your State, Senator Harkin, were calculations from the Urban 

Institute, who also find this very concerning, that there are just 

very low incentives to additional work to gain experience. 

Now, it’s very understandable that if you’re a single mother, do 

you want to spend 20 hours more a week with your child or not? 

Well, the understandable response is going to be to want to spend 

more time with your family if you’re not coming out any further 

ahead. But over the course of an entire career, that prevents them 

from getting the experience and the upward mobility. 

I think it would make a lot of sense—the earned income tax credit is a very good program. But we need to restructure the way 

we’ve designed these social assistance programs so that you don’t 

have low-income families facing—only keeping, say, 10 cents on the 

dollar, 20 cents on the dollar when they do more work. That’s simply not fair for them. That’s not a tax rate that any country even 

taxes millionaires at, and it prevents people from getting ahead. 

Senator ALEXANDER. Mr. Sherk, let me pursue this just a little. 

Let’s say that one would agree that in a rich society, which we relatively are, that wants to be just, that we would hope that individuals would have a certain standard of living. It strikes me that the 

fairest way to do that is for all of us to share in that responsibility 

rather than to impose that responsibility on the employer. 

And it seems to me that it’s not only fairer, but it’s more efficient 

to design government programs—for example, you’ve got the 

earned income tax credit, you’ve got supplemental nutrition, the 

food stamps, and you have a whole variety of government programs 

that are directly aimed at low-income Americans. And then you’ve 

got other programs, like Pell grants and means-tested programs, 

that are designed to provide really a floor. 

So from an efficiency point of view, isn’t that a better way if we 

want to relieve poverty, to do it through programs that are aimed 

specifically at people with less money? And, second, wouldn’t it be 

a better way to create an environment to produce the largest number of new jobs not to impose that cost solely on the employer and 

50 

mandate that the employer take the responsibility that all of us— 

the argument would go—have to create a certain standard of living? 

Mr. SHERK. I would agree with both of those points, Senator. On 

the issue of the efficiency, you’re exactly right. If you target the 

benefits, like the earned income tax credit, which is conditional on 

working additional hours—you’re not giving it to suburban teenagers, you’re not giving it to college students who are working parttime jobs—the benefits are targeted at those who are needy, and 

you don’t have unemployment effects on the adults. 

And you don’t have an effect where you have more suburban 

teenagers coming into the labor market and taking the jobs that 

could have gone to a disadvantaged adult who is in a difficult position and probably needs the income a whole lot more than the teenager does. You don’t have those sort of substitution and replacement effects and all the negative consequences. 

But the best solution, Senator, would be a strong and healthy 

growing economy. If you look back at the late 1990s, you had a 

minimum wage increase in 1996 and 1997, but the fastest wage 

growth was actually taking place in 1998, 1999, 2000, up and down 

the income scale. Low-income workers were benefiting. Highincome workers were benefiting. Middle class workers were benefiting. Everyone was benefiting from a healthy, robust economy. 

Unemployment was falling. That is the best jobs program, not government activity, but a good business climate that leads to more 

job growth and more investment. 

Senator ALEXANDER. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Alexander. 

Senator Casey, then Senators Warren, Murphy, and Sanders. 

STATEMENT OF SENATOR CASEY

Senator CASEY. Mr. Chairman, thanks very much. We appreciate 

the panel’s testimony on this important issue. 

I wanted to start with the issue of who will be affected by an increase in the minimum wage. And this is mostly a question that 

affects women and children in large measure. By one estimate— 

this is according to the Economic Policy Institute—18 million children, which is 23 percent of all children in the country—18 million 

children will get a raise, in essence, meaning their families will get 

a raise. And 17 million women will get a raise if we raise the minimum wage. 

I believe it’s a matter of basic justice and fairness, but it does 

have the additional benefit of lifting all boats at the same time. 

That’s why, often, labor organizations that don’t have anything to 

gain, really, at all, that already have wage rates set by way of bargaining and arriving at a fair wage, are in favor of it, because they 

know that it lifts all boats and helps more and more people get out 

of poverty and get closer and closer to the middle class. So that’s 

the premise upon which I would rest my support, among other reasons. 

But, Bishop, when you give testimony, you’ve got to consider the 

broader economy and the difficult choices that we face. But I wanted to ask you, and it’s, in some ways, the amplification of your tesVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00054 Fmt 6633 Sfmt 6601 S:\DOCS\20296.TXT DENISE
51 

timony. What do you see with—and you’re a bishop, not a parish 

priest, but I guess a lot of days you’re acting like a parish priest. 

But what do you see when you look across your diocese more 

broadly in terms of where the economy is? Things have moved in 

the right direction, but still a lot of people are struggling. 

Bishop BLAIRE. In my diocese, I have an awful lot of people who 

are farm workers and people who work in warehouses and an 

awful lot of people who are working two jobs to put food on the 

table. So I agree very much with what you are saying, and I do believe that improving the minimum wage is a component. Obviously, 

it’s one component in the bigger picture of jobs and putting people 

back to work. 

But I think you have to have a just compensation, and it does 

raise and, I think, improve everybody else’s salaries, people who 

are just barely above the minimum wage. So, yes, I see an awful 

lot of people in the area where I live who really are struggling. 

Senator CASEY. And I know that some of the estimates about 

where it would be if it stayed on track all these years—by one estimate, if it had kept pace with inflation since 1968, it would be 

worth more than $10.50 per hour. We know the economic impact 

it can have on individual families. 

But I also wanted to ask Mr. Shelton a question. In particular, 

whenever you see the monthly unemployment numbers come out, 

and you have an overall unemployment rate which has, nationally, 

been hovering around 7.5 percent, but, consistently and persistently, every month, it’s exponentially higher for African-Americans, 

in the double figures for as many months behind as we can count, 

I want to ask you, in particular, the impact that the increase in 

the minimum wage would have on those who are still struggling 

who happen to also be African-American workers in the economy. 

Mr. SHELTON. There are a number of things that it affects, Senator. When you look at our communities, you’re absolutely right. 

That is, on any given day, if you look at the unemployment rate 

for America, and you want an educated guess of what it is in African-American communities, you simply double that number. So it 

is very, very problematic for us. 

When you look at African-American families that are working at 

the minimum wage level, you see they’re working multiple jobs to 

be able to make ends meet, to pay their rent, to keep food on the 

table, and things along those lines. And, of course, family life suffers as a result of that. 

As was mentioned, over 52 percent of African-American children 

are in female-headed, single-family households, and there is that 

one person who is there to both put food on the table and to make 

sure they’re there to be able to eat and do other things the children 

need from their mothers. So, indeed, being able to raise the minimum wage means more time at home, and the quality of life index 

increases. 

We also see that cycle of prosperity that happens in the lowincome communities in which they live. If you can buy more food, 

that means you’re paying the local market more money, and that 

cycle of prosperity continues throughout the community, and other 

things, of course, that we all need. It is tremendously essential that 

we see a raise in the minimum wage. 

52 

And, of course, the African-American communities, we’re seeing 

in so many cases, ends up being that canary in the coal mine. 

When hard economic conditions hit, we feel it first. Then we see 

it resonate throughout. And in this case, hopefully, what we’ll see 

is a prosperity growth as we’ve seen in times before. That is, we’ll 

see more money, people being able to work hard, give that hard 

day’s labor for a fair day’s pay, and be able to take care of their 

families. 

Senator CASEY. Thank you very much. 

The CHAIRMAN. Senator Warren. 

Senator WARREN. Thank you, Mr. Chairman. 

I want to thank you all for being here. I appreciate it. This is 

very helpful. I also have been looking at the data about the impact 

of the minimum wage. As I understand it, what most of the studies 

show now is if we raise the minimum wage to $10.10, then we 

would generate about 140,000 new jobs—Mr. Shelton referred to 

this. I think we’re reading the same studies—and that we’d get 

about $32 billion more in economic activity. 

I know that Senator Alexander cares about generating more jobs 

and more economic activity. And as Senator Casey said, we affect 

23 million children and, in particular, lift 17 million children out 

of poverty if their parents earned a higher minimum wage, which, 

of course, in turn, reduces reliance on food stamps, Medicaid, 

earned income tax credit, and other forms of support. So it seems 

to me the only argument we ever hear not to do this is the argument that if we raise the minimum wage, there will be fewer jobs 

available. 

I appreciate reading your studies, Dr. Reich. Also, Dr. Dube from 

the University of Massachusetts-Amherst, was here before to talk 

to us about his studies. So I just want to think about this gold 

standard study. When you look at a metropolitan area that reaches 

across two States, and the minimum wage goes up in one State but 

doesn’t go up in the other, I would say that’s probably the gold 

standard for testing whether or not there’s going to be an impact 

on jobs from changing the minimum wage. 

So my question, Mr. Sherk, is are there any of those gold study 

standards that show that when that happens, jobs have disappeared? 

Mr. SHERK. The question here, Senator, is what makes an appropriate control group, and that’s at the heart of the dispute between 

Mr. Reich and his colleagues and between Nuemark and Wascher 

and the research. 

Senator WARREN. I’m sorry, Mr. Sherk. Is there a study of the 

kind I just described? 

Mr. SHERK. There are studies that control for local effects, that 

have your local controls, and compares—they’re not the cross-border studies. There are other studies—— 

Senator WARREN. Excuse me. Let me just make sure I have this 

right. There are cross-border studies. Is that right? 

Mr. SHERK. There are studies that compare the effects of States 

that raise minimum wage to those that do not and include regional 

controls. 

Senator WARREN. All right. And what do those studies show, consistently? 

53 

Mr. SHERK. The vast majority of studies show that raising the 

minimum wage reduces employment. Now, what you have is—— 

Senator WARREN. I’m sorry. Dr. Reich, is that right? 

Mr. REICH. No, no, no. Nuemark and Wascher don’t use regional 

controls. You have to read the studies, not just cite the results. 

They argue against having these controls, like you said in your prepared statement. Once you get into local controls, you don’t find 

negative effects. 

Mr. SHERK. What they include is your State’s specific trends for 

the—— 

Mr. REICH. That’s just comparing one State to a random other 

State. It’s not a local control. That’s the whole point. That’s what’s 

wrong. 

Senator WARREN. Mr. Sherk, I was asking about a particular 

form of study, that is, you look at one metropolitan region that cuts 

across the State border, and the minimum wage is raised on one 

side and not on the other, so you’ve got a consistent metropolitan 

region. I think that sounds like the gold standard in determining 

whether or not a change in minimum wage affects whether or not 

there will be jobs. 

As I understand it, Dr. Dube’s study, Dr. Reich’s study, and other 

studies have a consistent outcome. And what is that outcome, Dr. 

Reich? 

Mr. REICH. Well, first of all, let me just say Arin Dube was a student of mine and these are co-authored studies. 

Senator WARREN. Oh. Fair enough. 

Mr. REICH. But we’ve now done this with five different data sets, 

the American Community Survey, the Census. We also used the 

Quarterly Workforce Indicators, the Quarterly Census of Employment and Wages. We’ve used five different statistical approaches to 

having local controls, and they all come out the same way. 

Senator WARREN. And that is? 

Mr. REICH. That there’s no negative employment effect. 

Senator WARREN. All right. I just want to say my home State of 

Massachusetts has a higher minimum wage than the rest of the 

country. We’re currently at $8, and we have a pending proposal in 

our State legislature to raise it to $11 an hour. I hope you will note 

that the Massachusetts economy is growing. Our unemployment 

rate is at 6.4 percent, more than a full point below the national average of 7.6 percent. 

I understand we need control studies. The control studies, it 

seems to me, re-inforce the experience we have in Massachusetts. 

We have raised our minimum wage. We have stayed above the national minimum wage, and we have done better on employment. 

We have raised the boat for all of our families, and it has worked 

for us. 

We have an opportunity here, it seems to me, Mr. Chairman, to 

generate jobs, to lift 17 million children out of poverty, to reduce 

the amount of money that we spend on Medicaid, on food stamps, 

on earned income tax credit. This is an opportunity for us. We need 

to raise the minimum wage. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator Warren. 

Senator Murphy. 

54 

STATEMENT OF SENATOR MURPHY

Senator MURPHY. Thank you very much, Mr. Chairman. We have 

a lot of numbers here at this hearing. One of the most important, 

though, is one that came at the very least from Mr. Shelton’s testimony, and that is $14,000, the amount of yearly income generated 

by someone that’s working on the minimum wage. And notwithstanding the discussion about what percentage of people on the 

minimum wage are living below the poverty line, there are still 

millions of people who rely in whole or in large part upon the minimum wage for their income. 

In Connecticut, if you don’t have a housing voucher, you are 

going to spend at the very least two-thirds of that $14,000 on housing. And you are essentially going to spend the rest of it on food 

and transportation, and your $14,000 is gone. 

So I guess, Mr. Sherk, my very simple question to you is this. 

Do you think that $14,000 is enough for somebody to live on today? 

Mr. SHERK. Of course not. I would not pretend that that would 

be a comfortable lifestyle by any means. The question is: What is 

the best way to help them? If $14,000 is not much to live on, take 

a look at American Samoa, where $4.76 an hour is even less to live 

on. Congress raised the minimum wage, and did it benefit them? 

Did it boost their economy? Their unemployment went from 5 percent to 36 percent. The island’s Democratic Governor begged Congress to call it off, because it was doing such damage. 

I think that everyone here has good intentions and wants to help 

low-income families. But the key is finding a way to do so effectively and to do so in a way that will not harm the very people 

we’re trying to help. 

Senator MURPHY. I think American Samoa is probably an interesting analogy, but probably not a terribly apt one, given the fact 

that we’re not talking about expediting the rise in minimum wage 

in the United States at the rate that we’re asking American Samoa 

to. And, of course, there are lots of other comparisons between the 

strengths of our economy and their economy that probably don’t 

work. But I appreciate the analogy, nonetheless. 

I think the other issue here, Mr. Sherk—and I’ll ask this question to Dr. Reich. One of the suppositions in your testimony is assuming that individuals are rational economic actors in the sense 

that they are going to make tradeoff decisions between the benefits 

that they receive from government and the wage that they receive 

through their employer. 

I would argue that that’s not how people think, that the vast majority of people out there who are on Medicaid, who are on SNAP 

benefits, who are receiving housing vouchers do not want to be on 

those programs. They do not want to rely on the government in 

order to help pay for their housing or their kids’ food or for their 

medical benefits. They want to live independently. 

The reason why you don’t see a lot of people out there turning 

down raises from their employers is because they want a pathway 

out of that partial dependence on the government, even if, in the 

short run, it is going to cost them some money, because the Holy 

Grail to them is the day in which they no longer have to rely on 

those benefits, and the only way to get there is perhaps to live 

55 

through a short period of time in which they maybe have an overall 

diminution in the amount of money coming into their economy. 

I understand the analysis which suggests that that actually 

hurts some people in the short run. But it’s just not how people 

think. People don’t want to be on these programs, and they want 

a higher wage, because they see it as a pathway to eventually get 

to total independence. 

Let me actually shift to the question I do want to ask Dr. Reich, 

and that is this. We have this larger trend playing out in our economy right now with respect to the winner-take-all economy, where 

technology is essentially replacing labor. And one of the byproducts 

of that is that income to companies now tends to accumulate in the 

hands of a much smaller number of people, because it just takes 

a lot less folks to do work than it used to. 

That seems to me to be an additional argument in favor of the 

minimum wage, as we try to figure out how to deal with the consequences of a new economic order whereby technology moves 

money and moves wealth into the hands of a small number of people. To me, there are all sorts of ways to attack that. 

But just let me ask you that question. I mean, that’s a larger 

macro-economic trend. Should we view the minimum wage as one 

of the ways to respond to that larger issue? 

Mr. REICH. Thanks for the question. First, let me respond on the 

working poor, the poverty point. I don’t know. I guess you wouldn’t 

use the same medicine to cure cancer as to cure heart disease. 

Now, when Franklin Roosevelt signed the Fair Labor Standards 

Act, the unemployment rate was almost 20 percent. He didn’t think 

that the minimum wage was going to get rid of poverty for those 

20 percent who were unemployed or those people who weren’t yet 

collecting social security. Of course not. 

The minimum wage is supposed to help the working poor, and 

as you were pointing out, there are quite a few of them, 10 million 

probably, who would be helped by a minimum wage increase, people who rely only on wages. There are other things to do for the 

elderly, the people who have run out of unemployment benefits, 

and so forth. 

But I think it’s really a mistake to couch the argument about 

whether minimum wages reduce poverty and then to look mainly 

at the people who aren’t getting wages at all. If you look at the bottom half of the income distribution and not just the people who are 

already in poverty, that’s where most of the minimum wage workers are. They’re not mainly rich suburban kids. That’s just a very 

small segment. 

On your question about the macro-economic trends, when I was 

in college—and it was a long time ago—there was a lot of concern 

about technology and automation eliminating jobs. That was in the 

1960s. To me, this is a perennial. We have more jobs than we’ve 

ever had and more people working at jobs around the whole world 

than we’ve ever had. I think the problem is increased polarization 

of income, of earnings, that you were referring to rather than the 

lack of jobs. 

If you look at the low-paid service jobs, they’ve been growing 

quite rapidly. It’s not that they’ve been disappearing in the United 

States. The automation argument is, ‘‘Oh, well, we’re losing all 

56 

those jobs,’’ but we’re not. And these are jobs that have to be done 

here. They’re not exportable. I think the minimum wage is a very 

effective lever for those low-wage service jobs. 

Why does a barber in Bangladesh get paid less than a barber in 

Boston? Well, it’s because economy has interconnected parts. There 

are reference points for wages. There’s overall productivity. It’s 

quite possible for the United States to pay more to its barbers or 

its hair stylists—I guess that would be the more contemporary 

term—than we do at present. We’re not going to lose those jobs. 

Senator MURPHY. Thank you, Mr. Chairman. 

The CHAIRMAN. Senator Sanders. 

STATEMENT OF SENATOR SANDERS

Senator SANDERS. Thank you, Mr. Chairman, and I thank all of 

the panelists for being here. 

Let’s give an overview of the American economy. Today, we have 

almost as many people living in poverty, somewhere around 46 million, than at any time in the last 60 years. We have the highest 

rate of childhood poverty of any major country on earth, somewhere 

around 22 percent. We have more income and wealth inequality 

than any major country on earth. And, astoundingly, in the last 

study that I’ve seen, between 2009 and 2011, Mr. Chairman, all of 

the new income created in this country went to the top 1 percent. 

Meanwhile, as Dr. Reich has implied, many of the new jobs that 

are being created are low-wage jobs, service industry jobs. That’s 

the problem. Now, I would just mention for the record that my 

State has the third highest minimum wage in the country, and that 

is $8.60 an hour. We also have the fourth lowest unemployment 

rate in the country. And I would just say for the record that I have 

really not heard almost anybody suggest that raising the minimum 

wage to the level that we have in Vermont has been an impediment to our economy, which is doing reasonably well. 

I think Bishop Blaire, a while ago when he spoke in his remarks, 

made a very important point having to do with the dignity of work 

and the appreciation of work, and that if somebody is going to 

work, that person has got to receive at least a wage that they can 

go out and live with dignity on. That’s an extremely important 

point. 

When we don’t have that—and I was in Detroit, MI, talking to 

African-American kids a couple of weeks ago, there are kids there 

who are desperately trying to do the right thing. The best jobs that 

they can get if they’re a high school graduate, even with some college, is working in a fast food restaurant at $7.25 an hour. They 

can’t even get 40 hours a week. They’re getting 20 hours a week. 

They’re getting 30 hours a week. They are desperately trying to 

bring themselves out of poverty. They’re going nowhere in a hurry. 

Now, if I understand Mr. Sherk’s remarks—and correct me if I’m 

not—one of the points that you made is that by raising the minimum wage people are going to lose certain government benefits 

which provide them with a higher standard of living. So if your 

minimum wage goes up, you’re going to lose food stamps, you may 

lose part of the earned income tax credit, you may lose affordable 

housing, you may lose Medicaid, and at the end of the day, one is 

57 

worse off than one would have been without a raise in the minimum wage. 

Am I understanding you pretty correctly? 

Mr. SHERK. More or less. You’ve basically got two effects. Some 

people lose their job. Some people don’t lose it, but they see most 

of the benefit clawed back, and they don’t come out ahead. 

Senator SANDERS. I am reading from, as I understand it, a quote 

from the Heritage Foundation. It says, ‘‘Food stamps is an expensive, old-style program that rewards idleness.’’ Now, what we’re 

seeing in the House are massive cuts in Medicaid, massive cuts in 

food stamps, transforming Medicare from how we know it, cuts in 

the Pell grant program. 

I would assume, based on what you’ve told me, that the Heritage 

Foundation would be strongly opposed to all of these disastrous Republican cuts in social programs. Am I correct in assuming that? 

Mr. SHERK. The problem we have with the social programs is 

that they deny low-income workers the fruits of their labor. I believe the context of that quote was in the need for work requirement. 

Senator SANDERS. Let me be more direct. Your argument is that 

if people make more money, they’re going to lose programs. One rational solution to that is to increase programming. So are you in 

favor of substantially increasing the food stamp program and Medicaid benefits? Is that the Heritage Foundation’s position? 

Mr. SHERK. I’m not here officially representing the Heritage 

Foundation—— 

Senator SANDERS. But you work for the Heritage Foundation. 

Mr. SHERK [continuing]. Just as Dr. Reich is not officially representing his college or his school. But my argument is that we’ve 

removed the incentive to work. If you take a look at families below 

the poverty line, two-thirds don’t have any adults working at all. 

Senator SANDERS. So we remove the incentive to work by having 

adequate social programs, so you’re opposed to that. But on the 

other hand, you are opposed to raising the minimum wage so somebody can earn a decent living to go out and buy the food and the 

shelter that they need. I don’t quite understand it. I don’t quite understand it. Either you’re for one or the other. 

If you’re saying that you want people to have a minimal standard 

of living and not raise the minimum wage, you have to compensate 

for low wages by having decent social programs. 

Mr. SHERK. I’m saying what we should do is restructure the social programs so the benefit phase-out rates don’t overlap at the 

same time, so that those—— 

Senator SANDERS. I can’t understand how if you’re going to—you 

seem to be a smart guy. But you’re arguing two absolutely contradictory points. You can argue that raising the minimum wage 

will result in lower benefits, a bad thing—good point. Then the answer is that we provide more benefits. Or you can argue to forget 

the benefits and let’s make sure everybody in America makes $15 

to $18 an hour. We don’t have to worry about the benefits. Which 

point do you—— 

Mr. SHERK. Part of the problem with the benefits is they create 

these phase-out rates. The high marginal tax rates that get close 

to 100 percent come from the existence of the benefits phasing out. 

58 

So in Senator Harkin’s State of Iowa, the reason that a hypothetical single mother with one child would come out behind is because of, basically, the massive—your child care subsidies will—— 

Senator SANDERS. Do you think the Federal Government should 

address it? 

Mr. SHERK. The issue would be that by providing fewer benefits, 

you reduce the effective phase-out rate, or by—even if you’re spending the same amount, coordinate the benefit phase-outs so that 

they’re not all happening at the same time over the same income 

level. 

Senator SANDERS. With all due respect, Mr. Sherk, I think you— 

whether or not you’re here representing the Heritage Foundation— 

are really not making a whole lot of sense, to my mind. But thank 

you very much. 

The CHAIRMAN. Thank you, Senator Sanders. 

Well, since my State of Iowa and my city of Des Moines has been 

invoked a lot of times here, I was reading your example of this, Mr. 

Sherk, about this hypothetical single mother in Des Moines. She 

gets an offer of a job for minimum wage. She goes from not working to working full-time. Her monthly income rises from $1,146 to 

$1,838. That’s the minimum wage. She went from not working to 

working, and she gets an increase from $1,146, which I assume 

was all of her government benefits, to $1,838. 

Mr. SHERK. So her market income from not working to $7.25 an 

hour would have been about $1,300, of which about $600 would get 

clawed back and she comes out net $700 ahead. 

The CHAIRMAN. No, no. She’s ahead now by—let’s see, $1,146 to 

$1,838. That’s about what—$700 more a month she gets, $700 

more a month. Is that true? 

Mr. SHERK. Yes. But—— 

The CHAIRMAN. If that’s true, then you say that—OK. What if we 

lowered the minimum wage to $5 an hour? How would that be? 

Mr. SHERK. I’d have to go back to the Urban Institute statistics 

to calculate that. 

The CHAIRMAN. Let’s just lower the minimum wage to $2.50 an 

hour, and she goes from not working to working. 

Mr. SHERK. I’d have to re-run the calculations on that. 

The CHAIRMAN. It seems to me you are accepting a minimum 

wage of $7.25 as raising her income from not working to working. 

Mr. SHERK. I apologize for the lack of clarity in my testimony. 

What you find with these phase-out rates is that if you go from not 

working to taking a job that’s around the poverty level, you do 

come out ahead. However, if you then go take a job around the poverty level, close to the minimum wage, and then over that—the 

next $5 or $6 an hour you’d earn, so, say, from $7.25 an hour up 

to $13 and $14 an hour, you keep very little of that additional income. And in your State of Iowa, going from $7.25 an hour to 

$10.10 would actually cost her net income. 

Senator SANDERS. Mr. Chairman, can I jump in for 1 second? 

Mr. REICH. I’d like to, also, if there’s—— 

Senator SANDERS. You started something, Tom. One quick question. One quick question. 

The CHAIRMAN. Yes. 

59 

Senator SANDERS. And we don’t mean to beat up on you, Mr. 

Sherk. You’re welcome and we’re glad you’re here. 

There are some conservatives who do not believe in the concept 

of the minimum wage. In other words, if the economy is such and 

I can offer you $3 an hour—— 

Senator ALEXANDER. Let me jump in. I don’t believe in it. 

Senator SANDERS. You do not. 

Senator ALEXANDER. I do not. 

Senator SANDERS. All right. Then we have a Ranking Member—— 

Senator ALEXANDER. Just speaking up, as long as we’re going to 

have a—— 

Senator SANDERS. All right. There we go. 

Senator ALEXANDER. As long as we’re going to interrupt the 

chairman and ask our own questions, I—— 

Senator SANDERS. So you do not believe in the concept of the 

minimum wage. 

Senator ALEXANDER. That’s correct. 

Senator SANDERS. You would abolish the minimum wage. 

Senator ALEXANDER. Correct. 

Senator SANDERS. And if somebody had to work for $2 an hour, they would work for $2 an hour. 

Senator ALEXANDER. No. I would go for a much more targeted 

approach. I’ve been around long enough to remember Pat Moynihan and the negative income tax. And the question I would want 

to ask if we are interested in social justice and in work is—if we 

want to honor work instead of getting a welfare check, then 

wouldn’t a more efficient way to help people in poverty be to increase the earned income tax credit rather than to do what we always do here, which is come up with a big idea and send the bill 

to somebody else? 

What we’re doing is coming up with a big idea and sending the 

bill to the employer, just like we come up with a big idea about 

Medicaid and send the bill to the Governor, or we come up with 

a big idea about storm sewers and send the bill to the mayor in 

Burlington. Why don’t we just pay for the big ideas we come up 

with? 

And if we want to create a standard of living for people that’s 

much higher than they have today, let’s attach the dollars to the 

job and everybody pay for it. I don’t want to do that. But if we were 

going to do it, then that’s the way I would think we should do it. 

Senator SANDERS. That’s a very interesting discussion for another time. 

I just wanted to ask Mr. Sherk—you heard what Senator Alexander said. If Senator Alexander brought forth a bill to abolish the 

minimum wage, what would you recommend? 

Mr. SHERK. I believe the minimum wage hurts its intended beneficiaries, and I think that’s—it has not—I do not support the concept of the minimum wage. 

Senator SANDERS. I appreciate your honesty. Thank you. 

The CHAIRMAN. Well, if I can reclaim my time—— 

[Laughter.] 

Senator ALEXANDER. Welcome back to your own hearing, right? 

[Laughter.] 

60 

The CHAIRMAN. Again, this is where we’re getting into numbers, 

Mr. Sherk. I had my staff run the same numbers as you have on 

this hypothetical person in Des Moines, IA. They’re not the same, 

and here’s why. You are using a figure from 2008—child care subsidies. Those have been updated since 2008. 

So using your same figures, using the same hypothetical person, 

you have calculated that she loses $700 a month in the child care 

costs. That’s what you show. 

Mr. SHERK. It was $528 a month, I believe, $528 in child care 

subsidies. 

The CHAIRMAN. No, no—— 

Mr. REICH. Senator Harkin, if I could interject, he’s only talking 

about the phase-out. There’s also the phase-in, and the earned income tax credit helps workers on the phase-in part. I think that’s 

what Senator Alexander is referring to. It becomes a wage subsidy. 

More people work as a result of the earned income tax credit. But 

I guess I’ll wait until—— 

The CHAIRMAN. Mr. Sherk, we can dance on the head of a pin 

on this. But you show a $528 subsidy, but you say her costs are 

$700 a month. 

Mr. SHERK. I apologize for the confusion. These numbers—— 

The CHAIRMAN. I’m not going to let this go. I’m not going to let 

this go. You show $700 per month in costs on child care, but she 

gets $528. In your example, she loses that. She loses $528. 

However, we checked with the Iowa Department of Human Services, and they showed that her child care costs will still be heavily 

subsidized because the law changed. And it will increase from $8 

a month to $128 per month, even if her salary goes to $10.10 an 

hour. 

So that’s the problem, again, with using figures and not basing 

it upon updated statistics and laws that get changed. You used 

2008. Well, maybe in 2008, that was right. But it’s not right today. 

It’s different. So I ask you to go back and look at the updated child 

care costs in Iowa and re-run those figures and bring them back 

to us. 

Mr. SHERK. Senator, I would happily do so. 

I used the Urban Institute’s net income change calculator, because—— 

The CHAIRMAN. Well, they’re wrong. 

Mr. SHERK [continuing]. Because I know that you might doubt 

numbers I would produce at Heritage. But I think I can say with 

confidence that no one will accuse the Urban Institute of having 

conservative sympathies. But I’m happy to investigate their numbers in case they made a mistake. 

The CHAIRMAN. If the Urban Institute was using 2008 figures, 

they’re wrong. They’re just simply wrong. 

Well, I guess I haven’t completely gone over my time yet. But it 

seems like—and we do have a fundamental difference. Some people 

believe there shouldn’t be a minimum wage. Some people believe 

there should be. I think it’s been well settled in this country for a 

long time that we do have a minimum wage, and the arguments 

in the past have been how much do we raise it and by how much. 

61 

I think when we come back to this, it just seems to be fundamental that work has dignity. People would rather work than to 

get a government program. 

And, yes, we have a social safety net to help people in dire circumstances, but it always occurred to me that if we keep increasing the earned income tax credit or whatever other benefits, we’re 

simply having government subsidize different businesses out there. 

They can still make their profits and pay shareholders a lot of 

money and pay their executives a lot of money, but then the government is picking up everything else on the other side. That’s just 

one aspect of it. 

The other aspect is the dignity aspect of work. You either believe 

that work has dignity or it doesn’t. Now, if you believe it doesn’t, 

well, then, fine. That’s your own philosophy. I think most people 

believe there is dignity in work, and if there’s dignity in work, then 

there has to be enough compensation, I think Bishop Blaire said, 

where you are dignified in that work. 

The problem I’ve had with lowering minimum wages or doing 

away with minimum wages is that there’s always some poor person 

out there that’s willing to work for less than you are. There’s always somebody out there that will take that job with less wages, 

because their circumstances are so dire and they’re in such bad 

shape, they’ll undercut you because they have to have it, no matter 

what. 

So what you do is you have this contest which is what I’ve always called the fight between capital and labor. Yes, capital should 

have a return. Capital should have a return, but at the expense of 

labor. What is a fair division between capital and labor? And that’s 

where, I think, we’ve gone out of whack in this country. 

We were on it for a long time. In the 1940s, 1950s, 1960s, 1970s, 

there seemed to be a pretty fair division between labor and capital. 

In the last 30 years, capital has gotten everything, and labor practically gets nothing. And that’s the situation we find ourselves in 

today. 

Labor needs a fair share of capital, of the money, than what it’s 

getting today. One way that we can do that is by raising the minimum wage and ensuring that work does have dignity and that you 

get paid enough to have some dignity in that work. 

I know we can talk about hypothetical situations and all these 

studies and stuff. But just ask the people who were at the White 

House this morning. I never talked to them. But just go out and 

talk to people who work on these jobs. They work hard. These people who work in these fast food services—women stand on their 

feet all day. This is hard work. 

The next time you go to one of these busy McDonald’s or something, just watch somebody there. They’re moving all the time. 

They don’t get too many breaks. They work hard. And yet they 

don’t get—I don’t think they get compensated for the dignity of 

their work and what they’re contributing to our society. 

Well, that’s just my philosophy, and we’ll have our philosophical 

differences here, I know, on this committee, and that’s all well and 

good. We can have our philosophical differences. But it seems to me 

that at some point, we need to make a decision. Are we going to 

move ahead and increase the minimum wage so that it keeps up 

62 

and it gets its fair share of capital, or are we just going to say, ‘‘No, 

we’re not?’’ 

I think the vast majority of the American people, and even businesses, too, recognize that we need to increase the minimum wage. 

So we’ll continue to have these hearings, and I don’t know how 

many hearings we’ll have. We’re going to have to mark up the bill 

sometime, I hope. I don’t know when. 

Well, listen, I went ahead and gave my remarks. I’ll be glad to 

yield to anybody else that wants to add something, Senator Alexander. 

Thank you all very, very much. I think you’ve added greatly to 

our hearings, and we’ll continue to look at this subject, and, hopefully, we’ll have a bill ready to go sometime this year. 

Thank you very much. 

[Additional material follows.] 

63 

ADDITIONAL MATERIAL 

STUDIES THAT SHOW THE NEGATIVE ECONOMIC EFFECTS OF INCREASING

THE MINIMUM WAGE

• Minimum Wages and Employment: A Review of Evidence from the New Minimum Wage Research (2006) 

• Authored by David Neumark, Professor of Economics at University of California at Irvine and William Wascher, Economist, Board of Governors of the 

Federal Reserve System. The study was updated in 2013. • The study compared over 100 minimum wage studies published since the 

1990s. • Nearly 2⁄3 of the studies found negative employment effects of minimum 

wages while only eight studies found positive effects. • 85 percent of the ‘‘most credible’’ studies showed negative employment effects, 

which were most pronounced in studies of less-skilled employee groups. • Studies showing positive employment effects generally relied on a monopsony 

economic model, which is based on the dubious economic assumption of an upward-sloping labor supply curve. 

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

• Authored by William Even, Economics Professor, Miami University and David 

McPherson, Economics Professor, Trinity University. • The study uses 600,000 data observations from 1994–2010, including a large 

sample of minority young adults. • The study focuses on 16- to 24-year-old males without a high school diploma, 

a group that are particularly susceptible to wage mandates. 

• Among white males in this group, the authors found that each 10 percent increase in a Federal or State minimum wage decreased employment by 2.5 

percent; for Hispanic males, the figure is 1.2 percent. But among black males 

in this group, each 10 percent increase in the minimum wage decreased employment by 6.5 percent. • In looking at the States that increased their minimum wages from 2007–9, 

the authors found: Approximately 13,200 black young adults in these States 

lost their job as a direct result of the recession; 18,500 lost their job as a result of the Federal wage mandate—nearly 40 percent more than the recession. 

• Analysis of Proposals to Increase the Minimum Wage (2013) 

• Authored by Mark Wilson, vice president and chief economist, H.R. Policy Association. • The study found that increase the minimum wage to $10.10 would potentially 

cost $42.6 billion per year. Increasing the minimum wage to the President’s 

plan of $9.00 would cost $17.7 billion per year. 

• The potential costs are based strictly on the increased amount of wages employers would be forced to pay hourly wage earners. The study’s projected 

costs assume that increases would not have a negative effect on employment. 

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

• Authored by James Sherk, Senior Policy Analyst in Labor Economics, The 

Heritage Foundation. 

• The study found that based on data from the Bureau of Labor Statistics and 

the Census Bureau, most minimum wage earners are young, part-time workers. Thus, raising the minimum wage would do little to help the working 

poor. 

• Seventy-five percent of older workers (over the age of 24) earning the minimum wage live above the poverty line and have an average family income 

of $42,500 per year. 

RESPONSE BY HON. SETH D. HARRIS TO QUESTIONS OF SENATOR HARKIN, 

SENATOR ALEXANDER, SENATOR ISAKSON, AND SENATOR SCOTT

SENATOR HARKIN

Question. Mr. Harris, as you know, I have introduced legislation, the Fair Minimum Wage Act, to raise the minimum wage to $10.10 an hour, index the minimum 

wage to inflation, and raise the minimum wage for tipped workers to 70 percent of 

the regular minimum wage. Does the President support my efforts to raise the minimum wage? 

64 

Answer. The Administration has long supported raising the minimum wage so 

hard-working Americans can earn a decent wage for a day’s work to support their 

families and make ends meet and strongly supports this legislation. 

SENATOR ALEXANDER

Question 1a. At the hearing, I asked about the Letter of Interpretation by the Occupational Safety and Health Administration (OSHA) that permitted union representatives to accompany OSHA inspectors during walk-around inspections of a 

non-union worksite. I noted that the Letter of Interpretation conflicts with OSHA’s 

own regulations. 

The regulations state in full: 

‘‘The representative(s) authorized by employees shall be an employee(s) of the 

employer. However, if in the judgment of the Compliance Safety and Health Officer, good cause has been shown why accompaniment by a third party who is 

not an employee of the employer (such as an industrial hygienist or a safety 

engineer) is reasonably necessary to the conduct of an effective and thorough 

physical inspection of the workplace, such third party may accompany the Compliance Safety and Health Officer during the inspection.’’ 29 CFR §1903.8(C). 

How does the Letter of Interpretation comply with the regulation? 

Answer 1a. OSHA’s regulations allow compliance officers to permit third parties 

to be walk-around representatives in order to make a positive contribution to a thorough and effective inspection. Specifically, 29 CFR 1903.8(a)–(d), allows the compliance officer significant discretion as to who participates in inspections. Although 

section 1903.8(c) states the general rule that walk-around representatives ‘‘shall be’’ 

employees of the employer, it explicitly allows walk-around participation by an employee representative who is not an employee of the employer when, in the judgment of the OSHA compliance officer, such a representative is ‘‘reasonably necessary 

to the conduct of an effective and thorough physical inspection.’’ 

Worker participation in OSHA inspections is vital to a thorough and effective inspection. The February 21, 2013 letter clarifies that allowing non-employee thirdparty representatives (such as a community group) to accompany OSHA inspectors 

on walk-around inspections, if designated by workers at the worksite, is consistent 

with Section 8(e) of the OSH Act which provides that, 

‘‘[s]ubject to regulations issued by the Secretary, a representative of the employer and a representative authorized by his employees shall be given an opportunity to accompany the Secretary or his authorized representative during 

the physical inspection of any workplace . . . for the purpose of aiding such inspection.’’ 29 U.S.C. §657(e). 

Question 1b. The Letter of Interpretation makes the limited regulatory exception 

the rule. 

Do you agree that under the new policy, as long as a single employee selects a 

union official as the employees’ representative, an employer must recognize the selection and an OSHA inspector must allow the representative to accompany them 

on a walk-around inspection? 

Answer 1b. Allowing non-employee third-party representatives to accompany 

OSHA inspectors on walk-around inspections is not a new OSHA policy. OSHA has 

traditionally interpreted this language to make plain that, subject to some limitations, it is up to the employees to choose a representative who will accompany the 

Compliance Safety and Health Officers (CSHO) during a workplace inspection. It is 

important to note that this representation is only for purposes of participating in 

the inspection; nothing in OSHA’s policy requires an employer to ‘‘recognize’’ the 

representative for any other purpose. 

Question 2. During the hearing, it was pointed out that several companies, including Costco and Starbucks, support increasing the minimum wage. In response, you 

claimed that such businesses support minimum wage increases because they increase the purchasing power of consumers earning the minimum wage, which supplies ‘‘more money for businesses to grow.’’ You further claimed that ‘‘responsible 

businesses,’’ which you define as paying a ‘‘fair’’ and ‘‘responsible’’ wage, are being 

undercut by employers who pay the minimum wage. But Costco and Starbucks, both 

of which are large corporations, already pay above the minimum wage. 

Isn’t it true that increasing the minimum wage would increase labor costs for 

startups and other small businesses instead of Costco and Starbucks? 

Isn’t it also true that what you characterize as ‘‘responsible businesses’’ are actually asking the Federal Government to pick winners and losers by imposing higher 

65 

1http://www.bls.gov/oes/current/oes353031.htm. 2http://www.bls.gov/oes/current/oesltec.htm. 

labor costs on their smaller competitors, thereby placing them at a competitive disadvantage? 

Answer 2. Prior to the hearing, I had the opportunity to speak with a group of 

small business owners who shared with me a March 2013 poll conducted on behalf 

of Small Business Majority, an advocacy group founded and run by small business 

owners. That poll found that more than two-thirds of small business owners support 

increasing the minimum wage and adjusting it annually to keep up with the cost 

of inflation. Eighty-five percent of small business owners surveyed pay all of their 

employees more than the minimum wage. The two cited benefits by survey participants include an increased demand for small businesses’ goods and services and decreased pressure on taxpayer-financed government assistance. 

Question 3. You suggested that the tip credit of $2.13 per hour is too low under 

current law, and that the tip credit causes restaurant patrons to ‘‘subsidize’’ an employer’s wages paid to its workers instead of merely rewarding those workers for 

good service. 

According to the National Restaurant Association, the median hourly earnings re- ceived by servers nationwide range from $16 for entry-level servers to $22 for more 

experienced servers. Thus, the median hourly wage for a server ranges from more 

than double to more than triple the current minimum wage of $7.25, and far exceeds even the increase proposed in the Fair Minimum Wage Act of 2013. 

Do you oppose the concept of the tip credit and would you support abolishing it? 

Why do you support increasing the tip credit given that servers already earn substantially more than other minimum wage workers, including non-tipped employees 

in restaurants? 

Isn’t it true that by increasing the tip credit for servers with median hourly wages of $16 to $22, you would be encouraging greater income inequality between tipped 

servers and non-tipped workers in restaurants? 

Is increased income inequality an acceptable policy outcome in your view? 

You noted that the Department of Labor does not collect data on tipped workers, 

yet you contend raising the tip credit will not result in negative employment effects. 

What evidence do you have that supports this? 

Answer 3. The Bureau of Labor Statistics administers the Occupational Employment Statistics (OES) program, which surveys establishments to produce employment and wage estimates annually for over 800 occupations, including waiters and 

waitresses (35–3031). According to the latest BLS estimates, the median hourly 

wage for the over 2.3 million jobs in this occupational category is $8.92 per hour.1

OES defines ‘‘wage’’ to include tips.2 Ninety percent of waiters and waitresses earn 

less than $14.19 per hour. The estimated median annual wage for the workers in 

this occupation is only $18,540 and presents no risk of increasing inequity if they 

realize a modest increase in the employer direct-wage payment required by the 

FLSA. 

For workers who earn most of their wages through tips, the wage their employers 

are required to pay them has not been raised since 1991—22 years ago. The 1996 

amendments to the FLSA froze the minimum direct wage that employers utilizing 

the tip credit are required to pay tipped workers when it set the direct wage payment at no less than 50 percent of the 1996 minimum wage (i.e., $2.13 per hour). 

Question 4. In June, a Federal judge in Oregon enjoined the Department of Labor 

from enforcing its 2011 regulations regarding tip-pooling against the three State 

restaurant associations and their members, and the National Restaurant Association and its members. Does the Department of Labor plan to refrain from enforcing 

the tip-pooling regulation nationwide? 

Answer 4. In Oregon Restaurant and Lodging Assn., et al. v. Solis, F. Supp. 2d, 

2013 WL 2468298 (D. Or. 2013), the U.S. District Court for the District of Oregon 

declared the Department’s 2011 regulations that limit an employer’s use of its employees’ tips when the employer has not taken a tip credit against its minimum 

wage obligations to be invalid. As a result of that decision and the judgment entered 

in that case, at least until the resolution of any appeal that may be taken, the Department is prohibited against enforcing those tip-retention requirements against 

plaintiffs (which include several associations, one restaurant, and one individual) 

and members of the plaintiff associations that can demonstrate that they were a 

member of one of the plaintiff associations in this litigation on June 24, 2013. The 

plaintiff associations in the Oregon litigation were the National Restaurant Association, Washington Restaurant Association, Oregon Restaurant and Lodging AssociaVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00069 Fmt 6633 Sfmt 6621 S:\DOCS\20296.TXT DENISE
66 

tion, and Alaska Cabaret, Hotel, Restaurant, and Retailer Association. In addition, 

although the decision and judgment do not require this, as a matter of enforcement 

policy, the Department has decided that it will not enforce its tip-retention requirements against any employer that has not taken a tip credit in jurisdictions within 

the Ninth Circuit while the Federal Government considers its options. The Ninth 

Circuit has appellate jurisdiction over the States of California, Nevada, Washington, 

Oregon, Alaska, Idaho, Montana, Hawaii, and Arizona; Guam; and the Northern 

Mariana Islands. In investigations that do not meet these criteria, the Department 

will continue to enforce its longstanding policy that tips are the property of the employee, regardless of whether the employer takes a tip credit. 

Question 5a. At the hearing, you stated that the Department of Labor is taking 

the comments of the Medicaid community ‘‘very, very seriously’’ regarding the proposed rule greatly narrowing the companionship exemption under the Fair Labor 

Standards Act. 

What percentage of the comments from State Medicaid groups raises concerns 

about the proposed rule? 

Answer 5a. A significant number of comments were received on the Department’s 

proposed rule, including a few from State program offices for services for elderly 

persons and persons with disabilities as well as from the National Association of 

Medicaid Directors representing the Nation’s 56 State and territorial Medicaid agencies. Comments from State agencies focused on the impact of the proposed rule on 

delivery of publicly funded support services and State budgets. 

Question 5b. Have you met personally with any State Medicaid groups regarding 

the proposed rule? If so, please identify those groups. 

Answer 5b. No; however, the Department reached out directly to State Medicaid 

directors to talk with them to make certain that we understood their programs. In 

June 2012, the Department’s Wage and Hour Division held a call jointly with the 

Centers for Medicare & Medicaid Services in which we invited all State Medicaid 

Directors to participate. Over 38 State Medicaid program representatives from 26 

States participated in that discussion about their programs. See Attachment A for 

a list of participants. 

In addition, while the rule was under consideration at OMB, State Medicaid Directors met with the Administration and DOL officials (pursuant to the E.O. 12866 

process) to discuss their concerns. 

Question 6a. At a House Appropriations hearing in April, you testified regarding 

the Office of Federal Contract Compliance Programs proposed rule that sets a 7 percent quota for disabled individuals working for Federal contractors. You pointed out 

that the Department of Labor is exceeding the President’s Executive Order requiring Federal agencies to have at least 5 percent of their workforce be individuals 

with disabilities. You said, as of October 2011 disabled individuals made up 11 percent of the Department of Labor’s workforce. 

How did the Department of Labor collect the statistics on individuals with disabilities? 

Answer 6a. It is important to clarify that in its Notice of Proposed Rulemaking 

(NPRM) regarding section 503 of the Rehabilitation Act of 1973, the Office of Federal Contract Compliance Programs proposed setting a 7 percent utilization goal for 

Federal contractors. The utilization goal is an aspirational workforce goal that 

would apply to individuals with disabilities. The proposed goal, derived from disability employment data in the Census Bureau’s American Community Survey, 

would provide Federal contractors with a quantifiable means to measure their success in recruiting qualified individuals with disabilities, and assist contractors in 

identifying workplace barriers to equal opportunity. As the NPRM states, the proposed goal is not a quota and a contractor’s failure to meet it would not, by itself, 

constitute a violation of law. 

DOL ran workforce reports based on employee completion of the SF–256, SelfIdentification of Disability form and identified the number of Disabled Veterans (30 

percent or more). 

On July 17, 2012, DOL’s Assistant Secretary for Administration and Management 

and the Assistant Secretary for the Office of Disability Employment Policy issued 

a DOL-wide memorandum announcing a ‘‘Disability Census’’ in August. The communication encouraged employees to review and update their identified disability status as appropriate, and in August, 371 employees updated their disability status. 

Question 6b. Does the 11 percent contain only new and existing hires? 

Answer 6b. The 11 percent was the percentage of employees with disabilities in 

the executive branch as reported by the Office of Personnel Management. DOL’s 

67 

percentage of disabled employees in its workforce was 10.35 percent as of September 

30, 2011. The percentage of disabled employees in the DOL workforce was 12.74 

percent as of September 30, 2012. 

Question 6c. Did the Department of Labor ask existing hires (those hired prior 

to the Executive order) to update their disability status? 

Answer 6c. The July 2012 communication about the DOL Disability Census was 

sent to all DOL employees. 

Question 6d. Can you provide the number of individuals with disabilities hired by 

the Department of Labor since Executive Order 13548 was issued on July 26, 2010 

and provide the disability classifications for those individuals, pursuant to the Office 

of Personnel Management Standard Form 256? Do not include any identifying or 

personal information of Department of Labor employees. 

Answer 6d. Since July 26, 2010, the Department has hired 3,650 permanent employees. Of this total, 483 permanent hires self-identified as having a disability. In 

addition there were 271 permanent Disabled Veterans with 30 percent or more compensable disabilities hires that self-identified not having a disability or not wishing 

to disclose a disability. Together, these permanent hires represented 20.7 percent 

of the Department’s permanent hires. See Attachment B. 

Question 6e. Did the Department of Labor train its staff before they collected data 

from existing employees regarding their disabilities? 

Answer 6e. No. However, DOL employees received e-mail instructions on how to 

update their disability status electronically as part of the DOL Disability Census in 

August 2012. As a result, 371 DOL employees updated their own disability status. 

No DOL staff ‘‘collected data’’ from other employees. 

Question 6f. Were they provided training packets or other materials? If so, please 

provide a copy of those training packets or other materials. 

Answer 6f. Attachments C–F are copies of the communications issued to DOL employees. 

Attachments 

ATTACHMENT A 

FTS–DOL ESA WH Conference Call—Mr. Michael Hancock-Conference Leader 

June 26 2012 @ 2 PM CT—Confirmation # 4912550 

First name Last name State State agency or organization 

1 ...... Jospeh .................... Breen ..................... NC ....... Division of Medical Assistance. 

2 ...... Kathy ...................... Bruni ...................... CT ....... Dept. of Social Services. 

3 ...... Marcus ................... Canaday ................. WVA .... Bureau for Medical Svcs. 

4 ...... Cecilia .................... Cowie ..................... MT ....... Dept. of Public Health & Human Services. 

5 ...... Barb ....................... Edwards ................. MD ...... Centers for Medicare & Medicaid. 

6 ...... Kristin .................... Edwards ................. MO ...... MO Health Net Division. 

7 ...... Merle ...................... Edwards ................. VT ....... Dept. of Disability Aging and Independent Living. 

8 ...... Mary ....................... Ellen Wright ........... KS ....... Department of Health. 

9 ...... Jeffrey .................... Greer ...................... CA ....... Dept. of Developmental Svcs. 

10 .... Tami ....................... Harlan .................... AR ....... Dept. of Human Services Division of Medical Services. 

11 .... Richard .................. Henley .................... LA ....... Dept. of Health and Hospitals. 

12 .... Rick ........................ Hepfer .................... SC ....... Dept. of Health & Human Services. 

13 .... Lisa ........................ Hettinger ................ ID ........ ID Medicaid. 

14 .... Glenda ................... Higgs ..................... AR ....... DHS Medicaid. 

15 .... Heather .................. Hill ......................... MI ....... Medicaid. 

16 .... Patti ....................... Killingsworth .......... TN ....... Zero of Tencare. 

17 .... Karen ..................... Kimball .................. NH ....... Dept. of Health & Human Services. 

18 .... Glen ....................... Larsen .................... UT ....... Bureau Community Based Services. 

19 .... Helen ...................... Leonard .................. VA ....... Dept. of Medical Assistance Services. 

20 .... Barbara .................. Lewis ...................... DE ....... Medicad and Medical Assitance. 

21 .... Mary Jo .................. Littlewood .............. NC ....... The Division of Aging & Adult Services. 

22 .... Nancy ..................... Maier ...................... ND ....... ND Medicaid. 

23 .... Jeane ...................... Maitland ................ IN ........ Office of Medcaid Policy & Planning. 

24 .... Andrea ................... Maresca ................. DC ....... National Association of Medcaid Directors. 

25 .... Nichole ................... Martin .................... VA ....... Dept. of Medical Assistance. 

26 .... Laura ..................... McClintock ............. WA ...... DOL. 

68 

FTS–DOL ESA WH Conference Call—Mr. Michael Hancock-Conference Leader—Continued 

June 26 2012 @ 2 PM CT—Confirmation # 4912550 

First name Last name State State agency or organization 

27 .... Tammy ................... Moffitt .................... NV ....... Division of Healthcare Financing & Policy. 

28 .... Lou Ann ................. Owen ...................... LA ....... LA Dept. of Health & Hospitals. 

29 .... Connie .................... Parker .................... AR ....... Dept. of Human Services & Aging. 

30 .... Kevin ...................... Patterson ............... MD ...... Medicaid. 

31 .... Laura ..................... Randles-Little ........ CA ....... CA Dept. of Social Services. 

32 .... Greg ....................... Rodriguez ............... CA ....... Dept. of Social Services. 

33 .... Don ........................ Ross ....................... OR ....... Division of Medical Assistance Programs Medicaid. 

34 .... John ....................... Shen ....................... CA ....... Dept. of Health care services. 

35 .... Roy ......................... Smith ..................... SC ....... Dept. of HHS. 

36 .... Jami ....................... Snyder .................... AZ ....... AZ Healthcare Cost Containment System Access. 

37 .... Diane ..................... Stahle .................... IA ........ Attorney General’s Office. 

38 .... Jamie ..................... Staunton ................ WY ...... Dept. of Health. 

39 .... Michael .................. Stickler ................... OR ....... Dept. of Human Svcs. 

40 .... Jarrod ..................... Terry ....................... MD ...... MD Dept. of Health. 

41 .... Megan .................... Uzzell ..................... Federal Dept. of Labor. 

69 

ATTACHMENT B 

Disability code No. of 

DOL hires 

1 ..................................................................................................................................................................................... 35 

5 ..................................................................................................................................................................................... 236 

6 ..................................................................................................................................................................................... 109 

13 ................................................................................................................................................................................... 2 

15 ................................................................................................................................................................................... 42 

18 ................................................................................................................................................................................... 3 

21 ................................................................................................................................................................................... 3 

22 ................................................................................................................................................................................... 16 

24 ................................................................................................................................................................................... 1 

26 ................................................................................................................................................................................... 2 

27 ................................................................................................................................................................................... 1 

30 ................................................................................................................................................................................... 2 

40 ................................................................................................................................................................................... 22 

41 ................................................................................................................................................................................... 8 

44 ................................................................................................................................................................................... 55 

45 ................................................................................................................................................................................... 2 

46 ................................................................................................................................................................................... 1 

47 ................................................................................................................................................................................... 2 

48 ................................................................................................................................................................................... 1 

49 ................................................................................................................................................................................... 5 

51 ................................................................................................................................................................................... 3 

57 ................................................................................................................................................................................... 6 

61 ................................................................................................................................................................................... 5 

64 ................................................................................................................................................................................... 1 

65 ................................................................................................................................................................................... 1 

69 ................................................................................................................................................................................... 8 

70 ................................................................................................................................................................................... 10 

79 ................................................................................................................................................................................... 1 

82 ................................................................................................................................................................................... 4 

83 ................................................................................................................................................................................... 7 

84 ................................................................................................................................................................................... 46 

86 ................................................................................................................................................................................... 27 

87 ................................................................................................................................................................................... 1 

88 ................................................................................................................................................................................... 13 

90 ................................................................................................................................................................................... 4 

91 ................................................................................................................................................................................... 30 

92 ................................................................................................................................................................................... 2 

93 ................................................................................................................................................................................... 2 

94 ................................................................................................................................................................................... 25 

95 ................................................................................................................................................................................... 10 

Total Hires ................................................................................................................................................................. 754 

Please note that some of the codes listed above were abolished and moved to other codes consistent with the July 2010 revised SF–256. 

This systems change was effective on June 5, 2011. Currently, all disability codes align with the SF–256, revised July 2010. 

70 

ATTACHMENT C 

From: Michael Kerr Public—ASAM 

Sent: Tuesday, July 17, 2012 6:29 PM 

Subject: Memorandum for All DOL Federal Employees—2012 DOL Disability 

Census 

Attachments: Memorandum for All DOL Federal Employees—2012 DOL Disability 

Census (7–17–12).pdf 

This message is intended for all DOL Federal employees 

From: T. Michael Kerr, Assistant Secretary for Administration and Management 

Kathy Martinez, Assistant Secretary for Disability Employment Policy 

Shortly, the Department will launch the 2012 DOL Disability Census. All DOL 

employees are encouraged to review and update their disability status. You may do 

so via your Employee Personal Page (EPP) at: https://www.nfc.usda.gov/personal/ 

eplogin.aspx (please click on ‘‘ERI, Gender, & Disability’’ and select the ‘‘self-service’’ 

button to make changes). Alternatively, you can complete the attached Standard 

Form 256 (Form 256 ‘‘Self Identification of Disability’’) and provide the completed 

form to your servicing personnel office. 

Please review the choices on the front of the form. While you may not consider 

yourself disabled, you may have a disability. Please also note that, as the form 

states, your personal responses will remain confidential and will not become part 

of your official personnel records. 

Two years ago, President Obama signed Executive Order 13548, Increasing Federal Employment of Individuals with Disabilities, which requires Federal agencies 

to improve their efforts in the recruitment, hiring and retention of individuals with 

disabilities. Led by the Secretary DOL has engaged in the following activities: 

• Increased training for managers about special hiring authorities for persons 

with disabilities; 

• Enhanced outreach and networking relationships with external organizations 

that promote the employment of individuals with disabilities; 

• Increased use of specific recruitment tools (e.g., the Bender List) among human 

resources professionals to find qualified applicants with disabilities for an array of 

positions; 

• Increased awareness and promotion of the Department’s Reasonable Accommodation Resource Center (RARC), which provides sign language interpretation, document production in Braille, and other forms of assistive technology to help improve 

and adapt the physical, technical, and recreational environments of employees with 

disabilities; and 

• Increased resources to support applicants and employees with disabilities with 

employment inquiries. 

There is still room for improvement. The Secretary’s commitment to EO 13548 is 

ongoing. There is considerable interest in ensuring that employees are receiving the 

support needed to be successful and to be able to contribute fully within the work 

environment. Updating individual disability information is, as the Form 256 states. 

‘‘the essential first step in improving these conditions and consequently meeting the 

requirements of the Rehabilitation Act.’’ This is especially important considering 

that one’s disability status may change during one’s career. 

Thank you. 

71 

ATTACHMENT D 


20296-3.eps 20296-4.eps
72 

ATTACHMENT E 

From: Michael Kerr Public—ASAM 

Sent: Monday, August 06, 2012 2:46 PM 

Subject: Status of the 2012 DOL Disability Census 

Attachments: Status of the 2012 DOL Disability Census (8–6–12).pdf 

This message is intended for all DOL Federal employees 

From: T. Michael Kerr, Assistant Secretary for Administration and Management 

Kathy Martinez, Assistant Secretary for Disability Employment Policy 

By now, you know that last week we officially launched our 2012 DOL Disability 

Census on LaborNet. We weren’t sure how many employees needed to update their 

disability codes, but we wanted to ensure that our data was as accurate as it could 

be. We are very happy that we made this effort a priority. At the end of our first 

week, nearly 300 employees updated their disability status. We will keep the 

LaborNet banner up all month to remind you to make any updates if you haven’t 

yet. 

Thank you those of you that have already updated your disability status and/or 

provided us with feedback. We received several comments about the current form 

and the Employee Personal Page (EPP) not allowing employees to make more than 

one disability code designation. We have discussed this concern with OPM, and they 

are working on a revision that allows for this in the future. We will keep you apprised of their progress. Finally, we wanted to communicate that we appreciate your 

feedback and are pursuing your ideas and concerns as best we can. 

Thank you for helping us to ensure employees and applicants are receiving the 

support needed to be successful at work. 

73 

ATTACHMENT F 

SENATOR ISAKSON

Question 1. Several years ago, the construction industry came together with labor 

unions, in coordination with DOL, to develop the Crane and Derrick Standard to 

protect the American workforce from being killed or seriously injured by crane accidents. The Department has recently indicated that it intends to delay the implementation of this standard. Why, with the development of regulation with a 4-year 

phase in period and nearly unanimous consensus from stakeholders, would you consider the delay of the compliance deadline for this rule? 

Answer 1. OSHA published the Cranes and Derricks standard in 2010, and most 

of the provisions are currently in effect, including provisions to ensure power line 

safety, safe ground conditions, regular inspection and repair, and keeping workers 

away from overhead loads. However, after the final standard was published, the 

Agency heard from members of the crane industry, including members of the original advisory committee, that there was considerable confusion about OSHA’s crane 

operator qualification requirements, specifically concerning the requirement that operators be certified by ‘‘type and capacity’’ of crane, as well as concerns that operator 

certification alone may not provide sufficient safety. OSHA heard this message in 

public and private meetings as well as in public stakeholder meetings on April 2 


20296-5.eps
74 

3http://www.osha.gov/cranes-derricks/Meetinglnotes.html. 4http://www.osha.gov/cranes-derricks/stakeholders.html. 

and 3 of this year. The notes from the stakeholder meetings are posted on OSHA’s 

Web site.3

As a result, OSHA has announced that it intends to extend for 3 years the date 

of enforcement for two provisions of the final cranes standard. OSHA will extend 

for 3 years the deadline for crane operators to be certified. To ensure that crane operators are qualified to operate the equipment during this period, OSHA will also 

extend for 3 years the employer’s current duty to ensure that crane operators are 

competent to safely operate equipment. Employers have long held this duty under 

OSHA’s construction standards. 

Quesstion 2. What concerns and stakeholders have caused the Department to consider delaying the compliance date which the crane industry so strongly supported? 

Answer 2. A number of stakeholders expressed the concerns described above. A 

list of participants in our stakeholder meetings, as well as their written comments 

and notes that describe their concerns can be viewed in OSHA’s Crane Operator 

Certification Requirements Web page.4

SENATOR SCOTT

The significant policy shift represented by OSHA’s February 21, 2013 Letter of 

Interpretation regarding the accompaniment of OSHA inspectors by third parties on 

walk-around inspections is of great concern for a number of reasons. 

Question 1. This Letter of Interpretation (LOI) seems to have been issued with 

great haste and without any public input. Why did OSHA decide to pursue a significant change in OSHA practice and policy via a closed process (Letter of Interpretation) rather than the more open and deliberative process a rulemaking affords? 

Do you not agree that the opportunity for stakeholders to offer their input is of 

great importance? 

Answer 1. OSHA fully agrees that stakeholders should have the opportunity to 

offer input when OSHA is pursuing significant changes in practice and policy. Allowing non-employee third-party representatives to accompany OSHA inspectors on 

walk-around inspections, however, is not a new OSHA policy. The February 21, 

2013 Letter of Interpretation was not a significant change of OSHA practice or policy, but a clarification of existing OSHA policy. Therefore, notice and comment were 

not required by the Occupational Safety and Health Act or by the Administrative 

Procedures Act. 

Question 2. Please explain how allowing third parties, such as union organizers, 

to accompany OSHA inspectors into non-unionized facilities does not violate the 

Field Operations Manual, which gives inspectors clear instructions to remain neutral in any labor dispute? 

The Manual reads: 

‘‘During the inspection, Compliance Safety and Health Officers will make 

every effort to ensure that their actions are not interpreted as supporting either 

party to the labor dispute.’’ 

Answer 2. OSHA’s Field Operations Manual clearly instructs OSHA Area Directors to thoroughly assess the credibility and veracity of any complaint filed during 

a labor dispute and states that ‘‘During the inspection, CSHOs will make every effort to ensure that their actions are not interpreted as supporting either party to 

the labor dispute.’’ The Field Operations Manual also instructs CSHO’s to ‘‘ensure 

that employee representatives are afforded the opportunity to participate in all 

phases of the inspection.’’ OSHA management and staff are trained to comply with 

the Field Operations Manual and are required to follow its directions. 

OSHA inspectors are instructed and trained to ensure that the focus of all participants in its inspections is on worker safety and health. The walk-around regulations 

as a whole provide numerous safeguards to allow CSHOs to maintain this focus, and 

to make sure that walk-around representatives do not engage in disruptive behavior. 

Question 3. The question of the neutrality of inspectors will inevitably manifest 

itself and will subvert the safety focus of these inspections. The inclusion of these 

third parties also has the potential to invite opportunities for unions and other 

groups to advance their agendas against an employer. How is this in the best interest of workers’ long-term safety? 

75 

Answer 3. Worker participation in OSHA inspections is vital to a thorough and 

effective inspection. OSHA’s regulations allow compliance officers to permit third 

parties to be walk-around representatives in order to make a positive contribution 

to a thorough and effective inspection. 

Question 4. What liability protections will be afforded to employers for having 

third parties who lack requisite safety training or clearance to be around sensitive 

(not classified) information in their facilities? Who is legally responsible if the third 

party is injured? Can criminal background checks be run on these third party representatives? 

Answer 4. This is not a new policy for OSHA. However, 29 CFR 1903.8(d) states 

that: 

‘‘Compliance Safety and Health Officers are authorized to deny the right of 

accompaniment under this section to any person whose conduct interferes with 

a fair and orderly inspection.’’ 

Section 1903.9(d) allows an employer to limit entry to an area containing trade 

secrets to authorized representatives who are authorized by the employer to enter 

that area. Nothing in OSHA’s February 21, 2013, letter affects either of these rules. 

Question 5. The LOI fails to address the experience or qualifications required of 

third parties who might be selected to accompany OSHA inspectors, which is in direct contrast to OSHA regulations suggesting third parties who accompany inspectors in the limited cases the regulation affords should be safety engineers or industrial hygienists. Does OSHA plan to stipulate any specific criteria here? 

Answer 5. OSHA’s regulations allow CSHOs to permit third parties to be walkaround representatives in order to make a positive contribution to a thorough and 

effective inspection. Specifically, 29 CFR 1903.8(a)–(d), allow the compliance officer 

significant discretion as to who participates in inspections. Although section 

1903.8(c) states the general rule that walk-around representatives ‘‘shall be’’ employees of the employer, it explicitly allows walk-around participation by an employee representative who is not an employee of the employer when, in the judgment of the OSHA compliance officer, such a representative is ‘‘reasonably necessary 

to the conduct of an effective and thorough physical inspection.’’ While section 

1903(c) offers examples of industrial hygienists or safety engineers as possible third 

parties, it does not purport to be an exclusive list and does not preclude the participation of other third parties who may make a positive contribution to a thorough 

and effective inspection. 

RESPONSE BY JAMES SHERK TO QUESTIONS OF SENATOR HARKIN, 

SENATOR ALEXANDER, AND SENATOR MURRAY

SENATOR HARKIN

Question 1. Your testimony included the hypothetical case of a single mother 

working at minimum wage in Des Moines who would purportedly lose public benefits like child care subsidies if she received a raise. This is based on an online calculator from the Urban Institute, which uses 2008 program policies and laws. However, according to the fee chart from the Iowa Department of Human Services— 

which is updated annually and shows current child care co-pays for low-income families—a single mother of one child earning $7.25 per hour and working full-time 

would have a very low copay—paying only around $8 per month for child care. If 

her wage increased to $10.10, her copay would increase to $128 per month. That 

is, she does not lose her entire subsidy as you have asserted; rather her child care 

is still heavily subsidized, though she does pay a bit more. We have provided you 

with this fee chart. What is your response to this updated information? How do you 

reevaluate the hypothetical case you have presented? 

Answer 1. I contacted the Urban Institute staff who produced the NICC calculations. They checked their calculations and the current Iowa subsidy charts and 

verified that your staff is correct. Iowa’s childcare subsidies slowly phaseout until 

they reach a threshold value, at which point they stop entirely. The NICC uses 2008 

program rules, and in 2008 that threshold value was below $10.10 an hour. Inflation 

adjustments since then have raised the threshold for a single mother with one child 

to $10.56 an hour. (The fee chart shows subsidies for parents with higher income 

levels; only parents of children with disabilities qualify for them.) 

Re-evaluating the provided hypothetical, the single mother would face an effective 

marginal tax rate of 73 percent if her income rose from $7.25 an hour to $10.10 an 

hour. Her market income would rise by $494 a month, while she would owe $152 

76 

1The calculations your staff produced assumed 20 work days a month, i.e., a 4-week month. 

The NICC calculations assume 4.33 weeks in a month, which increases the marginal cost per 

month to $129 from $120. 2Sara Sleyster, ‘‘ ‘Child care cliff’ makes it tough for working poor to get ahead,’’ The Des 

Moines Register, March 17, 2013, http://www.desmoinesregister.com/article/20130318/NEWS/ 

303180039/-Child-care-cliff-makes-tough-working-poor-get-ahead. 3 Note that Ms. Mattix receives more childcare subsidies than the hypothetical single mother 

I discussed because she has two children. 4To illustrate this consider companies A Corp. and B Inc. Before the minimum wage increase 

A Corp. employs only teenagers and B Inc. employs only adults. Because of the minimum wage 

hike A Corp. cuts its payroll and this reduces its total teenage employment—only teenagers can 

lose their jobs. B Inc. also cuts its payroll, but at the higher pay rate teenagers make up half 

of the qualified applicants for its openings. So teenagers account for half the new hires when 

B Inc. fills job openings. B Inc. employs more teenagers than before despite employing fewer 

workers. 5Laura Giuliano, ‘‘Minimum Wage Effects on Employment, Substitution, and the Teenage 

Labor Supply: Evidence from Personnel Data,’’ The Journal of Labor Economics, Vol. 31, No. 

1 (January 2013), pp. 155–194. 

more in State and Federal taxes and lose $129 in childcare benefits 1 and $88 in 

SNAP benefits. So her net income would rise by $125 a month, 25 percent of the 

increase in her market earnings. 

If, however, she subsequently earned a 50 cent raise to $10.60 an hour she would 

be left worse off than if her pay remained at $7.25 an hour. At that point she would 

cross the eligibility threshold for childcare benefits and lose the approximately $400 

a month in remaining childcare subsidies. This entirely offsets both her increased 

pay from the raise and the entire net income gains from going from $7.25 an hour 

to $10.10. 

The structure of the current welfare system heavily penalizes low-income workers 

who earn raises or work additional hours. They receive little near-term benefit from 

additional work. The Des Moines Register recently reported on this problem.2 The 

paper covered a single mother who, in order to maintain eligibility for childcare subsidies, now works 4 days a week instead of her preferred five: 

Single mother Stacia Mattix of Des Moines faced losing child care assistance 

in December because she was making 30 cents more than allowed. The 30 cents 

was not going to cover the more than $300 a week she received in assistance 

for her two children, ages 3 years and 18 months. 

Her solution was to drop a day from work to remain qualified, which has cost 

her around $80 a week in income. 

‘‘I think it’s unfair for the people who are working and trying to make a decent living that they can’t get any help because they make a teeny-tiny bit 

over,’’ said Mattix, 22. 

Mattix feels stuck. Her children must attend a child care center because of 

the hours she works. In-home child care would be cheaper, but she cannot find 

one that opens at 5:45 a.m. 

‘‘Making $10.81 an hour is not going to make up $300 a week for day care,’’ 

Mattix said. ‘‘I think something needs to be done about it.’’ 3

Question 2. Mr. Sherk, most opponents to the minimum wage claim that the minimum wage harms teenage employment. You have made the case that increasing 

the minimum wage encourages more teenagers and college students to apply for 

minimum-wage jobs and that these new workers crowd-out adult applicants. In 

other words, teens gain jobs, to the detriment of adult workers. Which is it—raising 

the minimum wage is bad for teens, or good for teens? 

Answer 2. Raising the minimum wage causes employers to hire fewer workers 

overall. However, it also causes some teenagers to enter the labor force and apply 

for jobs they would not have otherwise sought. This has ambiguous effects on teenage employment: it reduces job openings, but more teenagers apply for the remaining openings. Consequently total teen employment can either rise or fall depending 

on the ratio of adult to teenage workers before the increase and the change in teenage job seekers afterward.4

Minimum wage increases unambiguously harm the job prospects of workers, both 

teenagers and adults, who would have applied for jobs anyway. They face both fewer 

job openings and stiffer competition for those openings. As I discussed in my testimony, this lowers the ratio of adult to teenage employment within firms. It also 

shifts the composition of teenage employment. After minimum wage increases, businesses employ more teenagers living in affluent zip codes and fewer teenagers from 

lower-income zip codes.5 The higher pay induces more affluent teens to enter the 

77 

6Peter Z. Schochet, John Burghardt, and Sheena McConnell, ‘‘Does Job Corps Work? Impact 

Findings from the National Job Corps Study,’’ The American Economic Review, Vol. 98, No. 5 

(December 2008), pp. 1864–86. 7 Eileen Poe-Yamagata, et al., ‘‘Impact of the Reemployment and Eligibility Assessment (REA) 

Initiative,’’ IMPAQ International, June 2011, http://wdr.doleta.gov/research/FullTextl 

Documents/ETAOPl2012l08lImpactloflthelREAlInitiative.pdf. 8David Neumark, Ian Salas, and William Wascher, ‘‘Revisiting the Minimum Wage—Employment Debate: Throwing Out the Baby with the Bathwater?’’ National Bureau of Economic Research Working Paper No. 18681 (2013), http://www.nber.org/papers/w18681. 9 Ibid., pp. 27–8. 

labor market. They crowd out both disadvantaged adults and disadvantaged teenagers. 

SENATOR ALEXANDER

Question 1. During the hearing, it was asserted that studies like those of Dr. Michael Reich studying metropolitan areas or counties across State lines are the ‘‘gold 

standard’’ of economic studies on the minimum wage. Do you agree that such studies are the ‘‘gold standard’’ for evaluating the economic effects of minimum wage increases? If not, please describe any problems with respect to these studies’ methodology. 

Answer 1. The ‘‘gold standard’’ of any economic study is a randomized controlled 

trial, with some subjects randomly subject to the program or policy, and others randomly selected as a control group. Such studies control for all external differences 

between the treatment and control groups, leaving the policy as the only remaining 

factor driving changes between the two. Randomized controlled trials recently demonstrated that Job Corps does little to improve the wages or employability of youth 

who participated in the program.6 Randomized controlled trials also demonstrated 

that giving long-term unemployment insurance recipients Re-employment Eligibility 

Assessments (REAs) speeded their return to work.7

Such randomized controlled trials are not possible in the context of the minimum 

wage debate. Congress does not randomly raise the minimum wage some firms must 

pay, but not others, and evaluate whether those firms hire fewer workers. This 

leaves researchers with a second-best approach of comparing the economic results 

of jurisdictions that raise their minimum wage with those that do not and then controlling for external factors that might influence the comparison. 

Dr. Reich and his co-authors attempt to control for external factors with an intuitively plausible methodology: comparing counties that border each other across a 

State line, where one State raises its minimum wage and the other does not. It 

seems reasonable that such counties should be relatively similar to each other, and 

thus the primary difference between them would come from the higher minimum 

wage. However, other researchers have examined this assumption and found that 

counties that border each other are often very dissimilar.8

Dr. David Neumark (University of California at Irvine) and Dr. William Wascher 

(The Federal Reserve Board) analyzed how closely the labor markets of cross-border 

counties resemble each other. They find that among reasonable candidates for comparison, the cross-border counties ‘‘appear no better than a random draw.’’ 9 In the 

example I referenced in my written testimony, Dr. Reich’s methodology compares 

urban Leon County in Florida (the home county of Tallahassee and site of a major 

university) with its population of 275,000 with rural Grady County, GA, population 

25,000. 

Question 2. There was some disagreement at the hearing as to whether studies 

finding that minimum wage increases reduce employment have local or regional 

controls as compared to Dr. Reich’s studies purporting to employ local controls in 

comparing adjacent counties across State lines. You testified that the ‘‘heart of the 

dispute’’ between Dr. Reich’s studies and the findings of other economists, i.e., that 

higher minimum wages reduce employment, regards what constitutes an appropriate control group. Please explain and clarify the apparent conflict in the economic 

literature of the minimum wage, including the differing controls used in each. 

Answer 2. Studies comparing States that raise their minimum wage to those that 

do not consistently find the minimum wage reduces employment. Dr. Reich and his 

co-authors argue this happens because States with minimum wages above the Federal rate—predominantly in the Northeast and Pacific coast—have slower underlying employment growth, especially among the teenage and restaurant workers 

most affected by the minimum wage. They contend this drives the apparent negative relationship between higher minimum wages and lower employment. Their research deals with this potential problem by either (1) comparing cross-border counVerDate Nov 24 2008 11:05 Jun 17, 2016 Jkt 000000 PO 00000 Frm 00081 Fmt 6633 Sfmt 6621 S:\DOCS\20296.TXT DENISE
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10 Ibid., pp. 10–14. 11 Ibid., pp. 15–24. 12 Joseph Sabia, Richard Burkhauser, and Benjamin Hansen, ‘‘Are the Effects of Minimum 

Wage Increases Always Small? New Evidence from a Case Study of New York State,’’ Industrial 

and Labor Relations Review, Vol. 65, No. 2, (April 2012). 13http://nicc.urban.org/netincomecalculator/. 

ties or (2) including controls for the census region the State resides in—thus comparing changes in employment only between States in the same census division. 

With either of these approaches they find no correlation between minimum wage 

rates and lower employment. 

On the first point, Dr. Neumark and Dr. Wascher object that Dr. Reich throws 

out large amounts of useful information on the effect on minimum wage increases. 

For example, a rural county in Tennessee and in Michigan may have comparable 

labor markets. A decrease in employment in Michigan relative to Tennessee following Michigan’s minimum wage hike provides insight into the effect of higher 

minimum wages. But because Michigan and Tennessee do not border, Dr. Reich’s 

studies ignore this information. 

Economists have other approaches for dealing with pre-existing trends. One involves directly controlling for State time trends. Dr. Neumark and Dr. Wascher included such controls in earlier studies and found it had no effect on their conclusions. Dr. Reich and his colleagues included controls for time trends over a period 

covering 1990–2009 and found that doing so removed the negative employment effect of minimum wage increases. This is one of the reasons they criticize Neumark 

and Wascher’s findings. However, their approach assumed that employment grows 

at a constant rate over time. This is unlikely to hold true, especially given the recessions of 1990, 2001, and 2008–9. When Neumark and Wascher controlled for State 

trends using a more flexible specification that allowed for different rates of growth 

during recessions and expansions they found minimum wage increases reduce employment. 10

On the second point, Neumark and Wascher point out that many States in the 

same census region (such as West Virginia and Florida) have very different employment trends. They analyzed minimum wage effects separately for each census region and also analyzed the comparability of States within those regions. They found 

significant negative employment effects in the census regions where States are the 

most comparable. In census regions where State economic trends differed markedly—and thus make poor comparison groups—they found no effects. 

The argument that the failure to include regional controls biases minimum wage 

studies hinges upon the assumption that States in the same region (or neighboring 

counties) are better comparisons for each other. Neumark and Wascher find this is 

often not the case, but that such analysis finds negative employment effects when 

States have similar economic characteristics.11

It should be noted that studies with regional controls by researchers other than 

Neumark and Wascher also find negative employment effects—when the comparison 

States are chosen on the basis of their similarity. For example, a recent study analyzed the effect of New York’s 2004 increase in the minimum wage. This study 

found that the nearby States of Pennsylvania, Ohio, and New Hampshire had similar economic trends. Compared with these States—or a more complex ‘‘synthetic 

control’’ method—the researchers found that teenage employment in New York fell 

sharply after the minimum wage rose.12

Question 3. During the hearing, you were asked about your example of the hypothetical single mother from Des Moines, Iowa earning minimum wage. It was suggested that the numbers you used from the Urban Institute did not take into account legal changes that have occurred since 2008. Would you please explain the 

source of your data, the method of your calculations, and your conclusions concerning how higher minimum wages combine with overlapping government social 

program phase-outs to create disincentives to work? 

Answer 3. Many Federal programs phaseout as an individual’s income rises. This 

makes sense—the government should not be providing food stamps or welfare benefits to middle-class workers. However, Congress did not coordinate the phase-out 

rates across programs. As a consequence low-income workers can face extraordinarily high effective marginal tax rates as they lose benefits from multiple programs at once. Many low-income workers receive little to no net benefit from working additional hours or earning a raise. This problem particularly affects full-time 

workers with earnings near the Federal minimum wage. 

To quantify this problem the Urban Institute created a Net Income Change Calculator (NICC).13 The calculator models how a worker’s net income changes as his or 

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14 Her market income would rise by $494 ($2.85/hour *40 hr/week *4.33 weeks/month) but she would forfeit $152 in higher taxes, $88 in SNAP benefits, and $129 in childcare subsidies, for 

a net increase in income of $125—just 25 percent of her additional earnings. Note that the figure Senator Harkin’s staff calculated on childcare subsidies assumed a 4-week month, the NICC 

calculations assume 4.33 weeks per month. This explains the difference between $120 and $129 

in lower subsidies. 15Sara Sleyster, ‘‘ ‘Child care cliff ’ makes it tough for working poor to get ahead,’’ The Des 

Moines Register, March 17, 2013, http://www.desmoinesregister.com/article/20130318/NEWS/ 

303180039/-Child-care-cliff-makes-tough-working-poor-get-ahead. 

her earned income rises. It accounts for changes in: Federal income and payroll tax 

liabilities; earned income tax credit (EITC) refund; welfare benefits (TANF); women, 

infants, and children benefits (WIC); food stamps (SNAP); subsidized housing; and 

child-care benefits. The calculator does not account for medical benefit programs like 

Medicaid or SCHIP. The program uses 2008 benefit eligibility rules. 

I used the NICC to calculate the effective change in the income of a single mother 

with one child in Iowa. I assumed that the mother worked full-time for the Federal 

minimum wage of $7.25 an hour and participated in all Federal programs for which 

she was eligible. I further assumed her child was 3 years old, that childcare cost 

her $700 a month, that she pays $600 a month in rent, and has $1,000 in assets 

as well as a vehicle worth $3,000. I evaluated the effect on her net income of a $2.85 

pay increase to $10.10 an hour. Anyone can replicate my results by entering these 

assumptions into the NICC. 

The NICC shows that, with the raise, the single mother earns $494 more a month 

in market income. However, after taxes and benefits her net income falls by $264. 

The mother pays $152 more in total taxes (including a smaller EITC refund) and 

loses over $600 in government benefits. The bulk of these benefit reductions ($528) 

came from losing eligibility for childcare subsidies. Iowa’s childcare subsidies slowly 

decrease over a limited income range until they hit a threshold earnings amount. 

At that point, they phaseout entirely. In 2008, that threshold was less than $10.10 

an hour in a full-time job, so a parent getting a raise to $10.10 an hour would lose 

eligibility for all childcare subsidies. 

Senator Harkin’s staff contacted the Iowa Department of Human Services and obtained an updated childcare fee chart indicating that a single mother of one child 

would currently lose $120 in benefits if her pay was raised to $10.10 an hour. Urban 

Institute staff determined that Senator Harkin’s staff is correct. Inflation adjustments have increased the phase-out threshold for a full-time worker to about $10.56 

an hour. (The fee chart that Senator Harkin’s staff provided has subsidies for higher 

income amounts, but these only apply to the parents of children with disabilities.) 

In 2013, a raise to $10.10 an hour would reduce the mother’s benefits by approximately $220, not the $600 I reported. So she faces an effective marginal tax rate 

of 75 percent over that income range.14 If, however, that mother received a further 

50 cent raise she would lose eligibility for all childcare subsidies. The loss in subsidies at $10.57 an hour would leave her financially worse off than if her pay had 

remained at $7.25 an hour. 

The structure of existing social assistance programs heavily penalizes low-income 

workers who work additional hours or earn raises. The Des Moines Register reported 

on this problem, and highlighted a case of a single mother who began working only 

4 days a week to maintain her eligibility for childcare benefits, even though she 

would have preferred to work full-time: 15

Single mother Stacia Mattix of Des Moines faced losing child care assistance 

in December because she was making 30 cents more than allowed. The 30 cents 

was not going to cover the more than $300 a week she received in assistance 

for her two children, ages 3 years and 18 months. 

Her solution was to drop a day from work to remain qualified, which has cost 

her around $80 a week in income. 

‘‘I think it’s unfair for the people who are working and trying to make a decent living that they can’t get any help because they make a teeny-tiny bit 

over,’’ said Mattix, 22. 

Mattix feels stuck. Her children must attend a child care center because of 

the hours she works. In-home child care would be cheaper, but she cannot find 

one that opens at 5:45 a.m. 

‘‘Making $10.81 an hour is not going to make up $300 a week for day care,’’ 

Mattix said. ‘‘I think something needs to be done about it.’’ 

Minimum wage increases occur in the income zone where these phase-out and 

threshold effects are most severe. Suburban teenagers who do not qualify for these 

benefits would enjoy the full benefit from a higher wage rate (assuming they kept 

80 

16Written testimony of American Samoa Governor Togiola Tulafona before the Subcommittee 

on Fisheries, Wildlife, Oceans and Insular Affairs of the Committee on Natural Resources, U.S. 

House of Representatives, September 23, 2011, Table 3. 

their jobs). But low-income adults receiving government assistance would forfeit 

much of the economic value of their higher pay. 

The government has created a system in which low-income adults benefit little 

from moderate increases in their pay—either through working longer hours, earning 

a raise, or a higher minimum wage. This is one of the reasons that just 9 percent 

of adults in families living below the poverty line work full-time year-round. They 

are responding rationally to the incentives the government has created. 

Question 4. In response to your concern about work disincentives, it was suggested that if you were opposed to minimum wage increases due to the effect government social program phase-outs have in consuming most of the additional resulting income, then you must be in favor of increasing government benefits, or vice 

versa. It was asserted that by advocating against increasing the minimum wage as 

well as against increasing government benefits, you were arguing ‘‘two absolutely 

contradictory points.’’ Please explain and clarify your position on how the Federal 

Government should modify government benefit phase-outs to reduce disincentives to 

work, and how that position relates to the proposed minimum wage increase. 

Answer 4. Government social programs create extremely high effective marginal 

tax rates for low-income families. That is to say, as their income rises—either 

through a raise or a minimum wage hike—they both pay more in taxes and lose 

benefits. Many families with hourly earnings near the Federal minimum wage face 

effective tax rates in excess of 70 percent—and in some cases over 100 percent— 

if their pay increased by $1 to $3 an hour. 

These punishingly high effective tax rates occur because of Federal welfare programs. Congress never coordinated their phase-out rates across programs—consequently workers lose benefits from multiple programs at once over the same income zone. Congress should restructure these programs, such as by having them 

phaseout sooner, to limit effective tax rates to no more than 50 percent over any 

income zone. 

Without such a reform, a minimum wage increase can do little to help low-income 

families, even if they keep their jobs. The same applies to raises low-income families 

earn without Federal intervention. Two-thirds of minimum wage workers earn a 

raise within a year, but those living near poverty experience little net financial benefit from this pay increase. The structure of social assistance programs discourages 

workers from gaining the experience and skills that would enable them to rise out 

of poverty. 

Question 5. You testified about the effects of large minimum wage increases on 

the economy of American Samoa. Do these effects provide any lessons for the United 

States in considering whether to increase the Federal minimum wage? Please explain. 

Answer 5. The Federal minimum wage affects very few Americans—less than 3 

percent of all workers. Changes in the minimum wage, while significant for those 

impacted, have little aggregate effect on the economy. Consequently advocates of a 

higher minimum wage can argue, with little risk of contradiction, that minimum 

wage hikes stimulate the economy—it is difficult for economists to tease out the 

small effects of the higher minimum wage from other factors impacting GDP. Supporters of raising the minimum wage now routinely argue that it would give workers more money, leading them to spend more, stimulating demand and the overall 

economy. 

American Samoa put these theories squarely to the test. Congress planned to 

gradually increase American Samoa’s minimum wage to the Federal level of $7.25 

an hour. At that rate it would have covered 80 percent of all hourly workers in the 

territory’s economy—the equivalent of a $20 an hour increase in the continental 

United States. Congress suspended the minimum wage increase when it got to $4.76 

an hour. At that point it covered two-thirds of employees in the tuna canning industry, the territory’s largest industry. 

Such a large increase in the minimum wage had a large and visible impact on 

American Samoa. But it did not increase purchasing power, stimulate demand, or 

raise living standards. Instead the tuna canning industry contracted sharply and 

unemployment septupled from 5 percent to 36 percent; higher than anything America experienced during the Great Depression.16 While wages grew, inflation grew 

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17Government Accountability Office, American Samoa and the Commonwealth of the Northern 

Mariana Islands: Employment, Earnings, and Status of Key Industries Since Minimum Wage Increases Began, Report No. GAO–11–427, June 2011, Table 2. 18Written testimony of American Samoa Governor Togiola Tulafona. 19 Jeannette Wicks-Lim, ‘‘Mandated wage floors and the wage structure: Analyzing the ripple 

effects of minimum and prevailing wage laws,’’ Ph.D. dissertation, University of MassachusettsAmherst, September 2005. 

faster, and so inflation-adjusted pay fell 11 percent.17 The islands’ Democratic Governor attributed virtually all of this economic damage to the minimum wage hike 

and begged Congress to suspend the increases.18

American Samoa’s experience demonstrates that minimum wage hikes do not 

produce virtuous self-reinforcing economic cycles that lead to general prosperity and 

growth. It also shows that employers respond to higher minimum wages the way 

economic theory suggests: by hiring fewer workers. Congress should weigh these 

costs carefully as it considers minimum wage increases. Congress had good intentions when it raised the minimum wage, but the hike hurt many of the workers 

Congress wanted to help. 

Question 6. At the hearing, it was said that there are always individuals who are 

willing to work for less and are willing to undercut others because they desperately 

need the work. Do you agree this is a problem? 

Answer 6. One of the problems with the minimum wage is that it makes it harder 

for those who need jobs the most to get them. Workers have different reservation 

wages—the lowest wage they will accept to work in a job. Generally speaking, the 

more an individual needs a job the lower their reservation wage. Workers with other 

options, such as teenagers supported by their parents, require higher wages to induce them to work. 

Increased minimum wages encourage workers with higher reservation wages to 

enter the job market. They compete for job openings with workers with lower reservation wages who would have applied anyway. As a result, the workers most in 

need of jobs—and the opportunity to gain skills and earn raises—become less likely 

to get hired. 

SENATOR MURRAY

Question. In your testimony, you discussed about the effect of increasing the minimum wage on people working minimum wage jobs. However, in Washington State, 

where the minimum wage is nearly $2 per hour higher than the national rate, we 

have seen benefits for a far larger group of low-income workers. Workers earning 

just above the minimum wage have also seen higher wages, putting more money 

into their pockets that they’ve spent in the Washington State economy. These workers may not qualify for as many Federal benefits as workers earning only the minimum wage, and an extra few dollars in their paycheck can make a big difference 

in helping them make ends meet. Do you agree that the benefits to those workers 

need to be taken into account when considering the effects of an increase in the 

minimum wage? 

Answer. I would agree the costs and benefits to all workers should be taken into 

account when considering increasing the minimum wage. This includes the extent 

to which employers raise the pay for employees earning near the minimum wage, 

and the extent they reduce or increase hiring in this group. 

Policymakers should also evaluate why pay rises for workers earning near the 

minimum wage. One theory holds that employers want to maintain internal wage 

differentials—they do not want to pay more experienced workers’ entry-level wages. 

Analysis shows these ‘‘ripple effects’’ occur to a limited degree.19

Minimum wage increases can also raise the pay of higher earners through ‘‘substitution effects.’’ Many companies face a basic choice: they can either (a) hire many 

low-wage, unskilled workers to do the job or (b) hire a smaller number of more highly skilled and highly paid workers and use more machines to perform the same 

work. This does not apply to all industries, of course—highly skilled workers are not 

much more productive as house cleaners, and a modern automotive factory has no 

place for unskilled workers. However, many businesses face this choice. 

Minimum wage increases make hiring unskilled workers more expensive without 

raising their productivity. This increases the demand for more skilled workers, improving their job opportunities and earnings at the expense of inexperienced workers. 

These ‘‘substitution effects’’ are the primary way that unions benefit from minimum wage increases. Unionized workers tend to be more highly paid and highly 

skilled than the population as a whole. They benefit when Congress makes it harder 

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20David Neumark, Mark Schweitzer, and William Wascher, ‘‘The Effects of Minimum Wages 

Throughout the Wage Distribution,’’ National Bureau of Economic Research Working Paper No. 

w7519, February 2000, at www.nber.org/papers/w7519. Figure 3 shows that a 10 percent increase in the minimum wage increases these union members’ earned income by 5 to 10 percent. 

Thus, a 40 percent increase could increase their earned income by 20 to 40 percent. 21 Ibid., Figure 4B. 

for less-skilled workers to compete against them. Research shows that a 20 percent 

increase in the minimum wage raises the pay of unionized workers who earn twice 

the minimum wage by 10 to 20 percent.20

Unfortunately, this comes at the cost of decreasing the earnings of families with 

minimum wage workers. While those who keep their jobs make more, employers cut 

back on hiring and hours of less-skilled workers. Consequently the total earnings 

of minimum wage workers drop. 21

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

Æ