Testimony of David Cooper, Economic Analyst, Economic Policy Institute, before the Washington, D.C. City Council Committee on Business, Consumer, and Regulatory Affairs, Committee on Finance and Revenue
Thank you for holding this hearing and giving me the opportunity to speak with you about the Minimum Wage Amendment Act of 2013. Both sets of proposals being discussed today, to amend the District’s paid sick leave law and to raise the city’s minimum wage, are important and powerful pieces of legislation that would improve conditions for workers, families, and businesses here in the District and throughout the regional economy. I am going to focus my testimony on Chairman Orange’s proposal, the Minimum Wage Amendment Act of 2013, which would raise the minimum wage to $12.50 per hour, raise the tipped minimum wage, and automatically adjust the new minimum for inflation in subsequent years.
Raising the city’s minimum wage to $12.50 per hour would lift incomes for a significant portion of the DC workforce. EPI’s preliminary analysis shows that there are roughly 106,000 workers in the District of Columbia, including those who live in other jurisdictions, estimated to earn less than $12.50 per hour – roughly 15 percent of all DC workers. However, of the DC workers who also live in the city, more than one-fifth (21.4 percent) are estimated to earn less than $12.50 per hour. This is about 45,000 District residents.
The workers that would benefit from this legislation are diverse. Fifty-three percent of DC workers who earn less than $12.50 per hour are women – that’s roughly 56,000 women in the Washington region who would see their incomes rise. Forty-four percent of the potentially affected workers are African American, and 23 percent are Hispanic.
Contrary to common perceptions of low-wage workers, the vast majority are not teenagers or college students working part-time jobs: fully 95 percent are at least 20 years old; 73 percent work at least 35 hours per week; and more than a quarter (26.4 percent) are parents.
For these workers, a raise up to $12.50 per hour would be a significant step toward meeting the area’s high cost of living. For years, EPI has published and regularly updated a feature on our website called the Family Budget Calculator. This tool measures the income a family needs in order to have a secure, yet modest living standard in 615 different geographic areas in the United States. It accounts for differences in costs of housing, food, child care, transportation, health care, taxes, and other necessities. For the Washington, DC area, a 2-parent, 2-child family would need annual income of $89,643 dollars to meet the family budget threshold. That means two parents, working full time, year round, would need to earn wages averaging $21.50 each in order to achieve this modest level of financial security.
Whenever a minimum wage increase is proposed, there is always concern from certain business groups that the increase will be damaging for area businesses, forcing them to slow hiring or cut back on workers. The best economic research, including analyses of state-level and city-level minimum wage increases, shows that this is simply not the case. In one of the most comprehensive studies on this topic, researchers at the Center for Economic and Policy Research aggregated the results of over four decades of studies on the employment effects of the minimum wage. They concluded that there is “little or no significant impact of minimum wage increases on employment.”1 The research has shown that when the minimum wage is raised, affected businesses are often able to absorb additional labor costs through increases in productivity, reductions in turnover costs, compressing internal wage ladders, and modest price increases.2
At the same time, nearly all studies on the minimum wage show that raising the wage floor does cause a measurable increase to workers’ take-home pay.3 This is critically important. Because low-wage workers come primarily from low- and middle-income families, affected workers are likely to spend every additional dollar of income they receive because they have to simply to make ends meet. Thus when you raise the minimum wage, you put dollars into the pockets of those individuals that are most likely to spend it right away; low-wage workers are far more likely to spend additional income than corporations, business owners, or corporate shareholders.
During periods of depressed consumer demand, raising the minimum wage can therefore act as a modest stimulus because it shifts income from an entity less likely to spend it—the employer—to one that is very likely to spend it—the low-wage worker.
Finally, I want to note the importance of raising the city’s tipped minimum wage. A 2011 EPI and UC-Berkeley study showed that the poverty rate among tipped workers nationwide was 14.5 percent, more than double the 6.3 percent poverty rate of all workers.4 However, the disparity in poverty rates between tipped and non-tipped workers was noticeably smaller in states where the tipped minimum wage is equal to the regular minimum wage. In the 18 states with the lowest tipped minimum wage of $2.13, the poverty rate for tipped workers was 16.1 percent, compared to a poverty rate of 6.7 percent of workers overall – a difference of 9.4 percentage points. In the seven states where the tipped minimum wage is equal to the regular minimum wage, the overall poverty rate was also 6.7 percent, but the poverty rate of tipped workers was only 12.1 percent – a difference of only 5.4 percentage points.5
This correlation between lower tipped minimum wages and higher poverty rates among tipped workers suggests that having significantly different wage floors for tipped versus non-tipped employees results in noticeably different living standards for these two groups. Forcing service workers to rely on tips for their wages creates tremendous instability in income flows, making it more difficult to budget or absorb financial shocks. Research has also shown that the practice of tipping is often discriminatory, with white service workers receiving larger tips than black service workers for the same quality of service.6 Raising the city’s tipped minimum wage would help to combat these inequities between tipped and non-tipped workers.
This legislation, along with the Earned Sick and Safe Leave Amendment Act of 2013, will improve working and living conditions for numerous workers in the region, and it will put more money in the hands of consumers likely to spend in area businesses. I strongly urge the council to strengthen the city’s economy and lift up its lowest paid workers with these two important policies.
1. Schmitt, John. 2013. “Why Does the Minimum Wage Have No Discernible Impcat on Employment?”. Center for Economic and Policy Research. http://www.cepr.net/documents/publications/min-wage-2013-02.pdf
3. See Aaronson, Daniel, Sumit Agarwal, and Eric French. 2008. “The Spending and Debt Response to Minimum Wage Hikes.” Federal Reserve Bank of Chicago.
4. Allegretto, Sylvia, and Kai Fillion. 2011. “Waiting for Change: The $2.13 Federal Subminimum Wage.” EPI Briefing Paper #297. Center on Wage and Employment Dynamics, University of California, Berkeley, and the Economic Policy Institute.
5. The seven states where the tipped minimum wage is equal to the regular state minimum wage are Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington State.
6. Lynn, M., Sturman, M., Ganley, C., Adams, E., Douglas, M. and McNeil, J. (2008), Consumer Racial Discrimination in Tipping: A Replication and Extension. Journal of Applied Social Psychology, 38: 1045–1060. http://onlinelibrary.wiley.com/doi/10.1111/j.1559-1816.2008.00338.x/full