Following up on my previous blog post, there was considerable debate at Monday’s DC Council hearing on whether the city should raise the tipped minimum wage. One area restaurant owner in particular was adamant that there should be no change to the city’s current tipped minimum wage of $2.77 per hour. He argued that the council was attempting to “fix something that [was not] broken”—in that all of his tipped employees already earn far more than minimum wage under the current system, and if they did not, he was legally obligated to make up the difference. This is, by law, how the system should work. Notwithstanding the fact that his particular restaurant is a high-end nightclub where the average bill (and thus the average tip) is likely to be quite high, the evidence suggests his characterization reflects the exception rather than the norm for tipped workers.

Under current federal law, workers who customarily receive at least $30 from tips per month may be paid a base wage of only $2.13 per hour by their employer, so long as the their weekly earnings—tips plus base wage—equal an hourly rate of at least the regular federal minimum wage of $7.25. In other words, when you go to a restaurant in most places in the country, the server or bartender who serves you is only being paid something between $2.13 and $5 per hour by their employer, depending on the state. There are 18 states where the tipped minimum wage is $2.13, eight states where the tipped minimum wage is equal to the regular minimum wage, and 26 states with a tipped minimum somewhere in between. In the District of Columbia, the regular minimum wage is $8.25, and the tipped minimum wage is $2.77.

Read more

On Monday, I testified before the DC Council in support of the Minimum Wage Amendment Act of 2013, one of several bills being considered to raise the District’s minimum wage from its current value of $8.25 per hour up to rates ranging from $10.25 per hour to $12.50 per hour. The various bills have different phase-in schedules, i.e., some reach their final targets sooner than others, and some are “indexed” so that that they will automatically be adjusted for inflation in the years after reaching their target value.

 Here’s a quick rundown of the bills, with the principal author in parenthesis:

B20-438, the “Minimum Wage and Accrued Sick and Safe Leave Amendment Act of 2013” (David Catania, Councilmember At-Large): Raises the city minimum wage to $10.50 per hour over three years; no indexing.

B20-459, the “Minimum Wage Amendment Act of 2013” (Vincent Orange, Councilmember At-Large): Raises the city minimum wage to $12.50 per hour over 4 years beginning in 2015; indexes the value to the Consumer Price Index for all urban consumers (CPI-U) thereafter; raises the “tipped” minimum wage in the District to 70% of the regular minimum wage.

B20-460, the “Living Wage for All Act of 2013” (Tommy Wells, Ward 6): Raises the city minimum wage to $10.25 per hour over 2 years; indexes the value to the CPI-U thereafter; increases the standard deduction for taxpayers in the District.

Read more

Funding to the Supplemental Nutrition Assistance Program (SNAP, or informally known as food stamps) is set to take a big hit on Friday with the expiration of expansions passed as part of the American Recovery and Reinvestment Act (ARRA). It’s important to see just how far those dollars went to lift Americans out of poverty. SNAP, bolstered by the ARRA extensions, kept 4.0 million Americans out of poverty in 2012 alone. A sad contrast is with another vital safety net program that also benefited from expansions in ARRA,  but which saw the ARRA expansions fade away much more quickly—unemployment insurance.

The poverty-reducing effects of unemployment insurance declined rapidly beginning in 2011 as the share of unemployed workers eligible for UI began falling. Further, in 2012 Congress provided fewer weeks of federal UI benefits to long-term unemployed workers (clawing back extensions in ARRA).

The declining protection offered by UI as the ARRA extensions fade away could well be the future of SNAP.  This would be both a human and an economic disaster. While the cuts will have real impacts on the lives of millions of American households, it will put a further drag on economic recovery. Food stamps are essentially being attacked as the last vestige of expansionary policy that hasn’t been stamped out yet by the sharp move towards austerity in recent years. It’s a mistake to think these cuts won’t have lasting effects on families, particularly children, but also will have deleterious effects on our recovery.

Read more

Recently, I have undertaken some research on racial under-representation in the construction industry, and some interesting early findings are worth sharing. Construction is a sector that has historically excluded black workers—including the unionized portion of the industry. Giving minority workers access to good jobs is an important part of closing our large and persistent racial wage inequities, so this is a critical issue. It was on this basis that many progressives have been hostile to infrastructure spending in the past: it provided jobs in a sector where it was well known and documented that black workers had been excluded from opportunities. Some people, such as National Black Chamber of Commerce CEO Harry C. Alford, contend that “construction sites are still close to Jim Crow.”

It is worth asking whether and to what extent construction work is racially exclusionary, especially the unionized sector as Alford also contends. After all, there have been changes over the years, with unions increasing the number of minorities admitted into apprenticeship programs, and undertaking project labor agreements that incorporate community agreements that bring excluded populations into the industry. What does the current situation look like, and how does the union sector compare to the nonunion sector? It turns out that, at least in one of our largest and heavily unionized cities, New York City, Alford’s characterization is quite outdated.

Read more

The Supreme Court has accepted a case in which the relevance of “disparate impact” evidence in discrimination cases brought under the Fair Housing Act is being challenged. The Economic Policy Institute, in collaboration with the Chief Justice Earl Warren Institute on Law and Social Policy at the University of California School of Law, and with the U.C. Berkeley Haas Institute for a Fair and Inclusive Society,  has submitted an Amicus Curiae brief to the Court in this case.

Our brief argues that entrenched patterns of residential segregation, established substantially by government policy, structure the housing opportunities of African Americans into the present time. In a case like that considered by the Court, a redevelopment project that displaces African Americans could violate the Fair Housing Act if provision is not made for the relocation of displaced residents into integrated middle-class communities nearby.

Many distinguished scholars have joined us as amici in this brief, including Elizabeth Anderson, John Brittain, Nancy Denton, Christopher Edley, Jr., James Kushner, Ira Katznelson, James Loewen, Myron Orfield, Jr., John Powell, Gregory Squires, and many others.

If you are a scholar in this field, and we neglected to invite you to join these amici, please understand that it was an oversight under serious time-pressure to submit this brief by the Court’s deadline.

No, nothing to do with the website—that still seems problematic at best. But the CBO just released new estimates of the budget savings that would result from raising the Medicare eligibility age from 65 to 67. The punchline that most have focused on is that this (terrible) policy change is now estimated to save just a small fraction of what it was estimated to have saved in previous years ($19 billion over 10 years in the latest estimate, compared to $113 billion over 10 years in previous estimates).

Why the change? Mostly because CBO has changed its estimates to better reflect that fact that those who enroll in Medicare at 65 and 66 are less expensive than previously thought. The genuinely expensive 65- and 66-year-olds that are covered by Medicare tend to have been allowed to enroll at earlier ages because of chronic illness or disability. Further, many 65- and 66-year-olds still receive employer-sponsored insurance and use Medicare as secondary insurance. CBO seems to have made re-estimates that boost the importance of both these issues in reducing the estimate of what newly enrolled 65- and 66-year-olds spend on Medicare.

Read more

Happy Friday. Here’s what we read today. Read anything interesting lately? Share it in the comments!

• The Times Is Working on Ways to Make Numbers-Based Stories Clearer for Readers (New York Times)
• Are Private Schools Worth It? (The Atlantic)
• The Trillion Dollar Money Pump for the 1 Percent (Huffington Post)
• The Triumph of the Right (Nation of Change)
• Addicted to the Apocalypse (The New York Times)

In the past, I have shown that most of the improvement in the unemployment rate since its peak of 10 percent in the fall of 2009—and all of the improvement in the unemployment rate over the last year—has not been for good reasons. It has been due to people either dropping out of, or not entering, the labor force due to weak job opportunities.

But what about other measures of labor market slack that the Bureau of Labor Statistics publishes? The most comprehensive direct measure of labor market slack published by the BLS is the U-6 measure of labor underutilization, the so-called “underemployment” rate. Like the unemployment rate, the underemployment rate has declined substantially in this recovery, from a peak of 17.1 percent in the fall of 2009 to its current rate of 13.6 percent. While still very elevated—the U-6 averaged 8.3 percent in 2007—that is significant improvement. Is it a sign of major healing?

Read more

The sequester (pdf) cut approximately $85 billon from Fiscal Year 2013 spending—half from reductions in defense spending and half from elsewhere in the budget. OMB calculated (pdf) that it would result in a 5 percent reduction in nondefense discretionary spending—funding for programs like education and housing assistance, veterans’ benefits and services, medical and scientific research, and health and safety regulations.

I have long argued that cuts to government spending are uncalled for, given the lack of a robust economic recovery. However, if you are searching for sensible ways to shrink the deficit, there are better alternatives to sequestration. For example, we could eliminate the nondefense discretionary spending cuts in the sequester and shave $26 billion annually from the deficit by eliminating or closing a handful of tax loopholes.

Tax loopholes, formally known as tax expenditures, reduce tax revenues by over $1 trillion every year. There are many reasons to keep tax loopholes in the tax code: some are very popular (e.g., the mortgage interest deduction), some provide incentives to socially beneficial behaviors (e.g., the earned income tax credit), and some are technically difficult to change (e.g., the exclusion for employer retirement plans).

Read more

Recent reports from The Heritage Foundation and the American Action Forum claim that Americans (particularly young Americans) will pay more for health insurance in the new exchanges set up as part of the Affordable Care Act (ACA, or, Obamacare if you like) than they do currently. The question of how much prices differ between the current non-group market and the new health insurance exchanges is awfully interesting, but very difficult, if not impossible, to answer. And to be very clear—neither the Heritage nor the AAF studies do much to shed light on it.

Transparent prices are now widely available in the new health insurance exchanges.1 There are advertised prices for a variety of policies, for consumers in different age groups, and, similarly, subsidies can be calculated for a continuum of income levels. And these are the prices that people will actually end up paying.

Now, let’s contrast that with the non-group market before the ACA. First, the insurance policies often compared to the exchanges do not line up in terms of benefits. Policies in the individual market often have higher deductibles and exclude various conditions from what’s covered by the policy. The policies offered in the exchanges generally offer more comprehensive coverage, and hence should be more expensive on average for this reason. Second, in the pre-reform non-group market, list prices don’t reflect the true prices people will actually end up paying. The individual market, in most states, does individual risk rating. This means the insurance company (often on a website) will give a price, but then they will do an individual risk assessment, for instance, by sending someone to measure an applicant’s blood pressure, weight, etc. At that point, the true price is given. Not surprisingly, it can turn out to be higher than the price listed. This price can be effectively infinity, by the way (more on this below).

Read more