Below the Minimum No More

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This week, a majority of the Democrats in both the House and Senate introduced a long-awaited bill to raise the federal minimum wage to $15 an hour by 2024. While most coverage of this bill will likely focus on whether $15 by 2024 is too ambitious a target (as Jared Bernstein and I explained in the Prospect last month, it's not), there’s a less-discussed aspect of the bill that deserves considerable attention as well: its elimination of “sub-minimum” wages for various groups of workers. Establishing one minimum wage for everyone would help those workers whom past minimum wage increases have left behind. It would also break with the pattern of reinforcing anti-worker myths about the economy.

That sub-minimum wages exist isn’t all that commonly known, but the one you’re most likely to have heard of is for tipped workers—people who, for example, wait your tables when you go out to eat, drive you around in taxis, cut your hair, and park your car. 

Businesses do not need to pay these workers the federal minimum wage of $7.25 an hour; instead, these workers are only guaranteed $2.13 an hour from their employers, a wage floor that hasn’t changed since 1991. The idea is that tips will make up the difference. In theory, employers are required to make up that difference themselves if a worker’s tips for the week don’t add up to the minimum, but this requirement is notoriously hard to enforce. Worse yet, employers sometimes confiscate tips. Eighty percent of full-service restaurants the Department of Labor investigated between 2009 and 2015 were violating wage and hour laws, as the department’s former Chief Economist Heidi Shierholz has noted, and wage theft from tipped workers was one of the most common violations. 

This sub-minimum wage has severe consequences for workers in tipped industries, whose poverty rates are much higher than the poverty rates for other workers. In states that apply the federal sub-minimum wage of $2.13, the poverty rate for tipped workers is 14.8 percent, compared to 11.7 percent in states that no longer allow sub-minimums. (Poverty rates for other workers don’t differ so greatly between the two sets of states—6.7 percent versus 6.2 percent.)

Workers with disabilities are also underpaid because of a sub-minimum wage. Employers of such workers can apply for the right to pay them “commensurate wage rates … based on the worker's individual productivity … in proportion to the wage and productivity of experienced workers who do not have disabilities performing essentially the same type, quality, and quantity of work in the geographic area from which the labor force of the community is drawn.” In practice, that means hundreds of thousands of workers with disabilities earn on average just over $2 an hour, with many of them receiving much less than that. This loophole in labor law also shunts disabled workers into separate, “sheltered workshops” in which they have little opportunity for advancement and are often exploited.

A third sub-minimum wage, the youth minimum wage, allows employers to pay teenagers $4.25 an hour “during the first 90 consecutive calendar days after initial employment.” Unlike the sub-minimum wages for tipped workers and workers with disabilities, this “training wage” is rarely used.  But like the other sub-minimum wages, it would gradually phase out under the Raise the Wage Act of 2017.

Confronted with the usual arguments that the minimum wage kills jobs, lawmakers sometimes see sub-minimum wages as points of compromise. If we let some businesses pay newly hired teenagers and workers with disabilities less, the reasoning seems to go, we’ll mitigate concerns that the minimum wage will lock these workers out of the labor market. Relatedly, the recent spate of state and local minimum wage increases have often been set to phase in more slowly for small businesses than for larger ones, seemingly under the assumption that it is harder for small businesses to absorb labor cost increases.

Yet this approach is misguided, and not just because it hurts the workers in sub-minimum wage categories. It also undercuts the general case for minimum wage increases by lending undue credence to minimum wage opponents’ arguments about job loss—a loss that has thus far failed to materialize (see page 14 here).

The minimum wage is meant to rebalance power between workers and employers, who often pay not what workers are worth (as the standard economic model erroneously teaches us) but as little as they possibly can. It is an ethical standard that defines what workers deserve and the kind of economy we should have. Allowing businesses to pay some workers less or carving out exemptions for some businesses sends the message that paying substandard wages in a multi-trillion dollar economy is okay, that we view a business owner’s right to make profits as more important than a worker’s right to earn a decent living.

It’s hard to imagine that paying workers a fair wage is actually burdensome for most employers, who may be able to absorb the increased labor costs through price increases, productivity enhancements (from the reduced turnover, efficiency gains, and increased morale that fairer wages can bring), or (my personal favorite) reduced profits and lower salaries for their highest-paid employees and executives. Moreover, by putting money in the pockets of workers who are also consumers, raising wages can also help businesses by increasing the customer base for their goods and services; that’s part of the reason so many businesses support higher minimum wages.

To the extent that there are a few businesses out there that truly can’t succeed if they have to pay their workers enough to live on, the economy is better off without their low-road business model. Similarly, anyone truly worried about opportunities for youth or for disabled workers wouldn’t support holding their wages below everyone else’s. Instead, they’d support policies, like direct job creation and training programs, that help ensure these workers can realize their potential.

So as we celebrate the push to raise the minimum wage to $15 by 2024, let’s not forget to applaud the phase-outs of sub-minimum wages as well. And let’s make sure, as we engage in upcoming pushes for state and local minimum wage increases, that we reject the trickle-down fallacy that our economy can’t handle one fair wage. It can, and workers deserve it. 

Tax Cuts for the rich. Deregulation for the powerful. Wage suppression for everyone else. These are the tenets of trickle-down economics, the conservatives’ age-old strategy for advantaging the interests of the rich and powerful over those of the middle class and poor. The articles in Trickle-Downers are devoted, first, to exposing and refuting these lies, but equally, to reminding Americans that these claims aren’t made because they are true. Rather, they are made because they are the most effective way elites have found to bully, confuse and intimidate middle- and working-class voters. Trickle-down claims are not real economics. They are negotiating strategies. Here at the Prospect, we hope to help you win that negotiation.

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