House Democrats’ new plan for a $15 minimum wage, explained

The Raise the Wage Act is the most ambitious effort yet to overhaul the federal minimum wage.

First it was Seattle, then San Francisco. Later, it was the entire state of California, then Massachusetts, New York, and Washington, DC. In January, New Jersey became the latest state to raise its minimum wage to $15 an hour.

Now Democrats in Congress are pushing for a $15 minimum wage in every state.

On Thursday, the House Committee on Education and Labor held its first hearing on the Raise the Wage Act, which would eventually double the federal minimum wage by 2024. The current minimum has been stuck at $7.25 since 2009. The law would also tie future changes to the minimum wage based on changes to median workers’ pay. So if middle-class wages go up — or down — so does the minimum wage.

The bill, which has about 180 co-sponsors (all Democrats), would also phase out the lower minimum wage for tipped workers — such as restaurant servers and valets — which has been $2.13 an hour since 1996.

Fast-food workers have been at the forefront of this effort to increase wages. Within five years, they’ve transformed an improbable proposal into a popular policy — one that would address, in part, the slow wage growth American workers are experiencing.

Business groups, meanwhile, are not happy about the fight for $15. And neither are their Republican allies in Congress. They’ve long pushed back against any effort to raise the federal minimum wage, claiming it would destroy small business and trigger massive job losses.

But it’s getting harder and harder for Republicans to justify their view that free-market capitalism — the idea that when the economy grows and unemployment is low, employers will be forced to raise wages — will take care of everyone. It may have happened in the past, but the strong economy is not raising wages right now —at least, not fast enough to outpace the rising cost of living.

In addition to this, Americans want Congress to raise the federal minimum wage. Poll after poll shows widespread support, even among Republican voters. And a majority of voters want it increased to $15 an hour. That may explain why Thomas Donohue, president of the US Chamber of Commerce, recently toned down his usual criticism of efforts to raise the minimum wage, saying the chamber is “going to listen.”

During Thursday’s hearing, a McDonald’s employee from Missouri made the most compelling case for the new legislation.

“My family has been homeless despite two incomes. We’ve endured freezing temperatures in our purple minivan,” said Terrence Wise, a 39-year-old father of three daughters. “Try waking up in the morning and getting ready for work and school in a parking lot with your family of five. That’s something a parent can never forget and a memory you can never take away from your children. You should never have multiple jobs in the United States and nowhere to sleep.”

Wise’s presence as an expert witness at the Congressional hearing on Thursday showed just how powerful the Fight for $15 movement has become. And their growing influence is challenging the long-held power of big-business lobbyists on Capitol Hill.

The controversy over the federal minimum wage, explained

Perhaps no other exchange reflects the deep partisan division over raising the minimum wage than the opening comments on Thursday from the ranking members of the House labor committee.

“The federal minimum wage is no longer serving its purpose. There is no place in America where a full-time worker who is paid the current federal minimum wage can afford the basic essentials,” Scott said during his opening statements.

Rep. Virginia Foxx, the ranking Republican on the committee, called the bill a “radical” idea from the “far left” when she had her turn at the microphone.

“This is an empty promise,” Foxx said. “Raising the federal minimum wage will not help workers make ends meet.”

But this wage controversy is not just about pro-labor politics versus pro-business politics. There’s also plenty of debate about the economic impact of raising the minimum wage.

What the research says

There are few topics US economists have researched more than the impact of raising a minimum wage.

Their findings have varied over the last 30 years, but there are two things most mainstream economists now agree on. First, that raising the minimum wage increases the average income of low-wage workers, lifting many out of poverty (depending on how big the raise is). Second, raising the minimum wage likely causes some job losses.

The remaining disagreement revolves around how extreme the job cuts would be.

Some research suggests hundreds of thousands of American workers could lose their jobs with a modest increase to the minimum wage.

During Thursday’s hearing, Douglas Holtz-Eakin, an economist at the conservative American Action Forum, pointed to a 2014 study from the Congressional Budget Office, which estimates that a $10.10 federal wage floor could lead to about 500,000 lost jobs because higher labor costs would lead some employers to scale back their staff.

Other research concludes that increasing the minimum wage has an insignificant impact on employment, or none at all.

The best way to evaluate all the different conclusions is to analyze all the research findings together — what scientists call a “meta-analysis.” And the most recent ones suggest that the most likely impact on employment is minimal.

Another meta-analysis comes in a new research paper by economists at the University of Massachusetts, University College London and the Economic Policy Institute. They studied data from 138 cities and states that raised the minimum pay between 1979 and 2016. The conclusion is that low-wage workers received a 7 percent pay bump after a minimum-wage law went into effect, but there was little or no change in employment.

In a 2018 working paper, soon to be published in the American Economic Journal: Applied Economics, economist Arindrajit Dube shows that raising the minimum wage significantly reduces the number of families living in poverty. For example, he concludes that a $12 minimum wage in 2017 would have lifted 6.2 million people out of poverty.

But businesses, for the most part, really dislike the idea of raising the minimum wage. The US Chamber of Commerce, the US Business Council and the Restaurant Association are just a few of the big industry groups that have lobbied aggressively against past attempts to do so.

Of course it would cost businesses more to pay workers more, and would likely lead to some jobs losses. But business groups have hyped up the economic impact of raising wages to the extreme, suggesting the economy would collapse and mass layoffs would ensue. What the research shows, however, is that this just isn’t true.

The Raise the Wage Act would abolish the subminimum wage for tipped workers

Under federal law, businesses can pay certain workers less than the $7.25 federal minimum wage if those workers make most of their money in tips. This has traditionally included restaurant servers, bartenders, valets, and bellhops.

According to the law, businesses can pay these workers the tipped minimum wage of $2.13 an hour. If the worker doesn’t earn enough tips to make the full minimum wage, the employer has to make up the difference.

Under this system, the customer essentially subsidizes workers’ wages with gratuities. Some states require businesses to pay a higher subminimum wage to tipped workers than the federal one.

Seven states — Alaska, California, Minnesota, Montana, Nevada, Oregon, and Washington — eliminated the two-tier system entirely decades ago or never allowed the practice. Critics of the subminimum wage say too many employers don’t keep track of workers’ tips to make sure they’re at least earning the full minimum wage. Voters in the District of Columbia recently opted to abolish the separate wages floors, but city lawmakers overturned it.

And these workers still earn tips. Data about tipping rates is scarce, but one analysis of tips left on credit cards shows that customers in states without a lower tipped minimum wage still leave gratuities. Alaska had one of the highest average tipping rates (17 percent); California and Oregon had among the lowest. But even the states that were ranked toward the bottom had at least a 15 percent tipping rate.

The push to eliminate the tipped minimum wage highlights how America has historically treated tipped workers differently than the rest of the US labor force.

Congress didn’t include protections for them when it passed the Fair Labor Standards Act of 1938, which established the 40-hour workweek and a federal minimum wage. The law was amended in 1966 to include tipped workers, but they were still considered a class apart from other workers.

The amendment created a subminimum wage for tipped workers: 50 percent of the federal minimum. Employers could count a worker’s tips toward the other 50 percent needed to make sure they earned minimum wage. This is known as a “tip credit.”

On days when workers don’t make enough tips to earn the federal minimum wage, employers must pay the difference. The subminimum wage marked a major change to tipping culture in America, essentially turning customer gratuities into wage subsidies.

In 1996, Congress made another significant change. It set the minimum wage for tipped workers at $2.13 an hour instead of calculating it as a percentage (half) of the federal minimum wage (at the time, the full minimum wage was $4.26). The move was viewed as a concession to the National Restaurant Association and House Republicans who didn’t want to hike the minimum wage.

Since then, Congress has raised the federal minimum wage — but not the minimum for tipped workers. That means that over the years, tips have come to make up a larger share of workers’ incomes. Some states have raised the subminimum wage, but 18 states have done neither.

There hasn’t been much action at the federal level. Democrats in Congress introduced a bill in 2017 that would have raised the federal minimum wage and phased out the tipped minimum wage, but it didn’t get enough support.

Earlier, in 2014, the Obama administration suggested that it was time for the federal government to do away with the two-tiered system, arguing that restaurants aren’t making sure that servers earn the full minimum wage after tips.

The restaurant industry has fought hard to stop efforts to abolish this pay structure. The National Restaurants Association is leading this fight and was instrumental in overturning a ballot initiative voters passed in Washington, DC, to eliminate the tipped minimum wage.

The association has long resisted any type of minimum wage hike, saying they “ratchet up restaurants’ labor costs and result in thousands of jobs lost.” So far, they have stayed silent on the Raise the Wage Act.

The new law would ban employers from paying disabled workers less

The Raise the Wage Act would also remove a little-known exemption in federal law that allows employers to pay some disabled workers pennies per hour.

Because lawmakers assumed Americans with disabilities would probably never work, Congress allowed businesses to pay them less than the minimum wage under the Fair Labor Standards Act. The law basically said a business could pay workers with disabilities as little as a few dollars — or cents — an hour to do menial tasks in a “workshop” environment with other disabled workers. The idea was that low-paid work was better than not having the option to work at all. The best known example of this is Goodwill, though the organization is trying to move away from the traditional workshop model in some cases.

During the civil rights era, advocates began pushing back against this paternalistic, custodial attitude, which led to a series of laws mandating equal access and equal treatment for Americans with disabilities. The landmark Americans with Disabilities Act of 1990 made it illegal for the first time for employers to discriminate against workers with disabilities. While these changes made huge strides in allowing Americans with disabilities to lead normal lives, they didn’t address the 1938 federal law that allows businesses to pay less than minimum wage in some cases.

As part of the law, employers apply for a waiver from the US Department of Labor seeking permission to pay a disabled worker less than the full minimum. They must show evidence that the worker’s mental or physical disability impairs their ability to do the job. For example, if it takes the disabled worker twice as long to do a task than it does for a worker without disabilities, they could pay the disabled worker half the minimum wage.

Disability rights advocates have been pushing back against this practice. They want the federal government to prioritize services that focus on independence and integration over the isolation of mental institutions or segregated workshops. About 13 percent of Americans have mental or physical disabilities, and they are far less likely to work than the average American. Even so, 36 percent of Americans with disabilities had jobs in 2016 (among those who are of working age and not living in institutions), according to a recent report from the Institute on Disability at the University of New Hampshire.

Under the law, the Department of Labor would immediately stop issuing new waivers to employers. Those that already have them would need to gradually raise wages each year so they are paying the full $15 minimum wage by 2026.

There has been little pushback from employers who pay workers less than the minimum wage, likely because these workers make up such a small part of the workforce.

Here’s what the Raise the Wage Act doesn’t do

The Raise the Wage Act is not perfect; there are millions of low-wage workers who get a zero percent pay increase under the law. That’s because federal labor laws exempts so many workers from these types of protections.

It’s important to keep in mind that minimum wage laws enshrined in the Fair Labor Standard Act do not cover all workers, including those in the gig economy. Under federal law, businesses do not need to pay independent contractors and freelancers the minimum wage or overtime. Think Uber drivers and Instacart employees.

The Fair Labor Standards Act also excludes farmworkers and housekeepers from the right to earn the minimum wage or get overtime pay. They were excluded as a concession to Southern lawmakers, whose states were highly invested in paying low wages to these groups of workers. At the time, that workforce was overwhelmingly black and Latinx, and excluding them from a minimum wage was intentional. Today, about a quarter of farmworkers and 67 percent of housekeepers earn less than the minimum wage.

All this goes to show why a $15 minimum wage is the most obvious solution to lift millions of families out of poverty. The left-leaning Economic Policy Center estimates that the Raise the Wage Act could boost the paychecks of 40 million workers.

The chances of passing the law in the Democratic-controlled House are pretty good. The challenge will be to get enough Republican senators on board with the idea. In the past, GOP lawmakers have been overwhelmingly resistant to changing the minimum wage. But it’s getting harder for them to make the case that businesses will do it on their own

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