Chairman Orange, Chairman Evans and other members of the committee, thank you for the opportunity to testify today. My name is Ed Lazere, and I am the executive director of the DC Fiscal Policy Institute. DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with an emphasis on policies that affect low- and moderate-income residents.
The District of Columbia is at a critical period in its history, with the city is experiencing tremendous prosperity and growth. And yet that growth is making it difficult for many residents to keep up with rising housing costs and to continue to call the District home. We as a community face the challenge of ensuring that the benefits of the District’s progress are shared as broadly as possible. We face the question of whether a prospering community can maintain its economic and cultural diversity.
There is no one single answer to this challenge. The District needs to improve its educational and job training systems, from Pre-K-12 to the community college to adult literacy. We also need to help ensure that basic needs such as health care and housing are accessible and affordable.
But most fundamentally, we need to ensure that people who work are able to earn a reasonable living. That is why I am here today to testify in favor of increasing DC’s minimum wage and indexing it for inflation, including the minimum wage for tipped workers, and improving access to paid sick leave for DC workers. We also support the proposal to increase the standard deduction in DC’s income tax, because helping workers keep more of their pay also is important.
Let’s review what we know about low wages in DC and their impact.
- Most low-income households are working. Three-fifths of all low-income residents are part of a working household. The average wage of working poor residents in 2010 was about $9 an hour.
- Low-wage jobs are built into our national and local economy. Fully one-fifth of all working DC residents earn less than $12 an hour.
- The gap between high-wage and low-wage workers is growing. Wages for the bottom 20 percent of working DC residents have fallen nearly $1 an hour since 2008, while rising more than 10 percent for middle- and high-wage workers.
- Housing costs are increasingly unaffordable for low-income residents. The number of low-cost housing units fell by half over the last decade. The typical low-income household now spends 69 percent of its income on housing.
- DC is losing residents and lower-income families with children. Low and stagnant wages in the midst of rising housing costs are creating massive changes in the District. Outside of upper Northwest DC and Capitol Hill, the number of children is dropping dramatically. This has occurred the most in gentrifying neighborhoods in Wards 1 and 2, but the number of children also has fallen in nearly all neighborhoods in Wards 5, 7 and 8. This suggests that rising gap between incomes and housing costs are pushing families out of the city.
These trends will undoubtedly continue unless we take steps to reverse them. One of those steps is to set minimum wage and benefit standards at levels that better ensure that residents can earn a decent living.
Raising the Basic Minimum Wage
The current DC minimum wage, even at $1 an hour above the federal, falls below the purchasing power of the federal minimum wage of the late 1960s, a time when our economy was far less productive. That suggests that there is room to raise DC’s wage floor, and then the question becomes what level of wage increase is possible without harming DC’s economy. The legitimate concern over job losses is the reason that minimum wage increases have been studied extensively, including situations where one city or state raises its wage while its neighbors do not. As John Schmitt will explain, these studies consistently find that raising wage standards in a moderate way has little or no impact on the number of jobs, including jobs created by small businesses.
Why is this the case? A higher minimum wage means workers can buy more, so that a higher minimum wage actually can help create jobs. Moreover, many low-wage jobs such as retail are location specific. CVS cannot sell toothpaste and batteries to DC residents unless their stores are here. Higher minimum wages also result in lower turnover, which is a tremendous benefit to businesses. Finally, businesses, adapt through a variety of strategies to higher wage costs.
The research suggests that raising the District’s minimum wage to as much as $12.50 an hour, in steps over a number of years, can be accomplished without a risk of notable job losses. Given the urgency of this issue, we recommend that the first increase be implemented within six months of adoption of legislation, with subsequent increases occurring in one-year increments until the proper wage is reached.
Raising the minimum wage would not only help low-wage workers and their families, but it also would help low-income communities. The added buying power in poor neighborhoods would translate to stronger neighborhood development, including retail and housing.
Raising the Minimum Wage for Tipped Workers
DC’s minimum wage for tipped workers, which is just at $2.77 an hour, or about one-third the full minimum wage. A restaurant server who works full-time year-round is paid under $6,000 by his or her employer. The minimum wage for tipped workers in DC is lower than in at least 26 states.
At the federal level, the minimum wage for tipped workers was for many years set as a percentage of the full minimum wage. This reflected a recognition that tipped workers receive non-wage compensation that other workers do not, but that wages should serve as a stable core of a tipped worker’s wages. Unfortunately, that link was broken about 20 years ago, and the wage for tipped workers has fallen further behind the basic minimum wage at the federal level and in many states.
Raising the wage for tipped workers, and re-linking it to the full minimum wage are important for many reasons. Some servers work in low-price establishments where tips can be very low. Restaurant business can vary from week to week or shift to shift, so that a worker relying mainly on tips could face very uneven income despite having the same bills to pay every month. While, by law, employers are required to pay workers up to the minimum wage if tips and $2.77 an hour do not reach that level, this is difficult to monitor and enforce.
Finally, the fall in the tipped worker minimum wage relative to the full minimum wage means that the balance of who pays servers has shifted over time from owners to patrons. Most of us who eat at restaurants would like to think that tips are adding to our server’s wages, not filling in for low and stagnant pay.
We therefore recommend increasing the tipped worker minimum wage and setting it as a percentage of the full minimum wage, while understanding that addressing the very low pay of tipped workers should not be done overnight. The District should determine a reasonable schedule to allow the tipped worker minimum wage to reach a desired share of the full minimum wage. It is worth noting that seven states have no separate wage for tipped workers but instead cover them under the full minimum wage.
Expanding Access to Paid Sick and Safe Leave
When the District adopted its Paid Sick and Safe Leave Act in 2008, we were one of the first jurisdictions in the nation to decide that all workers should be able to earn leave for times when they or a family member got sick or when they need to address domestic violence crises. We declared as a community that workers should not have to make the difficult choice between going to work sick or losing pay, and that people should not lose their jobs because they have to skip work while ill.
Unfortunately, that law did not cover all workers. The law has an exemption for tipped workers, including restaurant servers, and it allows workers to start accruing paid sick and safe leave only after being on the job for a year. In industries where turnover approaches 100 percent annually, this makes the paid sick leave law an empty promise.
A study of the impact of the District’s law has found that mandating sick leave has not hurt the city’s economy. And local and national research suggests that the benefits to businesses of providing paid sick leave, including lower turnover and lower “presenteeism,” outweigh the costs from providing paid sick leave.
DCFPI therefore supports the Sick and Safe Leave Act of 2013, which would eliminate the unjustifiable exclusion of tipped workers, allow workers to start accruing leave immediately and use it after a reasonable probation period, and make it easier to enforce the law.
Increasing DC’s Standard Deduction in the Income Tax
The DC taxes paid by low and moderate-income DC residents — those with incomes between $22,000 and $62,000 — are higher as a share of income than the taxes paid by any other group of DC residents. And they are higher than the taxes paid by similar residents in nearly every state. Reducing the taxes paid by low and moderate-income residents is another critical step to helping families make ends meet in the District.
A key step in achieving that goal is increasing the District’s standard deduction. The DC Fiscal Policy Institute found this year that the combined value of DC’s personal exemption and standard deduction is well below federal income tax deductions and well below the deductions in most states. We, therefore, support the proposal to increase DC’s standard deduction.
We know that many people work in DC but earn too little to support themselves and that both wage and income inequality have widened. We know that residents without paid leave face the risk of losing their job if they make the choice to stay home when they or a loved one is ill. And we know that the District is becoming an increasingly expensive place to live. Efforts to raise the earnings are critical to helping families escape poverty and to continue to call DC home.
Some will argue that the District cannot make these changes without putting our economy at risk. Yet the bulk of the research on both the minimum wage and paid sick leave suggests that we can in fact help DC workers without harming the DC economy. The District has implemented a paid sick leave law, a smoking ban in bars and restaurants, and a plastic bag fee without any signs of damage.
The reality is, if have to wait for the federal government, or both Virginia and Maryland, we may never be able to take the steps needed to make sure work pays in the District of Columbia. The District’s economy has reached a point where we are one of the most dynamic cities in the nation, if not the world, and a powerful core to our regional economy rather than the doughnut hole we once may have been. Rather than acting out of the unproven fear that treating workers better will damage the city’s progress, we should move ahead with the steps we think are right, and adjust as we go along if needed. The District of Columbia, with its amazing growth and high per capita income, is the best place to show that the benefits of growth can be shared widely.
Thank you for the opportunity to testify.