Chairman Orange, thank you for the opportunity to testify today. My name is Elissa Silverman, and I work for the DC Fiscal Policy Institute (DCFPI). DCFPI engages in research and public education on the fiscal and economic health of the District of Columbia, with a particular emphasis on policies that impact low- and moderate-income residents.
Our executive director, Ed Lazere, provided testimony earlier today on DCFPI’s support for a $12.50 minimum wage increase in stages, coupling the tipped minimum wage to the minimum wage at a rate of at least 70 percent, and enacting all the provisions of the proposed Earned Sick and Safe Leave Act of 2013. I have had the benefit of watching much of today’s testimony, and I want to answer some questions that were asked by you and your colleagues as well as elevate points made previously.
Let’s Use Data, But A Six-Month Study Is Not Necessary
As has been said by many, the minimum wage is one of the most studied topics in economics. The data is available to make sound decisions on setting a wage, determining a timeframe for implementation, and setting a tipped minimum wage. I urge you not to delay by embarking on a 120 day or more study, but I do encourage you to engage the economists and minimum wage experts, some of whom testified before you today. Though I believe we can move quickly and judiciously, I also urge you not to settle on a number today. I ask you to review today’s testimony. Many witnesses have shared information and data that points to $12.50 being a reasonable wage increase over a number of years that will likely have minimal employment impacts.
At the beginning of today’s hearing, Councilmember Evans asked who the DC residents are who will be impacted by an increase in the minimum wage. So did Councilmember Barry during his discussion with the Deputy Mayor for Planning and Economic Development. Let me try to give you a picture based on preliminary Census analysis done by the Economic Policy Institute. I do caution this is preliminary; we will be happy to supply more information soon, and I am happy to accommodate your requests.
Demographics of Workers Who Earn Less Than $12.50 An Hour
With the stated caveats:
- One-out-of-five workers who live and work in DC make below $12.50 an hour. That means these 21.4 percent of DC residents make less than $26,000 a year. As has been noted by previous witnesses, the average market rate for a two-bedroom apartment in the District is more than 1,400 a month, and given that the suggested contribution for housing is 30 percent of take-home pay, DC residents need to make more than $27 per hour to afford a two-bedroom unit. DCFPI supports the proposal to increase the minimum wage to $12.50, which would help more than 45,000 residents.
- Four-out-of-10 DC workers who make less than $12.50 an hour live in DC. There is a distinction here from the above group: the category “DC Workers” includes people who work in DC but do not necessarily live in DC. This is higher than the overall percentage of DC workers who live in the city, which is about three-in-ten.
- Breakdown of Ages of DC Workers Who Earn Less than $12.50 An Hour.
Younger than age 20: 5 percent
20-34: 52 percent
35-54: 30 percent
55+: 13 percent
This data shows clearly that teenagers are not the primary beneficiaries of a minimum wage increase. Adults, many of whom are heads of households, will benefit.
- Gender Is Fairly Even; 53 Percent Are Female, 47 Percent Are Male.
- Seven-out-of-ten Do Not Have a Bachelor’s Degree.
- One-out-of four are married.
Why $12.50 An Hour Is A Reasonable Wage Increase For DC
Given the fair market rent for a two-bedroom apartment in DC is more than $1,400 a month, a worker allocating the recommended 30 percent of her paycheck to housing would need to earn more than $27 an hour’but that’s not how economists approach setting a reasonable minimum wage.
DC’s current minimum wage is $8.25 an hour, one dollar above the federal minimum wage. Workers who receive tips earn a tipped minimum wage of $2.77 an hour, which is 64 cents above the federal tipped minimum. I will address the need to raise the tipped minimum a bit later.
Other local economic benchmarks are commonly used, such as setting a wage that would boost the earnings of the lowest 10 to 20 percent of workers.
- A reasonable middle ground might be to boost the lowest 15 percent. As shown in the chart below, 15 out of 100 DC workers earned $11.53 an hour or less in 2012. Adjusting for inflation, that 15 percent would get a boost if the wage went up to $12.50 by 2016.
Center for Economic and Policy Research analysis of Census data. Wages refer to workers living in DC. Inflation projections from CBO, CPI-U-RS.
- This is a very similar percentage to the workers across the U.S. who would benefit from the proposed increase to the federal minimum wage introduced in Congress, known as the Fair Minimum Wage Act of 2013. This bill would raise the minimum wage for 16 percent of workers in the U.S. by setting a $10.10 minimum wage by July 1, 2015.
- Another approach taken by economists is to look at half of the average wage. As the chart above shows, that would be $12.40 in 2012, and $13.45 adjusting for inflation by 2016.
A worker earning $12.50 an hour would earn $26,000 a year ‘ hardly enough to afford the median two-bedroom apartment but enough to make work pay a bit more.
Why DC’s Tipped Minimum Should Be Raised
DC falls into the bottom half of states when it comes to the tipped minimum wage, which is currently set at 34 percent of the minimum wage or $2.77. DC should restore the tipped minimum to its original intent, which was to tie the wage to a percentage of the minimum wage so that workers who receive tips as part of their compensation have a stable living income and are not subject to wild fluctuations of earnings. A reasonable approach would be to set the tipped wage to at least 70 percent of the minimum wage, as proposed in the federal Fair Wages Act of 2013, and consider phasing out the tipped wage altogether.
At least 26 states have a higher tipped minimum wage than DC, including seven which make no distinction between a tipped worker and any other worker. These states include California, Minnesota, and Oregon. The same tipping culture is present in San Francisco, Minneapolis, and Portland that exists here in DC. It is unclear what makes the business model work for restaurants in these cities with no tipped credit but makes it devastating for restaurants here.
Initially, the federal tipped wage was tied to the full minimum wage; it was set at half of the minimum wage. In 1980, Congress raised it to 60 percent. In today’s dollars, that would mean DC’s tipped wage would be $4.95.
Office of Wage and Hour Needs Resources and Emphasis
Chairman Orange, I am happy to hear about your interest in the Office of Wage and Hour. I encourage you to maintain that focus as performance oversight and budget hearings happen this spring. This is a very important office in the Department of Employment Services, yet it has seen budget cuts until very recently and the resources allocated in the past do not comport with its important mission to regulate and enforce a wide range of laws including the minimum wage, paid sick days, the living wage, and wage theft and overtime violations.
I quickly checked the budget numbers for this division. In FY 2012, the office had 6.5 full-time equivalents (FTEs). That was cut to just four FTEs in FY 2013. Due to the advocacy of groups like the DC Employment Justice Center, this year the budget was increased to 9 FTEs. I encourage you to keep your focus on this agency if you expect it to carry out its important mission to protect our residents in the workplace.
Thanks so much for the opportunity to testify. I am happy to answer any questions.