Is Rendell Violating the Federal Minimum Wage Act?

Here's a note from a state worker that asks us an interesting question: Is Rendell violating the federal Minimum Wage Act (which goes up again this week) by failing to pay state workers?

It sure would be interesting (and expensive) if employees start filing complaints!

______

Mr. Brouillette,

I have not yet seen any information regarding this anywhere from any news network, but am a loyal follower of the Commonwealth Foundation and wanted to share this with you. All I ask is that you keep my name out of the story as I am a state worker and work within an agency whose executives are close to the Governor.

Basically - the non-timely payment of hours worked by state employees could violate the federal Minimum Wage Act. This means that as of this Friday, July 24, 2009, which happens to be the next pay cycle for some state employees, their paychecks will show that they have worked 75 hours in the past two weeks but will receive $0, which if it is determined that this is a violation of the Federal Minimum Wage Act, the state could face a $1,000 fine for every employee who submits a substantiated claim. (At least that is how I interpreted the Minimum Wage Act wording which is found on the Federal Department of Labor's website.)

I have talked with a regional Federal Department of Labor representative and she had recommended that state employees who do not receive a pay check on the day that their pay is normally deposited, or receives a check which does not compensate them for the hours worked should call her office and file a complaint. All employees will need is their current pay statement, as well as some basic personal information to submit the complaint at which point the federal government will open an investigation against the employer, which in this case is the state of Pennsylvania. She did not say that it is a definite violation but she also did not say that it was not. She was supportive of our submitting the claim and having it investigated by their office.

...

Fortunately my wife and I were approved for loans to cover our missed pay but not all employees were approved for these loans and will have no income. I feel that the reporting of this potential violation may help to nudge the legislators and governor into coming to a solution a little quicker.

Best regards,

XXXX XXXXXXX

Minimum wage up again

On Friday, Pennsylvania’s minimum wage will increase ten cents, to $7.25 an hour. During already troubling economic times, the increase in minimum wage will hurt business, and will not help the minimum wage earners either. Reluctant to absorb further decline in profit, businesses will pass the new cost on to consumers, or even lay off workers.

Some argue that the increase in minimum wage will stimulate the economy by putting more in the pockets in workers, allowing them to spend more on food, clothing and entertainment. This argument over-looks the fact that there is evidence showing fewer minimum wage earners, mostly young adults or teens, will be hired. Furthermore, workers may find their hours cut, in order for the company to reduce costs.

Continuing to increase the minimum wage is just perpetuating a cycle of cost increases and job loss.

Is the minimum wage behind higher unemployment?

Mark Perry makes the case that the recent uptick in unemployment in the US is partially due to the increase in the federal minimum wage (and the pending increase next month).

His evidence is that the bulk of the increase in unemployment is in the 16-19 year old range and the 20-24 year old range – i.e. those who often earn minimum wage or slightly above.

Did the PA min. wage increase cost jobs?

The PA Department of Labor and Industry released their report on the state minimum wage increase. As this Post-Gazette story indicated, the report doesn't attempt to address what the effect on jobs lost.

We have commented and testified both anecdotal and survey evidence of employers laying off workers, reducing hours and costs elsewhere, and not hiring new employees. The report does not include this evidence, focusing solely on state and national data, and does not draw any conclusions about the employment effects of the minimum wage increase.

It is, of course, virtually impossible to tease out the impact of the minimum wage increase from state employment data. Nonetheless, the data present does allow for some interesting observations:



As the above table shows, salaried employees - i.e. those unaffected by the minimum hourly wage - represent all or most of the jobs added in 2007. Hourly jobs declined over the full year average, and were up only slightly during the 2nd half of 2007.






This table shows job growth/decline by wage. Interestingly, hourly low-wage jobs declined, while job growth occurred among higher paying jobs. This could be interpreted to mean that many slightly-above-minimum wage workers got raises, or, as our study predicted, many low-wage low-skill jobs were eliminated. Most likely, both trends were in effect.

Pennsylvania gets an "F" for worker Freedom

A report card from the Alliance for Worker Freedom gives Pennsylvania an "F" for meeting none of the ten measures of worker freedom.

As with all states having such a low grade, legislation that helps worker freedom should always be considered. However, with a public sector union membership of over 50 percent, switching from a defined benefit pension system to a defined contribution pension will help over 360,000 workers obtain a higher degree of freedom. Giving these workers defined contribution pensions will allow for a greater degree of personal control over the investment; as well as the
portability that adds to their financial security.

Overall, any policy or legislation recommended in this Index would be ideal for Pennsylvania to move toward an environment where worker freedom is protected. From right to work laws to paycheck protection, the employees in this state would benefit from improvements on any of the ten variables examined in this Index.

States with higher worker freedom also have strong economic growth, whereas states with low worker freedom - like PA - have slower growth. Get the full report here.

Economic literacy test: High school seniors beat Congress

Wall Street Journal article on US highschooler's performance on NAEP's economics test:

Pop quiz. Which has been most important in reducing poverty over time: a) taxes, b) economic growth, c) international trade, or d) government regulation?

We know what our readers would say. But lest you think American young people are slouching toward serfdom, you'll be pleased to know that 53% of U.S. high school seniors also answered "b." The latest version of the National Assessment of Educational Progress (NAEP) asked this question, among others on economics, and the results will not please members of the Socialist International, or for that matter the Senate Finance Committee.

I am sure that our state legislators would also fare poorly, and would be surprised to learn (or would deny) that their vote to raise the state minimum wage was not the answer.

The test also included more technical questions on price floors, opportunity cost, and the supply curve. One question asked what would happen if government mandated a high price floor for chocolate. A plurality deftly analyzed a graph to choose the correct answer: There would be a surplus of chocolate. Presumably the test could have asked about a minimum wage, too, and students would have arrived at a similar conclusion. Maybe Congress should make this test, or one like it, mandatory for all Members.

Wage hikes affect prices, teen jobs

Dan Miller of the Patriot News on the effect of the minimum wage increase on jobs, hours, and worker benefits.

The employers say they haven't cut jobs. Instead, they have reduced hours or aren't adding as many workers as they would like.

After the state law was passed a year ago, Josh Rissinger, general manager of 3 B Ice Cream, predicted that the mandated increase would lead to changes at his business, but he wasn't sure exactly how.

Recently, he said those changes have included higher prices and profits that have been cut in half. An ice cream cone costs 25 cents more this year than last. ...

Rissinger said cutting jobs isn't an option, because 3 B needs all its workers. Rissinger said he has five midstate stores, and no location has more than 10 workers, so 3 B won't be hit with the full wage hike until 2008.

Rissinger noted that he is more reluctant to hire a teenager with no experience. ...

Stew Rhodes, owner of Slack's Hoagie Shack in Lower Allen Twp., said he hasn't laid
off any of his 11 workers. But he has cut hours while increasing pay for longtime employees. ...

He increased prices 25 cents per item, too. And he's been hit with other cost increases -- the price of cheese is up 70 percent. But Rhodes said he could have avoided raising prices if not for the wage increase. ...

"I won't hire a 14- or 15-year-old any more if I have to pay them $7.15 an hour," Rhodes said. "I don't want to take a chance over this person being a good worker or being a dud."

Mike Pronio, general manager of Pronio's Market in Hershey, said he also has to be much more selective and cautious" in hiring people without experience. "It hurts the kids," he said.

Pronio hired a young person with disabilities through an agency. The employee did well, and the agency asked Pronio to hire more.

"I can't afford to do that," he said. "We're hurting the people who need it the most."

Mr. Miller should be forewarned that when I wrote a piece on the effects of the minimum wage increase, and noted that many of the effects we projected in our 2005 study had come to pass, I received a number of responses that I was just wrong. Most of these came from legislators who refused to believe that they hadn't "helped thousands of workers get out of poverty."

And when I pointed out that the data cited by Gov. Rendell showing that the unemployment rate dropped since he the minimum wage increase also shows a decline in total jobs and in the labor force, one legislator (who I won't name here), told me this was wrong, because he hadn't "bumped into [anyone hurt by the minimum wage increase] on the street."

Min. Wage, Jobs, and Unemployment

In his Weekly Newsletter, Gov. Rendell takes credit for "improving the lives" of workers who received a minimum wage increase. In it the Governor note:

"Pennsylvania’s economy is strong enough to absorb the affects of the very necessary wage increase. This year our unemployment rate hit a 30-year low and we continue to attract businesses and add jobs that bring new opportunity for our workers."

While this may be the first time Gov. Rendell has admitted that a minimum wage increase could lead to lost jobs, I want to talk about the unemployment rate. While the unemployment rate is down since Dec. 2006, that doesn't tell the whole story.

The Unemployment Rate equals Unemployed Persons divided by the Labor Force.
The Labor Force equals Unemployed Persons plus Employed Persons.
Unemployed Persons are only those actively seeking jobs (thus retirees, homemakers, college students, etc. are not considered unemployed).

Thus the unemployment rate could fall in one of three scenarios:
1. Strong Economy: The number of unemployed persons falls, and the number of employed persons increases. This indicates a strong economy, where people are leaving unemployment for work.

2. Population Growth: The number of unemployed persons increases, but the number of employed persons increases faster. This indicates where the labor force is growing (either through population growth, or a higher percentage seeking work) and the economy/jobs are growing in accordance with population.

3. Labor Force Decline: The number of unemployed persons decreases, and the number of employed persons also decreases. There are fewer people in the job market, and fewer jobs. This could be because of mass retirements, or a discouraged workforce no longer seeking jobs. Unfortunately, this scenario explains the drop in Pennsylvania's unemployment rate.

Using seasonally adjusted data, there are 33,000 fewer unemployed persons since the first minimum wage increase went into effect in January, but there are also 42,000 fewer people with jobs (see table below).

Two notes: I am not claiming that the minimum wage increase caused these job losses. Our own study on the minimum wage increase predicted a loss of 10,000 jobs due to the increase - but not necessarily a net loss of jobs in entire state economy. Second, the BLS survey of employers indicates jobs have gone up; but the unemployment rate comes from a survey of households (the above data), indicating job losses (it also indicates more total jobs, as it includes self-employment and small businesses not captured in the employer survey).

Tax subsidies needed to pay min. wage?

I missed this story in the Philadelphia Inquirer last week. State Rep. (and Philadelphia mayoral candidate) Dwight Evans is working to get $820 million in state subsidy for the Philadelphia Youth Network. Why? The PYN will have to cut the number of jobs for teens because they can't afford the higher minimum wage.

Wait, didn't Governor Rendell say that the higher minimum wage wouldn't cost jobs and didn't Rep. Evans push for the minimum wage increase.

More on lost jobs due to minimum wage hikes from the Lincoln Institute survey
and from the PA Chamber of Business and Industry.

And I would be remiss if I forget to add, "we told you so".

More on the Minimum Wage

NCPA Analysis points out that a national minimum wage affects some regions more than others - particularly when comparing Red States to Blue States. Specifically, principle supporters Nancy Pelosi (San Francisco) and Charlie Rangle (New York) represent districts with high costs of living and where there is already a minimum wage above $7/hour.

Meanwhile, Investor's Business Daily identifies possible Small Business tax credits or health care provisions that could be tied to a minimum wage increase in the Senate.

Minimum Wage vs. EITC

CBO analysis compares the effect of a minimum wage increase vs. an Earned Income Tax Credit Increase for the poor. They find that while most of the benefits of a minimum wage increase would go to non-poor families (they assume no effect on employment, but only for ease of calculation), while most of an EITC would go to poor families.

The Right Minimum Wage: $0

George Will in the Washington Post on why the nostalgia for New Deal era Big Government proposals - such as the minimum wage - are as bad an idea today as they were then.

Minimum Wage Impact

Coverage of the new Pennsylvania minimum wage and its impact on local businesses in the Carlisle Sentinel and the News Item. While local businesses feel the pinch and may have to lay off some workers or raise prices, the Department of Labor and Industry sticks to their talking point that there will be no adverse impact, only roses.

The Commonwealth Foundation study cited can be found here.

Minimum wage: The rising tide that lifts all wages?

Carlisle Sentinel on PA's higher minimum wage. Alhtough, our study is quoted, the context is not fully given. Our study does indeed claim that jobs will be lost; however, those jobs will be lost at the lower end of the pay scale and does not suggest an overall loss of jobs in PA. Our job count will most assuredly increase in PA in 2007, albeit at a lower level than if the wage floor not been artificially lifted by politicians. Jobs will indeed be lost.