STATEMENT on S. 1725 and S. 1861 FAIR LABOR STANDARDS AMENDMENTS OF 1973 before the SUBCOMMITTEE ON LABOR of the SENATE LABOR AND PUBLIC WELFARE COMMITTEE for the CHAMBER OF COMMERCE OF THE UNITED STATES by ROBERT T. THOMPSON June 6, 1973 I am Robert T. Thompson, a labor attorney with Thompson, Ogletree, and Deakins of Atlanta, Georgia and a member of the Labor Relations Committee of the Chamber of Commerce of the United States. With me is Otto F. Wenzler, Labor Relations Manager of the National Chamber. We are here today to express on behalf of the business community opposition to minimum wage increases generally, and to the proposals contained in S. 1861 in particular. Our position is based on the belief that minimum wage increases cause greater harm than the good they allegedly do. The minimum wage increases proposed in S. 1861 constitute a clear danger of creating greater unemployment and higher inflation. For most covered workers, the proposed rates in S. 1861 would result in a 37.5% boost in little over one year. For those categories of employees first covered in 1966, the same percentage increases would take place, but over a two year period. While minimum wage increases are currently exempt from the restrictions of the Economic Stabilization Act, the 37.5% boost in little more than one year is entirely out of line with the President's efforts to hold wage increases within a 5.5% range. The adverse psychological impact of such increases could weaken the economic stabilization program. The most damaging aspect of minimum wage increases, however, is the extent to which they contribute to unemployment. Unemployment Consequences of Minimum Wage Increases Economists have established a clear link between increases in minimum wage rates and increases in unemployment. While it may be difficult to 1/ See, Employment Effects of Minimum Wage Rates, John M. Peterson and Charles T. Stewart, Jr., American Enterprise Institute for Public Policy Research, Washington, D. C., August, 1969 establish that past increases in federal minimums have had much impact on total unemployment, it must be remembered that since 1950, all minimum wage increases have been enacted during periods of significant economic expansion. Thus the expansion of the economy has tended to submerge the unemployment consequences of the increased minimum rates. Where does a minimum wage increase cause or contribute to unemployment? In the industries which employ the greatest numbers of low-wage workers. Since the original enactment of the Fair Labor Standards Act, various economists have studied the impact of higher minimum rates in specific low-wage industries. As detailed in our testimony of June 9, 1971 to this Subcommittee, these studies have found there is a significant unemployment effect in these low-wage industries as a result of minimum wage increases. In short, the very people whom supporters of higher minimum wage rates purport to be helping are the usual victims of the unemployment effects of a minimum wage increase. No one can legislate the value of an individual's labor. What can be legislated is the minimum cost of his labor. The difference between value and cost is often the difference between employment and unemployment. Raise the minimum wage level beyond the level which an employer is willing to pay for a particular individual's services, and the result is loss of employment for that individual. It must be admitted, of course, that a higher minimum wage rate will put more money in the hands of some employees. But part of the cost of giving some workers more income is to cut other workers off from any income. Impact on Industry Another adverse effect of higher minimum wage rates is the higher labor costs in affected business firms. Many employers at the lower end of the economic scale are only marginally profitable even under current minimums. Forcing drastically higher minimums on marginally profitable enterprises may be the final straw which forces them into an economic collapse. If higher minimums force an employer out of business, who suffers? The employer, to be sure, but also the former employees who would be without jobs. 3. In addition, many employers often find a ripple effect emanating from a minimum wage increase. As the lowest rate is increased to conform to the new minimum, the wage rates currently above the new minimums will have to be increased to maintain differentials between different skill levels and job classifications. In addition, employers who are not directly affected by the minimum wage increase may find themselves having to increase their rates anyway in order to maintain traditional differentials between their employees and other workers who are paid at or near minimum wage rates. Recently, the Department of Labor estimated the cost impact of the minimum wage rate increases proposed in S. 1861. While these figures claim to show that there will be only a modest impact on total labor costs, these figures are exceedingly deceptive. They include only the additional costs which would be imposed to bring all employees currently under the proposed minimums to the newly established rates. This superficial analysis ignores the fact that the ripple effect will force employers to raise wage rates which are currently above the proposed minimum levels to even higher levels. In addition, it ignores the wage cost impact of extensions of coverage, and elimination or alteration of exemptions. It would be fair to say that the total cost impact of S. 1861 will far exceed the Labor Department's limited estimates. Finally, analysis of the aggregate impact of any minimum wage increases ignores the fact that the low wage workers who would receive increases with a higher minimum wage rate are not evenly distributed throughout industry. Lower wage workers are concentrated in what are generally identified as low wage industries, such as services, retail, and certain low wage manufacturing industries. Therefore, higher minimums would cause a disproportionate increase in the labor costs of these industries and/or higher unemployment. While the impact of a given minimum wage increase on the aggregate economic life of the country may be relatively small, because of the concentration of low wage workers in a few industries and in limited areas of the country, the impact in those industries and among their employees, and in those regions, will be much greater. Higher costs to the consumer would also result from an increase in the minimum wage rate. A dramatic example of this effect was presented in the .4 statement by the American Hospital Association 2/ submitted to the Subcommittee during the 92nd Congress. Among the Association's estimates of the impact of a $2 minimum wage rate on the cost of hospital care was a determination that the average daily cost of hospital care would increase by $11.82, with the average cost increase for a typical hospital stay increasing about $100. Employment Problems of Youth One of the most persistent employment problems in our work force is the appalling rate of unemployment among youth and especially among minority youth. Unemployment in the 16 and 17 year old category is often 4 to 5 times higher than the corresponding rate for adults over 25. One of the most significant causes of 3/ the high rate of youth unemployment is the minimum wage. Economists have studied this unemployment effect, and have even plotted how long the effect lasts.4/ As Employers admit quite frankly that the reason they do not hire young people is that their skills and experience do not warrant minimum wage rates. Nobel Prize winning economist Paul Samuelson observed, "What good does it do a young black to know that if he could find a job, he would have to be paid $1.60 an hour, if the reason he cannot find a job is that no employer is willing to pay him that rate?" Recently two more noted economists have spoken out on the impact of minimum wage rates on teenage unemployment. Dr. Herbert Stein, Chairman of the Council of Economic Advisers, recently stated that unemployment of young people is a serious and possibly growing problem which shows a great waste, and the potential for alienation and hostility that is dangerous for the people directly involved as 2/ See letter to the Honorable Harrison A. Williams, Jr., Chairman, Committee on Labor and Public Welfare, from Kenneth Williamson, Deputy Director, American Hospital Association, October 4, 1971. 3/ See "The Effects of Minimum Wages on the Distribution of Changes in Aggregate 4/ "The Lag in Effect of Minimum Wages on Teenage Unemployment, "Douglas K. Adie, Proceeding of the 24th Annual Meeting, 1971, Industrial Relations Research Association, pages 38-46. 96-478 O-73-6 |