It is the Committee's view that the Administration's proposal is seriously deficient in several respects. First, the level of $4.25 is too low. Since 1981, there has been over 40% erosion of the purchasing power of $3.35, and increases less than this percentage would actually be a reduction in the real minimum wage. A more disturbing aspect of the Administration proposal is their "training wage." The Administration proposes that employers be granted the discretion to pay a subminimum wage, of $3.35, to all new hires for a period of six months. It is unclear as to why the Administration refers to this subminimum as a "training" wage" the subminimum would require absolutely no training, it would apply to industries that offer little or no training, and it would apply to employees who have already been trained in the skills required to perform their jobs. The Department of Labor provides detailed data on training time periods for thousands of occupations in their Dictionary of Occupational Titles. Almost all of the occupations found at or near the minimum wage require training periods of no more than thirty days. Recently the General Accounting Office criticized JTPA for granting training contracts for dishwashers, food service workers, custodians, and laundry workers at twice the DOL recommended 30 day periods. The Committee is concerned that a six month subminimum option would give substantial economic incentive to pay new employees at the subminimum wage regardless of their skills or abilities, without the remotest relationship to actual training provided or necessary. Another concern is raised when one considers the turnover rate in most minimum wage jobs. It is the Committee's view that many of the minimum wage workers change jobs more often than every six months. For example, the fast food industry, which employs millions at or near the minimum wage, has an annual turnover rate in excess of 300%. Under the Administration proposal, the average worker in these or many other minimum wage jobs would never receive the proposed increase. Finally, the Administration's subminimum wage provision would, the Committee believes, provide substantial incentive for employers to cause unnatural turnover; that is that employers might fire employees or cause such employees to quit at or near the expiration of the six month subminimum wage eligibility. P. THE ADMINISTRATION'S JOB LOSS ASSUMPTIONS In her testimony before the Committee, the Secretary presented the Department of Labor's assumptions about job loss under S. 4, the predecessor bill to S. 1182 vetoed by the President. These assumptions are seriously flawed and must be called into question. The Secertary stated that S. 4 would result in the loss of 650,000 job opportunities. That estimate was based on the assumption that a 10% increase in the minimum wage would result in a 2% decrease in job opportunities for teenagers and a 0.25% decrease in jobs for young adults. These assumptions are overstated and outdated. The assumptions are based on a range of studies, some dating back to the 1960s. The Minimum Wage Study Commission established by Congress did, in fact, review various studies and established a mid-point job loss estimate based on these studies. However, the Commission's own economists found that a 1% (not the 2% assumed by DOL) decrease in job opportunities was more realistic. Moreover, the Commission only used data collected through 1979. Data is now available through 1986. Under the direction of Professor Charles Brown, one of the Commission's original economists, Alison Wellington of the University of Michigan has replicated the Commision's work using the data updated through 1986. The Wellington study estimates that teenage job loss associated with a 10% increase in the wage would equal .6% and that the wage increase would have no significant effect on the employment of young adults (ages 20-24). In addition to using outdated disemployment effect estimates, the Administration ignored the relationship between the minimum wage and the average wage. In virtually all job loss studies, the accepted methodology is to estimate the impact on the change in the minimum relative to the average wage. The Labor Department made its job loss estimates based on the dollar increase of the minimum wage-not on the increase relative to the average wage, inflating the figue by some 83%. The Center on Budget and Policy Priorities has estimated that the job loss resulting from S. 4, utilizing the current disemployment effects and the 21.2% increase (following the adjustment method used by the Congressional Budget Office), is 90,000-much lower than the estimates offered by the Department of Labor. It would be an even lower figure applied to S. 1182, with the lower top rate and the training wage provisions. Even this number of lost job opportunities is too high. First of all it does not consider the proposed increase in the small business exemption. Secondly, and most importantly, the estimate does not take into consideration the fact that 13 states (and the District of Columbia) have already increased their state minimum wages above the federal level. This state initiative will reduce or virtually eliminate the job loss effects of S. 1182 in these states. In her oral testimony, the Secretary of Labor criticized the Wharton macroeconomic model simulation results Dr. Gerard Adams provided for the Committee last Congress on the impact of a $4.65 an hour minimum wage. Her criticism claimed that macroeconomic models do not factor in all the variables necessary in calculating job loss. Fortunately, Dr. Adams also provided the Committee with regression analysis to test the model simulation, and came up with "largely compatiable results" (testimony of Dr. Adams before the Committee, July, 1987). And, as noted earlier in this section, Business Week found the Wharton model's estimates of job loss too high due to other variable not factored in. In summary, the Committee finds that the Administration's job loss estimates are severly overinflated. According to the most recent data and relevant information, job loss resulting from S. 1182 will be less than 15% of the job loss projected by the Administration. VI. COMMITTEE ACTION The Committee on Labor and Human Resurces met on August 2, 1989 to consider S. 1182, the Fair Labor Standards Amendments of 1989. The Committee voted to adopt and report S. 1182, by voice vote. VII. COST ESTIMATE Hon. EDWARD M. KENNEDY, U.S. CONGRESS, CONGRESSIONAL BUDGET OFFICE, Chairman, Committee on Labor and Human Resources, DEAR MR. CHAIRMAN: The Congressional Budget Office has reviewed S. 1182, the Fair Labor Standards Amendments of 1989, as ordered reported by the Committee on Labor and Human Resources on August 2, 1989. We estimate S. 1182 would result in no direct costs to the federal government. There is the potential for increases in federal contracts and certain other federal programs, but data limitations preclude estimating the amounts. Finally, the bill would establish a Minimum Wage Review Board and require the Board to develop several studies in conjunction with the Department of Labor. We estimate that the costs of the Board and of the studies would be $675,000 in fiscal year 1991, $975,000 in fiscal year 1992, and in fiscal years 1993 and 1994 the estimated cost would be less than $300,000. These costs are subject to future appropriations. S. 1182 would increase the minimum wage in three steps between now and September 30, 1991. The new levels would be not less than $3.85 an hour for the year beginning October 1, 1989; not less than $4.25 an hour for the year beginning October 1, 1990; and not less than $4.55 an hour after September 30, 1992. The bill also would (1) establish a Minimum Wage Review Board, (2) apply the Fair Labor standards Act to Congressional Employees, (3) change the minimum wage guidelines for Puerto Rico, the Virgin Islands and American Samoa, (4) increase the tip credit of the applicable minimum wage from 40 percent to 45 percent of the applicable minimum wage rate during the year beginning October 1, 1989, and to 50 percent of the applicable minimum wage rate after September 30, 1990, (5) establish a training wage for on-thejob training of not less than $3.35 an hour during the year beginning October 1, 1989 and not less than the greater of $3.35 an hour or 85 percent of the minimum wage thereafter, (6) allow an employer to employ an employee for a period of not more than 10 hours (in any work week) in excess of the maximum workweek specified without paying overtime compensation if during such period the employee is receiving remedial education, (7) allow the Minimum Wage Review Board to enter into contract with the Secretary of Labor to provide for several studies and surveys to be conducted by the Bureau of Labor Statistics. These studies would include a study of the impact of increasing the federal minimum wage in rural and high unemployment areas, and surveys and re search on the characteristics of workers receiving the minimum wage levels under the Fair Labor Standards Act as amended. Federal Government. Increasing the minimum wage could increase the administrative and enforcement caseloads within the Wage and Hours Division of the Employment Standards Administration at the Department of Labor. While this could result in higher costs to the federal government, there is no data available for estimating the increase. To the extent that federal contractors use minimum wage labor, federal costs could increase as a result of enactment of S. 1182. However, there is no data available with which to estimate this effect. Increases in the minimum wage may also affect service levels in several federal programs because participants' pay is based on the minimum wage. Programs that may be affected are the Summer Youth Employment program, Community Service Employment for Older Americans, and the College-Work Study program. In these programs, the increase in wages might have to be offset by lowering the number of participants. S. 1182 establishes the Minimum Wage Review Board to advise Congress on setting the minimum wage after September 30, 1992. Salary, travel expenses and per diem allowances for the five board members, and salary and overhead costs for an executive director and staff are authorized, although no specific authorization level is stated in the bill. We estimate these costs would be less than $300,000 annually, beginning in fiscal year 1992. S. 1182 also states that the Board shall enter into contract with the Secretary of Labor, subject to availability of funds, for the conduct of 6 different studies. Three of the studies are to be completed by September 30, 1991 and the remaining 3 are to be completed by September 30, 1992. The bill outlines the types of studies required along with completion dates, although no specific authorization level is stated. The cost of each study would vary with the amount of data collection and statistical analysis involved. We assumed each study would require 4.5 man years of effort and would cost an estimated $225,000. No additional data collection efforts above and beyond what the Bureau of Labor Statistics currently collects were assumed in the estimate. If new survey instruments or data collection were required, the cost per study would increase significantly. After discussions with the Bureau of Labor Statistics, they were unable to tell us if any of these studies would require additional data collection. The changes to the small business enterprise threshold, the treatment of Puerto Rico, the Virgin Islands and American Samoa, the tip credit and the addition of the training wage and provisions for remedial education are estimated to have no cost effects on the federal budget. State And Local Governments. To the extent that state and local governments have workers who are paid at the current minimum wage or between the current minimum wage and higher rates prescribed in S. 1182, state and local government wage costs could increase with the enactment of S. 1182. There is no data with which to estimate the magnitude of these costs. Furthermore, the effects will vary from state to state. For example, there are currently 13 jurisdictions that have set minimum wage levels above the federal ly mandated $3.35 an hour. In these jurisdictions, the new federal minimum wage rates could have less of an effect than in states in which the minimum wage is at the current federal level. If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contact is Cory Leach (226-2820). Sincerely, ROBERT D. REISCHAUER, Director. VIII. REGULATORY IMPACT In accordance with paragraph 11(b) of Rule XXVI of the Standing Rules of the Senate, the following statement of the regulatory impact of S. 1182 is made: A. ESTIMATED NUMBER OF INDIVIDUALS AND BUSINESSES REGULATED AND THEIR GROUPS OF CLASSIFICATIONS It is estimated that S. 1182 would not regulate any additional number of individuals or businesses, as it does not contain any significant net expansion of coverage by the Fair Labor Standards Act. Section 3 of the bill adjusting the enterprise test to $500,000 would result in approximately the same number of individuals added to that exempt classification as those added to the coverage of the Act by removal of the section 13(a)(2) and 13(a)(4). B. ECONOMIC IMPACT OF THE INDIVIDUALS, CONSUMERS, AND The economic impact of the legislation is relatively small in the aggregate and imperceptible to the individual, according to one expert testifying before the Committee. It is estimated that there are under 14 million employees, out of a labor force of over 115 million, earning less than $4.55 an hour, and most of these would be covered employees receiving increases over the three years ranging from $.05 an hour to $1.20 an hour. According to testimony received by the Committee, these wage increases could result in an additional .2% added to the Consumer Price Index. One expert informed the Committee the inflationary impact on consumers of the minimum wage bill would be the equivalent of a 10 cent increase in the price of gasoline. While over 90% of employees are covered by the FLSA and would be entitled to the new minimum wage rates, most businesses already pay in excess of the rates established by this bill, and will not realize a measurable impact. C. IMPACT OF THE ACT ON PERSONAL PRIVACY This legislation will have no impact on personal privacy. D. ADDITIONAL PAPERWORK, TIME, AND COSTS This legislation will result in some additional paperwork, time and costs to the Department of Labor, in upgrading their FLSA regulations to reflect the amendments to the Act and in preparing, printing, and distributing new minimum wage notices to covered employees. There will be no additional paperwork or recordkeeping for most covered employers, other than adjusting payrolls if cur |