» LC 114.1%/2~ W 13:5-‘$0003 & ‘:94 %a .251. ' ov 1619$9 Arch1Ved . ST. LOUfi.‘§§, IWQD. Issue Bnef "'%' T ONGREASSIOANALA RESEARCH % senvuce mbi Mm % € u.;unIuigagn{gr;.»1n.(ag.g;;;l;;;;@@ngu 0 LUNEMPLOYMENT I11 AND THE FEDERAL MINIMUM WAGE: OR (ARCHIVED--O4/29/83) ISSUE BRIEF NUMBER IBBOOO3 AUTHOR: Iwhittaker, William Economics Division THE LIBRARY OF CONGRESS I CONGRESSIONAL RESEARCH SERVICE MAJOR issuas SYSTEM ADDITIONAL INFORKATIOJ CALL.287-5700 ORIGZNATED O1/21/80. E UPDATED O3/ll/83 THROUGH THE 97TH CONGRESS CRS- l ‘IBSOOOB UPDATE-O3/ll/83 (“sun DEFINITION The Federal Fair Labor Standards Act (the FLSA) of 1938, subsequently ammended, provides, among other things, for a minimum wage floor for covered workers. About 60 million workers are now covered under the minimum wage provisions of the Act. On Jan. 1, 1981, the Federal minimum wage rate was increased from $3.10 per hour to $3.35 per hour. The minimum rate is set in statute and will remain at the current $3.35 level until they Congress takes specific action to alter that figure. Average annual unemployment among youth workers (those in the 16 19 tyear age bracket) has not fallen below 7.6% since 1948. During recent years the unemployment rate for this group has remained consistently high, refusing to give way in the face of diverse Federal and local job creation efforts. would the creation of a general "sub—minimum" wage for youth workers and for students help alleviate the high rate of joblessness among these workers? Some believe that it would. Others believe that it would not: that it would merely redistribute the prevailing unemployment in a different_ pattern. Legislation to create such a youth/student "sub-minimum" wage has been under consideration through the past five Congresses and has sparked strong views, both pro and con. BACKGROUND AND POLICY ANALYSIS (. HISTORICAL PERSPECTIVE The original Fair Labor Standards Act of 1938 provided an option for a I"sub-standard" or "sub-minimum" wage for learners, apprentices, and Iandicapped workers. It was assumed that these categories of workers were less productive and less profitable for management to employ and, therefore, ought to be employed at a rate lower than that enjoyed by more experienced workers who were, by conventional standards, free from any work—impeding disability. Organized labor opposed this provision of the Act in 1938, maintaining that the federal minimum wage was not to be considered an average wage or a prevailing wage but, rather, a wage floor -—- the absolute minimum that could, in fairness, be paid to a worker in exchange for time worked, productivity considerations notwithstanding. Labor spokespersons contended that these workers -- learners, apprentices, and handicapped workers -- ought to be paid at least the minimum rate provided by the Act. Through the years, Labor's position on this issue has not changed, essentially. Although the FLSA has undergone magor amendment on six separate occasions and, with the 1961 amendments, a limited sub-minimum wage was instituted for ful‘—time SCLOEHCS working part—time, no general sub-mirihum wage for all youths or for all students has been instituted. During recent Congresses, interest in a youth/student sub—minimum wage has increased. What factors have triggered this interest? There are a number of possible answers. H. fir (D r'\_ D) ‘.0 "1 U) P t. The cultural/social/economic en'ironment has changed substantially ince 1938. Conditions of labor have changed; so, largely, htve attitudes oward the toward the m’ labor of younger persons, toward formal education 9 '?“IV‘r\ -'~—'rw _. 74* '~ *’r-'/~'r Y‘.-' ~-.vr‘rr~-.- :31” ..C-wc:l.x.l- L..-I€' RETIRE- ll; \A.;l\...~- __‘::)L;.ll~_1C.‘:..'_,'. U‘ m I re introduced into e ‘I }_J ‘/2 $1) ,1 (J CRS- 2 IB80003 UPDATE-O3/ll/83 "world of workfl —— the latter, increasingly a structured, concerted, and public process. Fewer children, perhaps are introduced into a craft or profession through observing or working with a parent. Industrial discipline is learned, more often, outside the home. Concern may have shifted from t.) exploitation of young children to finding employment and training for older youngsters. ' Second. The unemployment rate for teenagers (whether or not they are students) has increased over the postwar decade --- far more so than "for non—student adults. It has been especially severe for minority youths. ‘Some observers have suggested that wage costs (principally the minimum wage) may serve as an impediment to employment of youth and student workers. Further, they argue, were such costs to be reduced and were youth/student wonkers thereby made economically employable their position in the labor market should improve. Unemployment Rates, Both Sexes (Annual Averages) Overall, Workers of Black 16-19 Hispanic Origin, Workers Year Years 16-19 Years 16-19 Years 1975 19.9 27.7 39.4 1976 19.0 23.8 39.3 1977 17.7 22.8 41.1 1978 16.3 20.6 38.6 1979 16.1 19.1 36.6 1980 17.8 22.5 38.5 1981 19.6. 24.0 41.4 Note: These are Bureau of Labor Statistics estimates.‘ They do not show duration of unemployment and they may or many not reflect activities in the "underground economy." A Third. Through amendment (1966 and thereafter), the pAct has been broadened to include large segments of the retail and service trades -- and, notably, the hotel, motel, and restaurant industry. More than 30% of food service employees, industry spokespersons attest, are teenagers. These extensions of the Act have made younger workers an important element in management‘s personnel considerations and have been accompanied by calls from management—oriented groups for a general sub—minimum wage for youth workers. Lowering the wage of these workers, some sugges would be a boon to I employers by lowering their labor costs and would a ford younger enhanced opportunity to be employed. persons an RECENT CONGRESSIONAL INTEREST O (D r! t1.‘ 1-‘ r1‘ ~ 3 (D 5)) :1 0- l—J KO '1 Cl C-1 F1’ C: U’ “ CRS- 3 IBSOOO3 UPDATE-O3/ll/83 began to have effect, there was serious discussion of the establishment of a youth sub-minimum wage -- but appropriate legislation was not reported. In May of l97l (the 92nd Congress), Labor Secretary James D. Hodgson, for the “ xon Administration, urged the adoption of a special, general youth ab-minimum wage; but, although legislation was introduced by Congressman ohn Erlenborn (R-Ill.) and was given extensive consideration in both houses, he proposal was not approved. A similar effort by Congressmen Erlenborn and ohn Anderson (R-Ill.) in the 93rd Congress (1973-1974) failed. Although the ssue continued to be discussed, no legislation was reported dealing with the sub-minimum wage question in the 94th Congress (1975-1976). In the 95th }_J. Congress (l977-1978), the issue was raised once again by Congressmen Erlenborn and Anderson -- emphasizing the problem of youth unemployment which, Mr. Anderson asserted, "has reached scandalously high levels." when a youth/student sub-minimum wage proposal was rejected in the House Committee on Education and Labor, Congressman Robert Cornell (D-Wisc.) carried the issue to the House floor with an amendment to the 1977 FLSA amendments. After extended debate, the Cornell Amendment was defeated by a vote of 210 yeas to 2ll nays. Similar efforts in the Senate were uniformly unsuccessful. During the second session of the 95th Congress (1978), Congressmen Cornell and ?aul Simon (D—Ill.) reintroduced the substance of the old Erlenborn (et al.) Amendment as H.R. 10452 -— the measure dying with adjournment. In the 96th Congress (1979-1980), Congressman Erlenborn, with others, introduced legislation to create a youth/student sub-minimum wage, and for other purposes (H.R. 5080). The bill was referred to the Subcommittee on Labor Standards but no action was taken, the proposal dying at the close of the 96th Congress. Other Members have introduced similar legislation, the exact form varying with the individual bill. WHAT IS THE YOUTH/STUDENT‘SUB-MINIMUM WAGE AND HOW WOULD IT WORK? Generally, the proposed legislation, which would amend Section 14 of the Fair Labor Standards Act, has been divided into two parts: a section dealing with youth workers and a section dealing with students. ‘ Youth workers / while proposals vary, the most frequent formula has been to define a youth as one who has not attained the age of nineteen (in some proposals, those under twenty years of age), and who can be employed without violating the applicable child labor laws. Although some have .suggested the total elimination of a minimum wage for such workers, the norm has been to urge an 85% sub-minimum —— i.e., 85% of the otherwise applicable minimum wage. Some have suggested other percentages. ~Usually, although not always, the sub-minimum rate would be made applicable through the first 180 days (six months) such a youth might be employed with any single employer. However, should such youth change employers, the six month applicability of the & - sub-minimum rate would begin all over again without regard to any experience or skill he or she might have acquired. Given the mobility of many youth workers who, traditionally, move from job to job while exploring the "world of work" or who work through short periods as their academic responsibilities n j permit, two or three years of work experience (in the highly competitive youth labor market) could be acquired before a youngster, in fact, moved beyond the subminimum wage level. For a youth worker, under nineteen -(or under twenty), student status need not be a factor. CRS- 4 IB80003 UPDATE-O3/ll/83 Advocates, however, note that youth workers, once they have developed skill and work discipline, would normally expect to move on into better and more demanding jobs’ at prevailing market rates. Such labor mark flexibility may depend upon the local prevailing rate of unemployment, general economic conditions, and the types of work younger persons are able to secure. Student workers Once again, while proposals vary, the most frequent student subminimum wage formula has defined "student" rather loosely. He or she must be a "full—time student (regardless of age but in compliance with applicable child labor laws)" who "shall be employed on a part—time basis and not in excess of 20 hours in any workweek, except during vacation periods." In contrast to the most commonly proposed treatment of youth workers, normally no time limitation has been placed upon the employment of a student at (the sub—minimum rate; and, thus, an employer could, legitimately, refuse to pay a student—employee more than a sub—minimum wage (usually the 85% figure, noted above) throughout a continuous period of employment spanning high school, college, and graduate school —- regardless of skill, experience, or age, the determining factor being his or her continued full-time student status. The "student" need not be a high school boy or girl, unskilled, or newly entering the world of work. Indeed, high school students would normally fall under the "youth" provisions of the legislation. Most likely, the "student" will be a college or university student —— possibly even a veteran, perhaps married and a parent, with skills and a long work record, for whom student status would often be an employment impediment. Some General Provisions Under the ACt, currently, :3 S1.1b"'IT1iI'1iII1Ll1T1 wage iS permitted fOI' certain categories of workers: learners, apprentices, messengers, the handicapped, and full—time students (working part-time in the retail and service industries under special permits issued by the Secretary of Labor where there will be no significant displacement of more mature workers). In addition, under certain programs, such student workers may be employed at a sub—minimum wage by colleges and universities. ‘ Under the proposed youth/student sub—minimum wage concept (as most frequently presented), any employer -- not only in the retail and service industries, but in manufacturing, mining, agriculture, etc. -- would be permitted to employ eligible workers at a sub-minimum rate —— even to do the same type of work normally performed by ‘adult—non—student workers on a full—time basis at a substantially higher, wage. No Dept. of Labor certification would be involved. In shortfl the determining factor in permitting payment of the sub—minimum rate is either (a) youth or (b) full—time student status —— not productivity, experience, or the quality o: work performed. Often; proposed legislation calling for a youth/student sub-minimum wage contains a double prohibition. Employers would not be permitted A substitute "younger workers employed at less than the minimum wage for older workers at or above the minimum wage." Furth r, "terminating the employment of youth employees after a period of l8O days and employing other youth employees for periods of 180 days in order to gain continual advin :H age c- r*‘ CRS- 5 I IB80003 IUPDATE-O3/ll/83 the youth sub—minimum wage would be deemed a violation of the Act. (Time periods vary under‘ the different pieces of legislation.) In practice, however, both provisions might be difficult to enforce, some would argue. No ( ear definition of substitution is offered. In a highly fluid workforce, termination, often, would not be necessary. In addition, ;the targeted workers, subject to the youth/student sub—minimum wage proposal, would usually be young, inexperienced in the labor-management relationship, non—union, and subject to the exigencies of a labor market in which, the unemployment rate has been roughly double the national average for all workers. In some areas and especially for minority youths, the unemployment rate has been as much as five or six times the national average. Further, it sis argued such youth/student workers would compete for employment in a market in which a presumptive sub—minimum value had already been placed upon their services by an act of Congress. 5 The Question of "Substitution" The factor of "substitution" (the employment of the targeted youth or student workers in place of non-targeted workers), a potential problem, may be difficult to prevent. For enforcement purposes under the several youth and student sub—minimum wage proposals, substitution could be very difficult to trace, given the diverse personal and labor-management factors involved. (Proponents of the sub—minimum wage argue that "many jobs which can be performed by unskilled youth workers are simply not worth the full minimum wage to employers." Further, they note, jobs for young persons "are becoming fewer since the types of jobs usually done by teenagers are no longer worth ('"e high minimum wage." To place the targeted youth and student workers in" a mare favorable competitive position, sponsors of the "youth opportunity wage" proposals would make it legally possible to employ such persons at a wage less than the otherwise applicable minimum rate for adult and non-student workers. _By making the targeted workers cheaper to employ, sponsors contend, the youth and student workers would become more readily employable. Essentially, “minimum wage work" tends to be non-skilled or low—skilled, often entry-level work for which there may be few significant promotional prospects. Some analysts suggest that, since little training is required for such work, neither employer nor employee need make any substantial investment in human capital development. workers may move in and out of minimum wage jobs with some ease (assuming the availability of such work) and without disrupting, to any great extent, the production or service process. »However, this does not mean that minimum wage work is always "easy" or pleasant. Some of the most arduous, tedious, repetitious, disagreeable tasks may be performed by minimum wage workers. In l980, 30% of minimum wage workers wer in the l6-to-I9 age bracket and ’ b-minimum I‘CE e could, thus, be eligible for payment at the su a under most sub—minimum wage proposals. However, in excess of 69% of) minimum wage workers are not youth workers. Some 63% of minimum wage workers are women. Roughly 46% are working women over the age of twenty years. Skeptics make the case that given the nature of minimum wage work, a youth ; rker may, in fact, be as profitable to employ -— and fully as productive —— ‘a. an older worker (outside t.e youth/student target group) or a female worker re—entering the world-of—work outside the home and lacking readily marketable skills. Indeed, the qualities often associated with youth w rker ~ o —— vigor, dCi;itV, enthusiasm —~ may take the youth worker more produci‘*e CRS- 6 IB80003 UPDATE-O3/ll/83 and more profitable to employ than an older person for minimum wage work. Of course, not all youths and not all students are equally able -- some suffering from a variety of social, educational and employment disabilities Some may not yet have developed a commitment to a job or to the labor market In a category of work where skill counts for little, some assert, the cheaper youth worker (made cheaper to employ by virtue of a sub—minimum wage option and, under some proposals, employability without regard to .overtime constraints) will be in direct competition with, and may be readily substitutable for, older minimum wage workers of whom a significant proportion are working women. Advocates of a lower wage option for youth workers and for students deny that any serious competition between the cheaper, sub—minimum wage workers and those who must be employed at not gless than the full minimum rate will occur -- nor do they believe that substitution will be an important factor. One proponent of the sub—minimum wage approach put it succinctly: It has been said that a youth opportunity wage will deny jobs to older workers. Some argue that sons and daughters will gain jobs while fathers and mothers lose theirs. This is a false assumption. First, youth and older, experienced workers compete for different types of jobs. Second, this argument assumes that there are only a finite number of jobs in the marketplace -— that whenever one person is hired, another is laid off. we all realize this is not the case. We are trying to create jobs for youth. (Congressional Record, Jan. 30, l98l, page 811.) Others would argue that the potential source of competition (and of substitution) is not between the youth and student workers, on the one hand, and the experienced and/or skilled worker on the other but, rather, between the targeted workers and other persons working in low-skilled, entry—level jobs -- i. e., in areas of work for which the minimum wage is normally paid. Rather than creating "new work" or "new jobs," as some would suggest, the proposed youth and student sub—minimum wage could result, merely, in the employment of the cheaper youth workers and in the disemployment (or non-employment) of older persons, particularly females, with whom the targeted workers would be directly competitive, resulting in "substitution." when does "substitution" occur? If a worker, paid at or above the regular minimum wage, retires and his/her position is filled by a targeted youth or student worker at the sub-rinimum rate, could this be considered "substitution?" Might an -loyer, through such attrition, convert his place of business from a ' wage standard to a sub-minimum wage standard -- and still be fully in ce with the proposed legislation? Or would slots or jobs be ted as "minimum" or "sub-minimum“ upon t s s historical custom once a full minimum wage or above had be or a particular job o a sub-minimum scale would luded? (D E! U :1 ',I. 1.1 ' [1 SL2 E‘! O (D D» O *1 O (D O U) E] (n (‘I I1 *0 I—' .”._1‘x.() H 271 O D) ‘J l—' rt cl‘ W DJ V /"\ P O (D 1:! O ()x 5 <'. ‘D’ (D (‘D *1 0‘) :3 ‘,1. O .11 E} O D! U‘ U) H1 1-’ When, of business operations, additional workers a employed s the opening of a branch office or a new ing of such new employment opportunities tudent workers, rather than the more ~' —~ ‘. -— ’,»~‘. H—~~‘ _-. ...f ':-n }..PiE‘f:., D€ ‘f€Cjc.l'C1:C_- 8.8 ‘;-L.1DS...~_'LL3;._Ql'-i.’ film Fr r|'OO ‘SSW -.-vs'u¢j..:_— Ffi O *1 U) S’ 1* U’ I I H) 9 ‘~-’ ‘-1- V 0 D !_..J Fl- On .53 O T) F?‘ (I) C3 (Z W '1 B I-' :5 9 :1‘ 57 0- DJ tf) (D ‘:5 (D O i CRS- 7 IBBOOO3 UPDATE-O3/ll/83‘ Presumably, the concept of "substitution" and the criteria under which the sub—minimum wage might be utilized without having a substitutional effect on non—targeted workers would be set forth in Department of Labor guidelines or regulations. But, how technical, how complex, how bureaucratic would such guidelines or regulations be? would such anti—substitution restraints and compliance costs tend to defeat the purpose of the proposed sub—minimum wage legislation? The Overtime Pay Issue In the 97th Congress, several of the bills calling for a general youth and student sub-minimum wage have included a provision exemptingi such targeted workers from the overtime protections of the. Fair- Labor Standards Act. (Under the FLSA, employers must pay covered workers at a rate of at least time—and-one—half for hours worked in excess of 40 hours in a single workweek.) The exemption from the requirement that overtime be paid could be as significant as the sub—minimum wage, per se, in enhancing the employability of the targeted youth and student workers -- and, in some cases, of greater significance. In effect, the provision would mean that targeted workers could be employed both at less than the minimum wage and for as many hours per week as an employer might deem appropriate without concern for the payment of overtime (so long as willing workers could be found.) The workers in question, here, are all engaged in "minimum wage work" -- i.e., low-skill, entry-level jobs. Those workers to be paid the full minimum wage and those who may legally be paid at the sub—minimum rate may be equally ; sductive and equally profitable to their respective employers (the counter argument is made that the differential offsets alleged lower youth productivity). One is not contrasting the skilled with the unskilled) but, rather, dealing with two segments of the unskilled workforce. For wage purposes (and for the payment of overtime), however, they may be treated differently. At the current minimum wage rate under the FLSA, $3.35 per hour, a worker would have gross earnings of $l34.00 for a week of forty hours. At an 85% sub—minimum rate, even for similar work, the targeted worker would earn ll4.00 per week. At the 75% sub-minimum rate (both 85% and 75% are currently receiving consideration and have been proposed in legislation), gross weekly earnings would be $l00.40. If workers at each of the wage levels are equally productive, the savings to management (per employee) resulting from the sub—minima would be $20.00 per week at the 85% rate and $33.60 per week at the 75% level. exemption from overtime pay requirements, If for targeted workers, is coupled with the sub—minimum rates, the savings to management could mount significantly. This, in turn, could add to the desireability of the targeted workers as employees. - For a fifty hour week, an employer must pay a regtlar minimum wage employee at time—and-one—half of his or her regular rate of pay for the ten hours worked in excess of forty -— or, at least $l84.25 for the week. Those s iloyed at the sub—minimum rate and exempt from overtime pay requirements would be payable at a gross weekly rate of $142.50 and $125.50, respectively for the 85% and 75% sub—minima. Savings to an employer of such targeted workers (assuming equal productivity), were the legally permissable rates utilized, would be $41.75 and $58.75 respectively. The greater the number of CRS- 8 V IB80003 UPDATE-03/ll/83 hours of overtime that an employee is required to work, under the combined sub-minimum/overtime exemption formula, the less expensive the worker becomes in relative terms. If a targeted worker were regularly employed through‘ m fifty hour week, annual gross savings to an employer, for each employegy could be as high as $2171.00 at the 85% scale and $3055.00 at the 75% rate. % NOTE: Proposals vary, some providing for a six months limit for a worker with any one employer at the sub—minimum rate while others set a limit of one year. Figures, here, are calculated on an annual basis. Given the high rate of employee turnover within the targeted groups, an annualization of savings may be justified -- though it would not necessarily apply in all cases or under every proposal. V How would a worker's total gross earnings be affected were he or, she exempt from overtime coverage and/or working at a sub-minimum rate? A regular minimum wage employee, working a full year of fifty-two weeks of forty hours each, would gross $6968.00 per year.) Similarly, workers employed at the 85% and 75% sub-minima (fifty-two weeks per year, forty hours per_ week) would gross $5928.00 and $5220.80 per year. A regular minimum wage employee, to whom the current overtime requirements of the FLSA would apply, working a full fifty-two weeks of fifty hours per week, would earn $958lf00. This contrasts sharply with the annual gross earnings of workers employed through the same time period (fifty4two weeks, fifty hours per week) under the combined sub-minima/overtime exemption formulae: $7410.00 at the 85% rate; i$s526.oo at the 75% level. Again, it should be noted that these calculations are not intended to coincide exactly with any specific piece of legislation, the several proposals differing in their provisions. As a job creation measure, the combined sub—minimum/overtime pay‘exemption proposals could be counter-productive. Students, otherwise qualifying under the proposed sub—minima, would not be directly affected by the overtime pay exemption since, by definition, they would not be permitted to work in excess of twenty hours in a single workweek. (During vacation periods, the targeted students would be permitted to work a standard week and, through those periods, would be affected. by) the proposed overtime pay exemption.) By exempting youth workers under twenty from the overtime provisions of the FLSA (while requiring that overtime be paid to regular minimum wage workers -- including students who must work more than twenty hours per week to support themselves and to pay for their education), the employment advantage of the sub—minimum wage could tilt strongly toward the non—student youth worker. Further, the absence of an overtime requirement would make it more\economical to ask current youth employees to work longer hours than it would be to employ additional workers —— especially so'when employment—related costs are taken into account. Thus, the combined sub-minimum/overtime pay exemption could serve as a disincentive to employers to take on additional workers, reducing employment opportunities. This could strike especially hard at the part—time worker —- i.e., the full-time student who, under the sub—minimum wage provisions of the current law (and in most of the pending isub—minimum wage proposals), may not be employed for more than twenty hours per week. One side effect of the elimination of overtime coverage for the targefed youth (and student) workerss could be to increase the turnover rate) )r especially if employees were asked to work overtime through extended periods. Further, this could result in development of a revolving force of sub—minimum wage workers who would never be employed with any one employerzlong enough to qualify for a full minimum wage. CRS- 9 » IB8OOO3 UPDATE-O3/ll/83 THOSE IN FAVOR -- AND THOSE OPPOSED ,¢.;\ ‘. \ 7 Proponents of the youth/student sub-minimum wage arrangement refer to it as a "youth opportunity wage." They emphasize the persistent unemployment problem among youth and young adult workers —— especially among minority youths -- and reason that a sub-minimum scale, at least for entry level workers, would make them more easily employable. Further, proponents argue, employers, enabled to hire workers at the sub-minimum rate, would endure the presumed low productivity and lack of industrial discipline of the youth/student worker, while providing such workers with (a) a work history, (b) an at least partially developed set of skills, and (c) an opportunity to secure a place in the world of work. The sub-minimum wage, they suggest, is a means through which employers can be compensated for their risk and patience, for their trouble, for the expense of training through which to turn an unskilled and undisciplined youth into a productive worker. It may not be the total answer to the problem of youth/student unemployment, they would concede, but it is worth trying. A Opponents of the youth/student sub-minimum wage argue that the arrangement will not create jobs. Employers, they suggest, will not hire unnecessary workers, no matter how cheaply they may do so. The paperwork involved in new hires, alone, would argue against it. However, for low-skill jobs (which most minimum wage jobs tend to be), such a hiring preferential could pit youth/student workers against more mature adult/non—student workers to whom an employer would have to pay at least the full Federal minimum wage. The result, opponents argue, would not be the creation of jobs but, rather, the splacement of one group of workers by another (cheaper) group of workers. ine loosers would likely be, they suggest, older workers, the handicapped and women -- especially displaced homemakers seeking to enter (or to re-enter) the world of work outside the home. That youth/student workers are unproductive, opponents aver, may be a myth --- at least for the types of work for which minimum wages are paid. Productivity, the argument continues, may actually be enhanced by the employment of young, vigorous, enthusiatic persons who may be happy (or, at least, satisfied) in tedious work. Moreover, given a youth unemployment rate averaging between l7% and 38%, an employer ought to be able to find reasonably competent workers. Opponents also claim that even where skills of any sophistication are required, there would seem to be little evidence that employers, permitted to pay a sub-minimum wage, would provide any training that they would not provide to any employee -- even absent a youth/student sub-minimum wage. a ' y, the concept has been supported by spokesmen for the American Hotel and Mo tel Association, "the American Farm Bureau Federation, the National Restaurart Association (all representing employers of youth/student labor) and the United States Chamber of Commerce. Standing in opposition to the youth/student sub-minimum wage have been spokespersons for the AFL-CIO, Vernon Jordon of the Urban League, a composite group known as the Coalition for a Fair Minimum Wage and eaded by Clarence y tchell of the National Association for the Advancement f Colored People, the Congressional Black Caucus, and others. 9'1 I‘! 9) U) W ['3 (1 I T 1-»: CL I71 I], Pl II“ (J 7'” L") I 4 U U) V 3 N Ir‘; ’ '1 I I L) cns-10 L IBBOOO3 UPDATE-O3/ll/83 —elect Reagan was believed to support the youth wage President differential. He had been widely quoted to the effect that the minimum wage, per se, "has caused more misery and unemployment than .anything since t Great Depression.” (Christian Science Monitor, Dec. 9, l980, p. 5.) with the change in party control of the Senate, following the l98O elections, and the altered composition of the Senate Committee on Labor and Human Resources, the opportunity to amend the FLSA to provide for a general youth/student sub-minimum wage,seemed bright. Developments since then have been ambiguous. The wall Street Journal reported that "the U.S. Chamber of Commerce is softening its championship of a lower minimum wage for teen—agers." (Nov. 28, l980, p. 5.) "There has been no indication from my industry,“ observed American Retail Federation President Don White, "that they businesses are willing, ready and able to hire these kids" under a sub—minimum wage arrangement. The Washington Post, Mar. 20, l982, p. A5.) Some from industry seemed to fear that an effort to secure a sub—minimum wage for youth would, as a matter of political and legislative reality, open the way for a general increase in the minimum wage for all other covered workers. "1 don't think anyone in the business community would welcome a trade—off between a youth differential wage and an overall increase,“ said Mark de Bernardo of the Chamber. (Congressional Quarterly, Mar. 7, l98l, p. 422.) A general increase in the Federal minimum wage, agreed Congressman John Erlenborn, a long-time advocate of the sub—minimum wage provision, may be "too high a price to pay” to secure a lower pay option for youth workers. And, Erlenborn advised the Industrial Relations Association of Chicago, it is “unrealistic” to believe that a lower wage could be enacted without such a trade—of (BNA/DLR, Jan. l4, l98l, p. A2.) On Mar. 24-25, l98l, the Senate Subcommittee on Labor conducted hearings on S. 348, the “Youth Opportunity wage Act of l98l." For the Administration, Labor Secretary Raymond Donovan, the lead witness, affirmed that the Subcommittee had under consideration "a very important issue -— the failure of the American economy to provide jobs for so many of our young people who ar ready and willing to work." with respect to the sub-minimum wage e proposal, Secretary Donovan noted: ... I would support a sub—minimum wage for youth if it were shown that it would help to solve this grave problem. Since my confirmation as Secretary of Labor, I have become increasingly concerned about the extremely high levels of youth unemploymnet. ‘ I support the concept of a youth sub-minimum wage. However, I do not believe that we presently have sufficient in ormation to allow us to endorse a specific legis tive proposal. The Secretary expressed concern about the possible "adult displacement” impact of a youth sub-minimum wage and pointed to a series of areas in which further investigation, in his judgment, was necessary. issue is currently being '~ 1 _'- _. "f‘-"1 ' “K:-r.':Y*r~ Ara ‘r-x’? " 7;‘-""‘-'."1'.1' _»,c1_L_. ::.C.\.i_‘:ES:cl l.:_‘_. CHE“ l.'l.-..i_.:.L..IT. ( )l }—1 I-4 CT (D ‘D ()1 W O ’:,. ;: Ow H‘ I3 U7 ‘U D1 CRS-ll IBBOOO3 UPDATE—O3/ll/83 Wage Study Commission... The Commission has contracted for a number of studies in this area and will report its findings to the congress in May. I will want to carefully review the Commission's studies in this area. (Hearings, pp. 22-24.) Later, Senator Dan Quayle queried: ”... ; understand that you are definitely not going to take any kind of a position until after this Minimum wage Study Commission report comes out in hay as far as a youth differential. Is that correct?” The Secretary replied: "Secretary DONOVAN. Yes; except to say, as I said in my testimony, Senator Quayle -- ”Senator QUAYLE. Conceptually, you favor it. “Secretary DONOVAN. we support the concept of the sub-minimum wage. But on specific legislation, that is correct; we need more time to study it." (Hearings, p. 68.) 9 The Secretary refused to anticipate the findings of the Commission. when asked about the position of the business community on the sub—minimum vage issue, he acknowledged that there had been press accounts about the "cold feet” of the Chamber in this respect. He noted that some, apparently, fear that the sub—minimum wage for youth will become linked to a general increase in the minimum wage for all covered workers. "I do not think either the Congress or we can afford the luxury of cold feet. It is a tremendous tragedy out there youth unemploument that has to be addressed.” (hearings, 69) ' After hearing an extended list of witnesses on both sides of the sub—minimum wage issue, the hearing adjourned —— essentially to await the report of the Minimum wage Study Commission. Ir mid—Ju1y of 1982, the sub-minimum wage and youth employment issues were again raised by persons associated with the Reagan dministration. Though the initiatives were separate, they were substantively interrelated. On July 15, 1982, Clarence M. Pendleton, Jr., the newly confirmed Chairman U.S. Commission on Civil Rights (a Reagan appointee), called for ”an emergency jobs program to reduce teenage unemployment. This would require” observed the self—styled ”supp1y—side" Urban Leaguer, "our suspending the minimum wage for a minimum of 6 months to create new jobs in the private sector." (See BNA/DLR, July 15, 1982, p. 4-6; People weekly, Jan. 11, 1982, pp. 71-72 and p. 75; Christian Science Monitor, Nov. 19, 1981, p. 8; and Los Angeles Times, March 9, 1982, p. 15.) On Jul. 1 6, i982, proposed new regulations governing child labor and the employment of certain student workers were published in the Federal Register. The regulaticrs, proposed by the Department of Labor, would (a) open more widely opportunities for employment for‘children of 14 and l6 years—of—age; (b) extend th numb of hours per day and per week that such young persons 7 O(D '~<‘ might be empl it jobs once e ( revise standards for the employment of child workers i e n nner in which empl e s u > ed to be too hazardous; and (d) simplify and broaden the yers could become certified by the Department of Labor udent workers at subminimum wages. A comment period of g. 16, 1982, was to be allowed. () O C5 (D In DJ to employ fulltim four weeks, until A CRS-l2 IBBOOO3 UPDATE-O3/ll/83 when issuing the proposed regulations, the Department observed that it had received “many hundreds of petitions and recommendations for changes” in the existing regulations and added that it was from those business sectors (the retail and service employers), "notably fast food and amusement ,pa industries——that most of the requests for change came.” According to the Bureau of Labor Statistics, about 9l5,00 children in the l4 to l5 year-old age bracket were employed in l98l. Most of these, it was reported, were employed in the retail and service trades. Publication of the proposed regulations provoked a sharp and immediate outcry. AFL-CIO President Lane Kirkland branded them an attempt "to amend labor law through the administrative process” and pointed out- that their substance would be "a social outrage if we had full employment” but noted ' c: that, in d, we "have record unemployment with disastrously high rates for T1 those betw e l6 and l8."~ Clara Schloss, a former member of the national Minimum Wage Study Commission (and an AFL—CIO staff consultant on wage and hour issues) questioned the legal right of the Department to make all of the proposed changes since certain of the provisions, extant, had been statutorially mandated. In testimony before the Labor Standards Subcommittee, July 28, l982, Federal wage and Hour Administrator William Otter reviewed the extended list of proposed revisions of the child labor and employer certification regulations. He pointed to a l978-I979 study of existing standards by the National Child Labor Committee (the NCLC) which had "resulted in numerous recommendations for change, many of which as I have indicated, were utilized in formulating the proposed regulations." A critical issue, as the hearing developed, was whether the new chi labor and student employer certification regulations had been developed in response to recommendations from the NCLC or at the urging of the fast food and amusement park industries. A new dimension was added to the discussion when Jeffrey Newman, Executive Director of the NCLC, charged that the Department of Labor had lifted the Committee's recommendations out of context and "without the slightest consultation or discussion with our offices.” After reviewing the potentially negative results which could flow from the policy proposed by the Department, Newman branded the regulation "a throwback to the 19th century,” to "a kind of exploitation most Americans thought no longer existed in our country." Following the July 28th hearing, Congressman George Miller (D—Calif.) and Senator Edward Kennedy (D—Mass.), with others, introduced resolutions designed to prevent the Secretary of Labor from issuing the proposed regulations in final form. (See H.J.Res. 55l and S.J.Res. 223.) By the time the Subcommittee commenced a second day of hearings on August 3, I982, some 9C cc-sponsors had signed the Miller resolution. Though Administrator Otter did not return to the witness table, the Department did agree to extend the time period for receipt of testimon7 on the proposed regulations f-om the earlier deadline of August l6 to January l3, l983. In addition, the Department agreed to "solicit the views of and engage i discussion with interested parties, lHClhd;“g business groups, labor organizations, chiid development and parent organizations, educators and appropriate officials of Federal, State and loca‘ government." Given these concessions from the Department, M~l‘er agreed not to proceed Vlth legislative consideratio F the joint resolution "at this time.” (See BNA/DRL, July l5, 1982, pp. A5~i7 and Il—D6, and July 29, l982, pp. A7-A8; AFL—CID News, July 24, l982, pp. l—2; news releases from Congressman George Miller, Jul; 27 and August 3, L992 and testimony fr m William Ctter and Jeffrey Kewmar. Jaiy ZE, l9E;, CRS—l3 IB80003 UPDATE—O3/ll/83 mimeographed.) THE MINIMUM WAGE STUDY COLMISSZON REPORT Under the l977 FLSA Amendments, there was created a national ninimum wage Study Commission to be composed of two commissioners eacn appointed by the Secretaries of Labor, Commerce, Agriculture and Health, Education and welfare. The Commission was to have a statutory life of three years, plus a brief period during which to conclude its activities, and was directed to explore, among other aspects of the Fair Labor Standards Act, ithe potential impact of a sub—minimum wage arrangement for youth workers and for full—time students who work part—time. Its final report, in seven volumes, was issued during the early summer of l98l. The Commission's chairman was former Congressman James O'Hara of Michigan The Commission concluded, after extensive investigation, that ” t he record does not justify the establishment of a youth differential." It went on to explain: Several considerations led us to this recommendation. First, available estimates suggest that a ycuth*differential has a limited potential for reducing the unemployment rate among teenagers because teenage employment increases probably would be modest and a differential is likely to attract additional teenagers into the labor market. Also, there is no evidence that areas with the highest youth unemployment rates -\ would be the most likely beneficiaries of a youth sub-minimum. Second, adult employment would be reduced by a youth differential and, forced to choose between teenage and adult employment, the latter seems a considerably higher priority. Third, there is reason to hope that teenage unemployment will lessen in the not-too—uistant future as the large group of baby-boom teenagers passes into young adulthood. Fourth, a youth differential would represent a departure from the principle that there should be equal pay for equal work, regardless of accidents of birth such as race, sex, ethnic or national origin, or age. If suggestions were made that the very real employment problems of women or members of minority groups sh uld be ‘solved’ by paying them less for their labor, such a proposal would be rejected out of hand as fundamentally unjust. we can see no difference in principle between such proposals and those based or age." (Fepcrt of the Minimum wage Study Commission, Volume l, pp. 57-58, released in May, l98l. Emphasis added.) The lone vote in support of a youth sub—minimum was cast by Commissioner 5. warns Rcbirson, Chairman of the Board, the G. C. Murphy Company. "Like most businessmen,” Robinson noted in his minority report “I have a natural concern about the minimum wage and I have suspicions about the 'free lunch’ theories of its s ppcrters.“ Robirscr disagree; snarpl} with ';S fellow CRS—l4 T IBsooo3 UPDATE-03/ll/83 commissioners about the implications of the data unearthed by the Commission. He argued: A youth differential would not restore all th jobs lost from recent minimum wage increases. I could not guarantee every teenager a job. But i has the potential to expand youth employment and allow more youth to build the work experience and background they will need to advance in their careers. ... no one knows exactly how many jobs would be r?‘ (“r (D- , P ,_ erential. So many factors affect created by a diff business's ability to create jobs —— taxes, interest rates, the general state of the economy —- that any accurate prediction is impossible. Some advocate an 'experimental‘ youth differential program, yet any youth differential is experimental, since so little is known about the extent of its potential job—creation effects.‘ V "Economists agree, however, that minimum wage increases eliminate jobs, and that this loss is .concentrated in entry—level, or less-skilled employment.” Reviewing the findings of the various research teams, Robinson noted: "This evidence amply justifies at least an experimental youth differential wage under the Fair Labor Standards Act.: (The Report, Volume l, p. l84, l98—l99.) Under Section l4(b) of the FLSA, full—time students employed for no moi than 20 hours per week in retail and service establishments and for institutions of higher education are permitted to be paid as low as 85% of the otherwise applicable Federal minimum wage. During FY80, about 500,000 full-time students were authorized to work at these lower rates. In dealing with Section l4(b), the Commission compromised. The Report notes: The Commission recommends that provisions of section l4(b)... be limited to individuals enrolled in high school. Although we are in general agreement with the principle that all employees should earn at least the statutory minimum wage, we also recognize that high—school youth may gain useful experience from part-time student employment opportunities offered by jobs approved under the full—time student certification program. we would prefer that such jobs be limited to those offering substantive skills development and be associated with regular increases in salary as job proficiency is attained. {The Report, Volume ;, p. l35.) The Commission, of course, had merely advisory powers. Any actual changes in the statute must be made by the Congress. The complete seven volume Report is available in the Congressional Reading Room of the Madison Builiing, Library of Congress. CRS—l5 IBBOOOB UPDATE—O3/ll/83 Var-ous bills have been introduced in the 07th Congress dealing wit the youth/student sub—minimum wage issue. Representative of these measures (but not a complete listing) are the following: H.R ;57 (Campbell) Amends the Fair Labor Standards Act of -l938 to provide a general sub-minimum wage (85% of the standard minimum under the FLSA) for youth workers under twenty years—of—age and for full—time students working overtime part—time; and to exempt such targeted youth workers from the requirements of the FLSA. l*- 4 ..L .R. lO68 Hinson) Amends the Fair Labor Standards Act of l938 to provide a special minimum 4.‘ - r wage o youth workers under the age of twenty years, to broaden the authority for the employment of full—time students at a special minimum wage; to exemp such targeted youth workers from the overtime requirements of the +- FLSA; and for other purposes. 3. 348 (Hatch) Amends the Fai sub-minimum wage ( rkers under tw n part—*ime (except in rate (or students wo from the re r Labor Standards Act of l938 to provide a general 75% of the standard minimum under the FLSA) for youth ty years—of—age and for full time students working Puerto Rico and the Virgin Islands where the sub-minimum Hwf ld be 85%) and to exempt such targeted youth workers U ; overtime - guirements of the FLSA. Amends the Fair Labor Standards Act of l938 to provide, during a tnree—year trial period, for (a) a sub-minimum wage for youth workers who are not yet twenty years of age and (b) to exempt such workers from the overtime provisions or the Act. Introduced on Feb. 5, l98l; referred to the Committee on Labor and Human Resources. S. 658 (Nickles) Amends the Fair Labor Standards Act to exempt from minimum wage coverage any employee who has not attained eighteen years of age, to repeal Section l4(b) of the Act (the full—time student certification program), and for other purposes. Introduced March id, 158;; referred to the Committee on Labor and Htman Resources. CHRONOLOGY OF EVENTS OE/O3/82 —— House Subcommittee on Labor Stan‘ards conducted second day of hearings on child labor and employment of certain students at a subminimum wage under proposed DOL regulations CR8-16 IBBOOO3 UPDATE-O3/ll/83 O8/O2/82 —— William Otter, Administrator, wage and Hour Division, DOL, advised Congressman George Miller, Chairman, House Labor Standards Subcommittee, that the comment period on proposed child labor and student subminimum wage regulation will be extended from August 16 (the original date) to January 13, 1983. 2 O7/28/82 —— Congressman George Miller (D-Calif.) and Senator Edward Kennedy (D—Mass.), with co—sponsors, introduced H.J.Res. 551 and S.J.Res. 223, respectively, to prohibit the Secretary of Labor from moving forward with plans for revision of the child labor laws. ——--— House Subcommittee on Labor Standards conducted hearings on DOL proposed regulations dealing with child labor and employment of certain students at a subminimum wage. ‘ O7/l6/82 -- Proposed new regulations concerning (a) child labor and (b) employment of fulltime students at a subminimum wage rate, issued by the wage and Hour Division, Department of Labor, were published in the Federal Register. 8 O3/27/8l -— The Minimum Wage Study Commission (created under the l977 Fair Labor Standards Amendments), by a vote of six to one, rejected as without justification the establishment of a youth sub-minimum wage. By a vote of five to two, the Commission voted to recommend against the development of sub-minimum wage pilot programs on an experimental basis. By a vote of four to one, the Commission voted to retain the current student certification exemption but to limit it to high school students. »(BNA/DLR, 3/27/8l, A—l6/A—l7.) Q LU /27/81 -- The Senate Subcommittee on Employment and Productivity reported legislation (S. 648) which would continue in place a series of Federal youth employment programs . which have been providing about $900 million a year to combat youth joblessness. (BNA/DLR, 3/27/81, A—l5.) O3/24-25/81 -— The Senate Labor Subcommittee conducted two days of hearings on S. 348, S. 430 and S. 658 —— legislation to provide sub—minimum wage employment options for certain youth and/or student workers. ADDITIONAL REFERENCE SOURCES , has been developed upon youth employment sive. Under the l9? linimum Wage Study Commission -o An extensive literature, much of it hig concerning the impact of minimum wage le By-and-large, the results appear to have be FLSA amendments, there was created a nation which was charged, inter alia, to review th p \\] u s issue and to make a report rt was released in M the Congress by 1981. The Commission's re ay l98l. A summary of the Commission's position on the sub—minimum wage issue _s presented above. Among studies which might usefully be consulted, dealing with the ~ou_n/student sub-minimum wage issue, are the following: CRS-17 IBSOOOB UPDATE-O3/ll/83 Duncan, Greg J. and Saul Hoffman. On-the—job training and earnings differences by race and sex. The review of economics and statistics, November 1979, pp. 694—602. Gramlich, Edma.d Y. Impact of ninimum wages on Other wages, Employment and Family Incomes. Washington, Brookings Papers on Economic Activity, 2, 1976, pp. 209-461. Pincus, Fred L. The false promises of community colleges: Class conflict and vocational education. Harvard educational review, August l980, pp. 332-361. Schloss, Clara F. Closing the Minimum wage Gap. The American Federationist, January 1976, pp. 12-19. U.S. Library of Congress. .Congressional Research Service. The Youth/Student Sub—Minimum wage Issue: Background, Analysis, Proposals and Pro/Con Discussion. by William G. Whittaker, August 22, 1978, 103 p. Williams, Walter E. Youth and Minority Unemployment. Joint Committee Pi in of the United t. Joint Economic Committee, Congress States, July 6, l977, 27 p. Youth Employment and Mi of Labor Statistic 1970, 189 p. nimum Wages. Bulletin 1657, Bureau s, United States Department of Labor, LIBRARY OF WASHINGTON uuuvensnrv s'r. LOU!S::a - Mo, ——.._..