Laura D’Andrea Tyson is a professor at the Haas School of Business at the University of California, Berkeley, and headed the Council of Economic Advisers and the National Economic Council under President Clinton.
I want to focus on the impact of the minimum wage on women.
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Less than half of all workers are women, but they account for 75 percent of workers in the 10 lowest-paid occupations and about 60 percent of minimum wage workers. And most women earning the minimum wage are not teenagers, or wives who can rely on a spouse’s income.
About three-quarters of female minimum wage workers are above the age of 20, and about three-quarters of these women are on their own. Many, of course, are working and taking care of children.
Working families headed by women make up 22 percent of all working families but 39 percent of low-income working families. There are 7.1 million working families with children
headed by women, and 58 percent of them are low-income.
Sixty-five percent of the children in female-headed working families are low-income. One of every three families that are headed by a woman with no husband present lives in poverty, and about 48 percent of all children
in single-parent households headed by women live in poverty.
A woman working full time at the current minimum wage earns less than $14,500 annually – more than $4,000 below the poverty line for a mother with two children.
Two-thirds of workers in jobs dependent on tips are women, disproportionately women of color. The tipped minimum wage is only $2.13 an hour and has been frozen for the last 21 years. This isn’t an accident. Until 1991, Congress had always raised the tipped minimum wage in line with the regular minimum wage. Throughout the 1980s, the tipped minimum wage stood at 60 percent of the regular minimum wage. But in 1996, the restaurant industry lobbying association managed to decouple the two rates, and the tipped minimum wage has been frozen in time, falling by more than 40 percent since then.
Many restaurant owners contend that the tipped minimum wage is just a technicality. By law, if an employee’s tips, combined with the employer’s direct wages of at least $2.13 an hour, do not equal the regular minimum wage, the employer is supposed to make up the difference for each hour of work. But often this does not happen.
In low-end restaurants, and even in more upscale places on slow days, many waiters are lucky to end up earning the regular minimum wage. And many restaurants require their servers to share a portion of their tips with other workers, like dishwashers and bus staff. In effect, many waiters end up subsidizing the wages of other workers, for the benefit of their employers.
On top of that, unscrupulous restaurant owners sometimes illegally withhold tip money that flows through credit cards on the pretext of creating a “reserve” for errors by waiters. For a good insight on some of this real-world chicanery, read the Wiser Waitress blog by Gina Deluca – herself a waitress in New Mexico.
The Democrats’ main proposal to raise the minimum wage, sponsored by Representative George Miller of California and Senator Tom Harkin of Iowa, aims to fix the problems associated with the tipped minimum wage by setting it at 70 percent of the regular minimum wage and indexing both to inflation.
An even better approach might be to abolish the “tipped” minimum wage altogether, as seven states have done — including California with its large and healthy restaurant industry — and simply require that employers guarantee the regular minimum wage to all their workers. Restaurants already track most of their tip income, because it comes through debit and credit cards, and share this income among their tipped and non-tipped employees.
In addition to the minimum and tipped minimum wage, the income of millions of working women employed in low-wage occupations also depends on two federal tax credits: the earned income tax credit and the child tax credit. The earned income tax credit is a refundable tax credit for low- and moderate-income workers and depends on a taxpayer’s income, number of children and marital status. The child tax credit is a partially refundable tax credit worth up to $1,000 per child. Both credits are available only to people who earn income from work.
In 2012, the earned income tax credit lifted the incomes of almost 5.5 million people above the poverty line, including more than 1.5 million adult women and nearly 3 million children. Together, the earned income tax credit and the refundable child tax credit now support 32 million working families, keeping 10.1 million people of all ages out of poverty, including 5.3 million children.
Taken together, these two tax credits are the biggest and most successful of the federal government’s antipoverty programs next to Social Security, reducing the 2012 poverty rate by three percentage points and the poverty rate for children by 6.7 percentage points.
The earned income tax credit is a hugely important program for women. It has the biggest impact on the labor-force participation rates and the earnings of low-wage single parents with children, and most of these parents are women. Research has consistently found that the earned income tax credit for families with children increases employment, especially among single mothers.
Even in families headed by both parents, women often bear the primary responsibility for raising children. And studies confirm that children in households that receive the earned income tax credit have better health, higher educational attainment and greater earning power through adulthood.
Historically, the earned income tax credit has enjoyed strong bipartisan support in Congress. Many Republicans assert that increasing the generosity of the earned income tax credit, along with extending it to cover more workers, is a more targeted and market-friendly way to fight poverty than an increase in the minimum wage.
Yet, amazingly, some Republicans are now pushing to scale back the earned income tax credit. Representative Dave Camp, chairman of the House Ways and Means Committee, has proposed to replace it with an expansion of the child tax credit as part of his new plan to overhaul the tax code. Robert Greenstein of the Center on Budget and Policy Priorities calculates that Mr. Camp’s proposal would cost a mother with two children working full-time at the minimum wage about $2,000 in 2018 compared with current policy.
It’s important to understand that the earned income tax credit is closely intertwined with the minimum wage. Both provide income support to workers at the bottom of the scale. But by increasing the supply of workers, the earned income tax credit pushes wages down and morphs into a back-door subsidy for employers.
Think about it. Suppose you own a store and want to keep wages as low as possible. The availability of the earned income tax credit essentially means that the government is boosting the wages of your employees by as much as several thousand dollars a year. To attract enough workers, you don’t have to pay the full market wage. You can pay less, knowing that the government will make up part of the difference. So the worker ends up sharing part of her tax credit with her employer.
According to a recent study, around 30 cents of every dollar of taxpayer-funded earned income tax credit benefit goes to employers. The minimum wage mitigates this “leakage” effect by limiting the wage reductions that result from an increase in the labor supply.
The minimum wage and the earned income tax credit are complementary policies that help low-wage workers and their families. Both policies are particularly important for women and children. Increasing the minimum wage and the generosity of the earned income tax credit will increase their income and opportunities, strengthen their families, and bolster demand and economic growth.
For ideological reasons that are detached from empirical reality, Republicans in Congress continue to block a much-needed and long overdue increase in the federal minimum wage.
I examined some of the shibboleths against a higher minimum wage back in December, and I won’t repeat the whole case. To sum up briefly: the prevailing view among economists, reinforced by rigorous studies over the last decade, is that a modest increase would boost the wages of millions of workers and have little to no negative effect on employment. A higher minimum wage would also enhance labor productivity, reduce worker turnover and absenteeism, and lower the costs of recruiting and training employees.
Despite the evidence, Congressional Republicans have pounced on a recent estimate by the Congressional Budget Office that raising the minimum wage to $10.10 an hour, as Democrats have proposed, could reduce employment by 0.3 percent, or 500,000 jobs, by the end of 2015. For reasons that have been raised by a variety of experts, I doubt this estimate.
But even if it’s correct, let’s be careful to recognize what the C.B.O. also emphasized: The higher wage would directly benefit 16.5 million workers currently making less than $10.10 an hour, and as many as 8 million additional workers currently earning slightly more, and would lift 900,000 people out of poverty.
Moreover, the C.B.O. acknowledged that with the economy operating far below its potential, raising the minimum wage would increase spending, and that in turn would raise output and boost labor demand. So the net effect on overall employment could be positive.