Testimony in Opposition to LD 1609, “An Act To Support Maine’s Employers and Encourage Employers To Hire Young Workers”

May 23, 2017

Maine’s minimum wage increase will help to restore the value of work for tens of thousands of Mainers. It will increase wages for one-third of Maine’s workforce, improving economic security for them and their families. It will make sure that more Maine kids have a healthy, nurturing childhood and grow up to realize their full potential. It is an important step toward an economy that works for everyone, where all workers receive a fair wage for an honest day’s work and where the promise of the middle class is achievable for all Mainers who work hard.

Senator Volk, Representative Fecteau, and distinguished members of the Joint Standing Committee on Labor, Research and Economic Development, on behalf of the Maine Center for Economic Policy, I offer the following testimony in opposition to LD 1609, “An Act To Support Maine’s Employers and Encourage Employers To Hire Young Workers.”

More than 420,000 Mainers voted in 2016 to raise Maine’s minimum wage, tie the value of the wage to the cost of living, and eliminate the unfair practice of the tip credit. The legislation before you would overturn every aspect of the voter-approved referendum, and even take Maine’s minimum wage law further backwards by tinkering with employee overtime laws. We believe that work deserves to be valued fairly, and that 180,000 low-income workers in Maine deserve a raise.

Changes to Exempt Employee Definition for Overtime

The governor’s legislation also proposes to reduce Maine’s threshold for exempt employees under federal overtime legislation depriving tens of thousands of Maine workers their right to be fairly compensated for the work they do. In 2016, the federal government raised the earnings threshold for salaried workers for the first time in ten years, to recognize the realities of the modern labor market. The Fair Labor Standards Act (FSLA) intended to exempt workers with managerial and supervisory duties from the requirement that they be paid for overtime hours worked, and originally outlined two tests for determining exempt employees—an earnings test, and a duties test. However, changes to the legislation in 2004 greatly weakened the duties test, and the low earnings threshold previously in federal law allowed unscrupulous employers to take advantage of their employees and misclassify them as ‘managers’ to avoid paying overtime.

Current Maine law provides an important backstop against changes that may be coming at the federal level, as the new administration and Congress re-examine federal standards. If the original FLSA standard for a professional, exempt worker had kept pace with the cost of living and rising wages generally, it would be $46,000 today.[1]  The last update to the earnings threshold in 1975 would be worth $41,000 in today’s dollars.[2] Instead, it was raised to just $23,660 in 2004.

Approximately 84% of Mainers meet this definition,[3] allowing an employer to classify nearly anyone as exempt from overtime legislation. 

Maintaining current law would protect tens of thousands of working Mainers who deserve to be paid for the hours they work. Current law will allow the threshold for designating an employee as exempt to rise gradually to 36,000 by 2020. Employers will have time to adjust to the change, workers will continue to be protected, and the law will keep pace with changes in the cost of living.  We strongly urge the committee to reject the proposal to eliminate this provision from state law.

Minimum Wage Schedule

When voters approved the increase in the minimum wage to $12 an hour, it was clear what they were voting for. The provisions in this bill to cap the minimum wage at $11will overturn the will of the voters and hurt Maine people. The figure of $12 an hour for the new minimum wage was not chosen at random. The living wage for a single adult in Maine working full time is just under $11 an hour.[4] As costs of living increase with inflation, that living wage will be nearly $12 by 2020. In other words, Mainers working full time will finally have a shot at earning more than a poverty-level wage.  Any attempt to slow the scheduled increases in the minimum wage, cap the increase at a lower amount, or decouple the minimum wage from inflation will mean that Maine’s minimum wage no longer supports a family’s basic needs. Minimum wages below the voter-approved rates are unsustainable, and only increase the need for safety-net programs to make up the difference.

A $12 minimum wage is less than 60% of the median hourly wage for full-time workers in Maine, a threshold endorsed by economists at the University of California-Berkley,[5] and by business leaders in Maine as having minimal impact on employment.[6]

A $12 minimum wage is no more than Maine workers deserve. If the minimum wage had kept up with increased productivity among workers, it would be $19/hr today.[7]  In 1967, Maine’s minimum wage was worth $11/hr in today’s dollars, and the current schedule degrades the value of the wage back to what it was 50 years ago.[8]

Indexing the Minimum Wage to the Cost of Living

Eighteen states and the District of Columbia have adopted automatic indexing of their minimum wage to the cost of living. To roll back this provision in Maine’s minimum wage law simply ensures that the value of the wage will be consistently undermined by the effects of inflation. Furthermore, indexing actually removes business uncertainty about potential changes in wage policy. It also is more consistent with past practice in Maine. While Maine’s minimum wage did not keep pace with inflation prior to passage of the voter initiative, the legislature increased the state’s minimum wage 30 times since 1959.[9]

Training or Youth Wage

Maine has never had a lower minimum wage for younger workers. Reducing Maine’s minimum wage for younger workers is counterproductive, especially to young people trying to work their way through college or who contribute significantly to their families’ income. Young Mainers do not work just for the sake of experience, or for discretionary spending.  Many younger Mainers play an essential role in contributing to their household economy, supporting their parents and younger siblings. MECEP estimates that young people working at minimum wage account for 12.7% of their household’s income.[10] In addition, lowering the starting wage rate for young people will depress earnings over time and lower retirement savings. 

The idea of a “training wage” is misleading when the provisions are as broad as those before you. Because many school- and college-age Mainers work in seasonal work during the summer, the 90-day allowance for a “training period” will allow employers to hire work for the summer tourist season at the lower rate, lay them off in the fall, and rehire again the following year. Most 19- and 20-year olds covered by this provision will never make it past the training period to earn the full minimum wage, and employers in the tourism industry will be able to avoid paying a living wage to their staff.

Tip Credit

Concern about phasing out Maine’s tip credit has been predicated on the notion that the end of the tip credit means the end of tipping. There is no credible evidence to support this claim, and numerous data points that refute it. Seven states have no tip credit provision (Alaska, California, Michigan, Minnesota, Nevada, Oregon, Washington), and tipped workers in these states earn more than tipped workers elsewhere. This is true for workers in 11 different tipped occupations, and across the income spectrum.[11] As we previously testified, a comparison of the wages for wait staff at the sub-state level shows that even in rural, low-income areas, wait staff in states like California and Washington earn more than their counterparts in Maine.

In 2014, the State of Hawaii recently changed its tip credit statute to require employers pay a minimum of $7 an hour above the minimum wage before they can claim a tip credit of 50 cents an hour. At the same time, it increased its minimum wage. This provided us with a recent example of a change to tip credit legislation, and confirmed that reducing or eliminating the tip credit increases wages and does not reduce employment.  Between 2013 and 2016, when the minimum employer-paid wage for tipped workers rose from $7.00/hr to $9.25/hr, the median wage for a waiter or waitress in Hawaii increased from $10.81/hr to $16.46/hr. Over the same period, the number of server jobs increased 17%.[12]

Conclusion

Maine’s minimum wage increase will help to restore the value of work for tens of thousands of Mainers. It will increase wages for one-third of Maine’s workforce, improving economic security for them and their families. It will make sure that more Maine kids have a healthy, nurturing childhood and grow up to realize their full potential. It is an important step toward an economy that works for everyone, where all workers receive a fair wage for an honest day’s work and where the promise of the middle class is achievable for all Mainers who work hard.

We urge you to reject the bill before you.

Notes:

[1] Section 13(a)(1) of the Fair Labor Standards Act included a salary threshold of $50 a week in 1940, or $880 a week in 2017 dollars (at CPI rate of inflation). Executive and administrative workers had an earnings threshold of $30 a week in 1938.  For an overview of the history of the overtime provisions in the FLSA, see Whittaker, William, The Fair Labor Standards Act: A Historical Sketch of the Overtime Pay Requirements of Section 13(a)(1), Congressional Research Service.  Available online at http://digitalcommons.ilr.cornell.edu/cgi/viewcontent.cgi?article=1240&context=key_workplace

[2] The 1975 threshold was $170 a week for professionals, and $155 a week for executives. In 2017 dollars, those were worth $797 and $727 a week, respectively.

[3] US Census Bureau, American Community Survey, 2015, 1-year data. 83.5% of full-time year, round employees in Maine earned more than $25,000 a year.

[4] Massachusetts Institute of Technology’s Minimum Wage calculator, http://livingwage.mit.edu/states/23

[5] Reich, Michael, et al., “The Proposed Minimum Wage Law for Los Angeles:

Economic Impacts and Policy Options” (Institute for Research on Labor and Employment

University of California, Berkeley, March 2015). Available at http://irle.berkeley.edu/cwed/briefs/2015-01.pdf

[6] https://www.mecep.org/business-coalitions-botched-analysis-unwittingly-validates-12-minimum-wage/

[7] http://www.epi.org/publication/why-america-needs-a-15-minimum-wage/ 

[8] In 1967, Maine’s minimum wage was $1.40/hr (the same as the federal minimum wage), or $10.97 when adjusted for inflation.

[9] http://www.maine.gov/labor/labor_laws/minwagehistory.html

[10] MECEP estimates based on analysis by the Institute on Taxation and Economic Policy.  See https://www.mecep.org/mecep-report-finds-increasing-the-minimum-wage-to-12-will-raise-the-pay-for-1-in-3-maine-workers/ for more details.

[11] US Department of Labor, Bureau of Labor Statistics, Occupational Employment Survey data, May 2016. See http://blog.mecep.org/2017/04/a-higher-minimum-wage-is-good-for-tipped-workers/ for a fuller explanation.

[12] US Department of Labor, Bureau of Labor Statistics, Occupational Employment Survey data, May 2013 and May 2016.