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Close the ‘subminimum’ wage loophole

When is a minimum wage not the minimum wage? When it’s a cut-rate “subminimum” reserved for a separate class of worker.

Most people know that the federal minimum wage is $7.25 an hour, and that restaurants and bars can pay a lower minimum of just $2.13 to workers who earn tips. But the subminimum loophole has leaked out to affect other disadvantaged classes, such as teenagers, trainees, seasonal workers, and workers with disabilities. The debt-restructuring bill for Puerto Rico that President Obama signed last month includes a provision allowing businesses there to pay wages as low as $4.25 to anyone under age 25. In March, Hillary Clinton spoke out against subminimum wages for disabled workers in so-called sheltered workshops, calling the practice discriminatory. It was only last year that the US Labor Department reclassified homecare workers; they had previously been defined as “companions,” not subject to the minimum wage at all.


Is it a surprise that most of the workers who can be denied the country’s most basic labor protection are young, poor, minorities, or women?

Much of the business community likes subminimum wages for obvious reasons, but their arguments are often couched in altruistic language. A full-page ad by the Employment Policies Institute — a group largely funded by the restaurant and hotel industry — appeared in newspapers this month, timed to several state hikes in minimum wages that took effect July 1. The ad shows an employment ladder with a $15 wage out of reach of a young worker, while rungs for $8 and $10 an hour have been hacked off by a heartless union leader. “If young people can’t find a first job,” the ad asks, “how will they find their next one?”

Sorry, but these employers are crying crocodile tears: “We care about you so much we want to pay you less.”


The idea that offering lower wages to teenagers or the less educated would boost their employment opportunities has a certain native sense, but most economic research refutes the notion. A University of California study of all minimum wage increases between 1990 and 2009 found virtually no effect on youth or low-income employment. A 2014 study by the Congressional Budget Office cited in the ad did predict up to 500,000 possible job losses if the federal minimum were raised to $10.10. But the same study found almost a million workers would be boosted out of poverty, and $31 billion in wage hikes would cycle through the economy. “The benefits of raising the minimum wage vastly swamped whatever job losses were predicted,” said Paul Sonn, chief economist for the National Employment Law Project.

In any case, setting a lower wage for disadvantaged workers is blaming the victim. Workers under 25 aren’t the reason Puerto Rico nearly defaulted on its debt; students with summer jobs shouldn’t be punished because they work part-time. As Sonn noted in recent testimony opposing a subminimum for students in New Jersey, these are precisely the workers who need wage protections most. Because tuition has become so costly and government support scarce, the average student now works 30 hours a week. Paying them a subpar wage would only force them to work more hours, take fewer classes, and rack up more debt.

The economy has changed dramatically since the minimum wage held its greatest buying power, in 1968. Today low-wage workers often contribute a crucial share to the family income. The days of teenagers (or women) earning “pin money” for little luxuries are long over. Subminimum wages let companies exploit workers desperate for jobs just because of who they are. It’s hard to imagine a system less fair.


Renée Loth’s column appears regularly in the Globe.