Ok, a bodice-ripping romance novel is not how anyone would describe the State of Working Pennsylvania, but now that we have your attention hopefully you will continue reading about four key decision points facing Pennsylvania policymakers considering changing Pennsylvania’s Minimum Wage Act: subminimum wages, local preemption, indexing, and wage theft.
In Pennsylvania, employers of workers that customarily receive tips are required to pay their tipped workers a base wage of $2.83 per hour, provided employees’ weekly income from tips plus their base wage would bring their hourly rate to $7.25 – the current minimum wage. Tipped workers in states like Pennsylvania face higher rates of poverty and a greater reliance on public assistance than tipped workers in states that do not have a tipped subminimum wage. For this reason, we recommend streamlining Pennsylvania’s minimum wage law by phasing out the tipped minimum wage by 2025. The Economic Policy Institute estimates that raising the tipped minimum in Pennsylvania to $5.25 while boosting the minimum wage to $9.00 by next July would boost the wages of 161,688 tipped workers. Two other subminimum wages that policymakers sometimes propose include subminimum wages for younger workers or subminimum wages for workers in small business. These provisions generally do more harm than good by giving employers an incentive to discriminate in hiring by age or by subsidizing inefficient firms.
As part of a compromise to raise the state minimum wage to $7.15 an hour in 2006, local governments in Pennsylvania were preempted from establishing a minimum wage higher than the state minimum wage. At the time, Pennsylvania was only one of 10 states to preempt local minimum wage law. Since then, preemption has blossomed nationwide with 25 states preempting higher local minimum wages and a growing number of states using preemption to roll back local efforts to expand paid sick days and fair scheduling laws. We recommend an end to preemption to allow higher-wage, higher-cost-of-living regions in Pennsylvania to establish minimum wage levels more in line with the local pay levels and the cost of living.
After determining the level of the minimum wage, the single most important technical issue is whether the wage is adjusted annually to reflect changes in the demand for labor.
Currently, 18 states, including New York, New Jersey, Ohio, and the District of Columbia, adjust the minimum wage annually to reflect changes in consumer prices. If after raising the minimum wage to $7.15 in 2007 had Pennsylvania’s minimum wage been adjusted annually based on changes in the Consumer Price Index (CPI) it would be $8.31 per hour today (Table 10).
The Raise the Wage Act of 2017 introduced in the U.S. Senate this May proposes indexing the minimum wage using the median wage. The advantage of using the median wage is that it more directly reflects conditions in labor markets than consumer prices, where volatile components like food and energy prices tend to be driven by economic factors unrelated to labor market conditions (see this paper for more). Adjusting the minimum wage set at $7.15 in 2007 for changes in the median wage for full-time full-year workers in Pennsylvania since then would lift the minimum wage in 2017 to $9.34 per hour.
Raising the minimum wage is not enough: for many workers in Pennsylvania, the state needs to do more to combat wage theft. Community Legal Services of Philadelphia reports over a hundred cases each year of clients whose employers simply did not pay them or paid them less than the legal minimum. The Economic Policy Institute, using data from the Current Population Survey, finds 107,000 Pennsylvania workers or 10% of the minimum wage eligible workforce were victims of wage theft. The EPI analysis finds that Pennsylvania employers that commit wage theft are stealing just over a third (34.6%) of the wages to which their victims are legally entitled – a bigger share than in any of the other 10 large states studied by EPI.
To combat wage theft in Pennsylvania, Community Legal Services of Philadelphia recommends boosting the penalties for wage theft violations, and streamlined and better-funded enforcement of existing laws by the Pennsylvania Department of Labor and Industry. Our “Agenda to Raise Pennsylvania’s Pay” also recommends clamping down on wage theft through more effective, strategic, and industry-specific enforcement.