The media continues to press presidential candidate Cain with a few tough questions, but it is time to ask him about minimum wages for restaurant staff. Given his record as past president of the American Restaurant Association he knows about sub minimum wage for tipped employees.
The Federal minimum wage went up to $7.25 an hour on July 24th 2009 but not for tipped employees whose minimum wage remains at $2.13 an hour. When the Fair Labor Standards Act was passed in 1938 restaurant workers, among others, were excluded from the minimum wage. In 1966 they were finally included, but only at 50 percent of the minimum wage. Some in the restaurant owners complained they shouldn’t have to pay any wages because their waiters and waitresses earned plenty from their tips.
Until 1996 the tipped wage went up when Congress raised the minimum wage, but in 1996 and again in 2007 the restaurant industry lobbied Congress to leave the tipped minimum at $2.13 an hour. The Federal tipped minimum has remained at $2.13 an hour since 1991, which makes it only 29 percent of the present $7.25 an hour minimum wage.
The sub minimum wage for tipped employees allows business to further bid down wages where there is a surplus of labor like there is today with 14 million unemployed. The definition of tipped employees governing the sub minimum wage further contributes to a surplus by enlarging the number of occupations and pool of people that can be paid a sub minimum wage. That is because the sub minimum wage can be applied to employees in occupations that customarily receive as little as $30.00 a month in tips.
First, recognize that the monthly minimum wage at $7.25 an hour is $1,160 a month at 40 hours a week and 4 weeks per month. However, the $2.13 an hour sub minimum wage for tipped employees is just $340.80 a month, which means a tipped employee needs $819.20 a month in tips to get themselves up to the minimum wage.
Under federal rules governing the Fair Labor Standards Act employers who pay a sub minimum wage must verify that tips are enough to bring an employee up to at least the minimum wage, a practice known as taking the tip credit. Taking the tip credit requires detailed recordkeeping because employers are required to verify that tips are enough to make up the difference of the minimum and sub minimum wage. If tips are not enough to equal the minimum wage then the employer is expected to make up the difference.
Notice though that tips received up to $819.20 per month are in lieu of normal obligations to pay wages to employees. Even if tipped employees receive tips at or above $819.20 a month, wage costs drop from at least $7.25 an hour to as low as $2.13 an hour. Even when tips are less than $819.20 a month all of the tips recorded become a cost saving for their restaurant owners.
Fair Labor Standards rules also permit valid tip sharing agreements among tipped employees where tips are accumulated and redistributed by predetermined formula. Valid means agreements must be in writing and only include those who customarily receive $30 a month or more in tips. At a full service restaurant a number of different staff will meet the minimum tip requirement, but waiters and waitresses commonly get the largest share of tips over those who work as hosts, hostesses, runners, bartenders or other dinning room attendants and staff.
Tip pooling potentially saves on wage costs by helping to eliminate wage gaps among tipped occupations. Without tip sharing, wages plus tips for waiters and waitresses will tend to be higher than wages and tips for a host or hostess or bartenders, bus staff and other staff with less access to customers. Wage gaps make it harder to get people to do the host and hostess job without paying higher wages as long as we expect that people will want to leave low wage jobs for higher wage jobs. Tip sharing relieves that pressure by transferring tips from waiters and waitresses to hosts, hostess, bartenders and so on. Tip sharing improves the economic situation of these other staff, but at the expense of waiters and waitresses and not their employer. Tip sharing, like the sub minimum wage, saves wage costs for restaurant owners and relieves them of the normal obligation to pay wages.
Tipped employees work mostly in the full service restaurant industry, hotel and motel accommodations, personal services and attendants at parking lots and car washes. The Bureau of Labor Statistics defines 22 occupations in industries that customarily receive tips where employment came to 9.5 million in 2010. Food and beverage serving workers had 7.6 million of these jobs and 2.2 million of them as waiters and waitress. Personal appearance workers had 457 thousand employed in tipped occupations with the majority of them as hairdressers and hair stylists. Maids, bellhops, concierge and other transportation and tourism workers had 964 thousand jobs with nearly 866 thousand as maids. Parking lot attendants, and those cleaning vehicles, mostly at car washes, have another 413 thousand jobs. The total is nearly 7.5 percent of national establishment employment.
Despite the business and restaurant opposition that surrounds Congressional proposals to change the minimum wage, the regulations for the Fair Labor Standards Act provide many exemptions and legal ways to avoid and undermine the minimum wage in addition to the sub minimum wage for tipped employees. In practice the Federal minimum wage does not apply to millions of jobs or wages.
The record shows that America’s restaurant association lobbies to undermine the already low minimum wage. We know there are millions of cheapskates who support the sub minimum wage, but it’s time to ask Mr. Cain if he is one of them, or one of us who work for a living.
Monday, November 7, 2011
Tuesday, November 1, 2011
America’s Jobs in a Recession
The ups and downs of jobs usually lag behind the ups and downs of Gross Domestic Product (GDP) that define the start and finish of recessions. Based on changes in GDP the latest recession ran from the end of 2007 until June 2009 but establishment employment reached a high in January 2008 and declined until February 2010. The full decline in establishment jobs was just under 8.8 million from the January 2008 high to the February 2010 low. (1)
Jobs increased by over a million in the last 10 months of 2010 and continue to rise, albeit slowly. The gains are welcome but as the old saw goes the devil is in the details. America’s job trends can be explained in sobering detail using published data from the Bureau of Labor Statistics, a.k.a. BLS. Data is not manna from heaven but has to be produced with a consistent set of definitions and procedures to be comparable between industries, occupations and over time. At BLS they produce labor data within the North American Industry Classification (NAICS) that defines a carefully crafted set of industries. They publish nearly a thousand national data series within these definitions.
Some industries showed little or no employment effect from the recession. For example, health care picked up 663.5 thousand jobs during the recession; a 4.25 percent increase. In the 20 years from 1990 to 2010, health care employment had its low in January 1990 and its high December 2010. Since 1990 there are no months with lower employment than the same month a year before. It continues to increase in the months of 2011.
In addition to health care, education and government services escaped the latest recessionary job losses. From January 2008 until February 2010 private education was up 133.7 thousand jobs and public education added another 37.3 thousand jobs. The Federal government had enough new jobs to offset smaller job losses at state and local government for net gain of 88 thousand more government jobs.
The combined increase of jobs in government, health care and education during a recession magnifies job losses in other service sectors and makes them more vulnerable to recessionary decline. Private service-providing employment dropped 4.6 million jobs during the recession months, a 4.9 percent loss. Given that health care, education and government increased during the recession, other service sectors had to decrease more than 4.9 percent; some dropped much more.
Take wholesale and retail trade where jobs dropped 8.2 percent after reaching an employment high of 21.6 million at the start of the recession in December 2007. The widely reported shift of jobs out of manufacturing and into the service economy does not always mention that replacement jobs came in discretionary services prone to abrupt decline in recession. In wholesale trade, durable goods jobs at merchant wholesalers for auto parts, home furnishings, construction materials and others dropped almost 13 percent. In retail trade, automobile dealers lost 19.2 percent of pre recession jobs; furniture and home furnishings store jobs dropped 22.4 percent; building material and garden supply jobs were down 11 percent.
Trucking employment dropped 12.8 percent from January 2008 until February 2010, the biggest drop in transportation jobs. Combined transportation and warehousing had 9 percent recessionary job losses, but individual sub sectors in air, rail and water transportation, couriers, messengers, warehousing and other support activities were off from 7.5 to 10 percent of jobs. Only local commuter transit was spared from recessionary job losses.
As Americans lost 3.8 million manufacturing jobs from 1990 until 2008, they took 3.6 million new jobs in administrative support. In the North American Industry Classification (NAICS) documentation manual, firms providing administrative and support services perform routine support activities for day-to-day operations of other businesses on a contract or fee basis.
Some of the 3.6 million new administrative support jobs in the 1990 to 2008 period included 1.44 million new jobs in temporary help services, and 517 thousand new jobs in professional employer organizations, which are jobs contracted with client firms to fine-tune employment with the ebb and tide of business. Count 382.6 thousand more jobs in landscaping services, 217.8 thousand more jobs in security guard companies and investigation services, 230.1 thousand more jobs in janitorial services, 140.8 thousand more jobs at telemarketing bureaus and telephone answering services. Include 87.8 thousand more jobs at collection agencies where employment more than doubled since 1990.
Combined administrative support services jobs built up to over 8 million before the latest recession wiped out more than 1 million of them, a 13 percent decline. Employment services including temporary help services proved especially susceptible with a 23.4 percent drop in jobs.
The expanded use of consumer credit and the build up in sub prime home mortgages helped fuel the build up and then collapse of financial services jobs at credit intermediaries for both deposit and non-deposit institutions. Jobs at deposit institutions like banks, savings and loan, and credit unions had modest but steady growth after 2000. Jobs at non deposit institutions like credit card issuers, consumer lenders, and real estate credit jumped 378.5 thousand to its highest employment of 776.3 thousand jobs in 2006. Housing related jobs in real estate and construction also reached their highest employment totals in 2006 as the housing bubble peaked prior to the recession.
Recessionary job losses in credit intermediation were slightly bigger than trade: an 8.43 percent drop. The non-deposit portion of credit intermediation lost 15.1 percent of pre-recession employment, down 219.4 thousand jobs from the 776.3 thousand high for 2006. Real estate jobs including jobs at offices of real estate agents and brokers were down 7.3 percent following their 2006 highs.
Construction took the worst losses from the housing bubble and recessionary declines: a 25.9 percent drop totaling 1.94 million jobs. Only 190.7 thousand jobs were lost in heavy and civil engineering construction, primarily for utilities and highway, street and bridge construction. The rest were for jobs in building construction and specialty trade contractors needed in home construction. Construction losses also affected professional employment where jobs at architectural and engineering service firms were off 11.7 percent, a decline of almost 170 thousand jobs.
Jobs in leisure and hospitality services declined sharply in the tech bubble recession of 2002 and again in the 2008, but otherwise they have acted as replacement jobs for jobs lost in manufacturing and jobs lost from slow growth in service sectors that utilize labor saving computer technology. Since leisure and hospitality combine arts, entertainment, recreation, accommodations and food services, these jobs are supported by discretionary spending prone to decline in a poor economy.
The necessity of eating does not extend to eating at restaurants. Going out to have others cook and serve turns out to be one of many ways to create leisure and hospitality jobs vulnerable to recessionary loss. Restaurants lost 356.3 thousand jobs in the recession but other jobs dependent on discretionary spending include hotel and motel accommodations, music and concerts, team sports, racetracks, nature parks, amusement parks, gambling casinos, golf courses, ski resorts, marinas, fitness centers, ice rinks, swimming pools, bowling alleys, day camps, and a few more. Fitness centers reached a high of 512.3 thousand jobs in 2008 after more than a decade of steady growth, but jobs dropped more than 5 percent in the 2008-2009 recession.
Exercise can be a walk in the park or walk on a treadmill; one has jobs, one does not. The latest recession gives a blunt reminder how easy it is to switch from one to the other. The growing reliance on jobs from discretionary spending is one result of the long term growth in labor productivity. As the growth of productivity in manufacturing and services like publishing, communications, finance and trade reduce jobs more people are forced to find work in low productivity services.
Health care, education and government services have millions of low productivity jobs that continue to be a major source of new jobs. Even though these jobs are more resistant to recessionary decline they depend more on tax financing, or tax subsidies, and political support than other low productivity services. Otherwise Americans are working in a higher percentage of low productivity jobs in discretionary services at restaurants, hotels, gambling casinos, pet care, landscaping, child care, and loans and credit cards. In the next recession these jobs will melt away; by the thousands, or millions.
Note (1) Labor data are from the Bureau of Labor Statistics, U.S. Department of Labor
Jobs increased by over a million in the last 10 months of 2010 and continue to rise, albeit slowly. The gains are welcome but as the old saw goes the devil is in the details. America’s job trends can be explained in sobering detail using published data from the Bureau of Labor Statistics, a.k.a. BLS. Data is not manna from heaven but has to be produced with a consistent set of definitions and procedures to be comparable between industries, occupations and over time. At BLS they produce labor data within the North American Industry Classification (NAICS) that defines a carefully crafted set of industries. They publish nearly a thousand national data series within these definitions.
Some industries showed little or no employment effect from the recession. For example, health care picked up 663.5 thousand jobs during the recession; a 4.25 percent increase. In the 20 years from 1990 to 2010, health care employment had its low in January 1990 and its high December 2010. Since 1990 there are no months with lower employment than the same month a year before. It continues to increase in the months of 2011.
In addition to health care, education and government services escaped the latest recessionary job losses. From January 2008 until February 2010 private education was up 133.7 thousand jobs and public education added another 37.3 thousand jobs. The Federal government had enough new jobs to offset smaller job losses at state and local government for net gain of 88 thousand more government jobs.
The combined increase of jobs in government, health care and education during a recession magnifies job losses in other service sectors and makes them more vulnerable to recessionary decline. Private service-providing employment dropped 4.6 million jobs during the recession months, a 4.9 percent loss. Given that health care, education and government increased during the recession, other service sectors had to decrease more than 4.9 percent; some dropped much more.
Take wholesale and retail trade where jobs dropped 8.2 percent after reaching an employment high of 21.6 million at the start of the recession in December 2007. The widely reported shift of jobs out of manufacturing and into the service economy does not always mention that replacement jobs came in discretionary services prone to abrupt decline in recession. In wholesale trade, durable goods jobs at merchant wholesalers for auto parts, home furnishings, construction materials and others dropped almost 13 percent. In retail trade, automobile dealers lost 19.2 percent of pre recession jobs; furniture and home furnishings store jobs dropped 22.4 percent; building material and garden supply jobs were down 11 percent.
Trucking employment dropped 12.8 percent from January 2008 until February 2010, the biggest drop in transportation jobs. Combined transportation and warehousing had 9 percent recessionary job losses, but individual sub sectors in air, rail and water transportation, couriers, messengers, warehousing and other support activities were off from 7.5 to 10 percent of jobs. Only local commuter transit was spared from recessionary job losses.
As Americans lost 3.8 million manufacturing jobs from 1990 until 2008, they took 3.6 million new jobs in administrative support. In the North American Industry Classification (NAICS) documentation manual, firms providing administrative and support services perform routine support activities for day-to-day operations of other businesses on a contract or fee basis.
Some of the 3.6 million new administrative support jobs in the 1990 to 2008 period included 1.44 million new jobs in temporary help services, and 517 thousand new jobs in professional employer organizations, which are jobs contracted with client firms to fine-tune employment with the ebb and tide of business. Count 382.6 thousand more jobs in landscaping services, 217.8 thousand more jobs in security guard companies and investigation services, 230.1 thousand more jobs in janitorial services, 140.8 thousand more jobs at telemarketing bureaus and telephone answering services. Include 87.8 thousand more jobs at collection agencies where employment more than doubled since 1990.
Combined administrative support services jobs built up to over 8 million before the latest recession wiped out more than 1 million of them, a 13 percent decline. Employment services including temporary help services proved especially susceptible with a 23.4 percent drop in jobs.
The expanded use of consumer credit and the build up in sub prime home mortgages helped fuel the build up and then collapse of financial services jobs at credit intermediaries for both deposit and non-deposit institutions. Jobs at deposit institutions like banks, savings and loan, and credit unions had modest but steady growth after 2000. Jobs at non deposit institutions like credit card issuers, consumer lenders, and real estate credit jumped 378.5 thousand to its highest employment of 776.3 thousand jobs in 2006. Housing related jobs in real estate and construction also reached their highest employment totals in 2006 as the housing bubble peaked prior to the recession.
Recessionary job losses in credit intermediation were slightly bigger than trade: an 8.43 percent drop. The non-deposit portion of credit intermediation lost 15.1 percent of pre-recession employment, down 219.4 thousand jobs from the 776.3 thousand high for 2006. Real estate jobs including jobs at offices of real estate agents and brokers were down 7.3 percent following their 2006 highs.
Construction took the worst losses from the housing bubble and recessionary declines: a 25.9 percent drop totaling 1.94 million jobs. Only 190.7 thousand jobs were lost in heavy and civil engineering construction, primarily for utilities and highway, street and bridge construction. The rest were for jobs in building construction and specialty trade contractors needed in home construction. Construction losses also affected professional employment where jobs at architectural and engineering service firms were off 11.7 percent, a decline of almost 170 thousand jobs.
Jobs in leisure and hospitality services declined sharply in the tech bubble recession of 2002 and again in the 2008, but otherwise they have acted as replacement jobs for jobs lost in manufacturing and jobs lost from slow growth in service sectors that utilize labor saving computer technology. Since leisure and hospitality combine arts, entertainment, recreation, accommodations and food services, these jobs are supported by discretionary spending prone to decline in a poor economy.
The necessity of eating does not extend to eating at restaurants. Going out to have others cook and serve turns out to be one of many ways to create leisure and hospitality jobs vulnerable to recessionary loss. Restaurants lost 356.3 thousand jobs in the recession but other jobs dependent on discretionary spending include hotel and motel accommodations, music and concerts, team sports, racetracks, nature parks, amusement parks, gambling casinos, golf courses, ski resorts, marinas, fitness centers, ice rinks, swimming pools, bowling alleys, day camps, and a few more. Fitness centers reached a high of 512.3 thousand jobs in 2008 after more than a decade of steady growth, but jobs dropped more than 5 percent in the 2008-2009 recession.
Exercise can be a walk in the park or walk on a treadmill; one has jobs, one does not. The latest recession gives a blunt reminder how easy it is to switch from one to the other. The growing reliance on jobs from discretionary spending is one result of the long term growth in labor productivity. As the growth of productivity in manufacturing and services like publishing, communications, finance and trade reduce jobs more people are forced to find work in low productivity services.
Health care, education and government services have millions of low productivity jobs that continue to be a major source of new jobs. Even though these jobs are more resistant to recessionary decline they depend more on tax financing, or tax subsidies, and political support than other low productivity services. Otherwise Americans are working in a higher percentage of low productivity jobs in discretionary services at restaurants, hotels, gambling casinos, pet care, landscaping, child care, and loans and credit cards. In the next recession these jobs will melt away; by the thousands, or millions.
Note (1) Labor data are from the Bureau of Labor Statistics, U.S. Department of Labor
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