Association for Public Policy Analysis & Management

This paper contributes to the literature on the minimum wage by examining a particularly vulnerable subset of workers that have worked in jobs not subject to the minimum wage. Under Section 14(c) of the Fair Labor Standards Act, firms meeting certain criteria can pay workers with disabilities subminimum wages. Subminimum wages must be calculated based on the worker’s productivity relative to an average experienced worker without a disability. We assess the potential effects on workers and businesses of eliminating Section 14(c), a proposal currently under consideration, which would require all workers with disabilities to be paid at least the minimum wage. We find that this policy change would have the greatest effects on workers with particularly low productivity, presumably those with the most severe disabilities. Businesses would try to employ more workers with higher productivity, for whom the wedge between their current free market wage and the wage they would need to be paid is smallest.

We assess the potential impacts of eliminating Section 14(c) on workers with disabilities and businesses that contract with the federal government through the AbilityOne program, a program designed to increase employment of individuals with significant disabilities by limiting procurement on some federal contracts to nonprofits agencies that primarily employ workers with disabilities. We use worker-level administrative data to simulate impacts. In addition, we use survey responses and qualitative interviews on expectations from 180 and 12 nonprofit agencies, respectively. These agencies expect that if Section 14(c) is eliminated, employment of workers with disabilities would decrease, and the types of workers with disabilities who remain employed would disproportionately be those with higher productivity and less severe disabilities. Eliminating Section 14(c) would likely result in fewer jobs and lower earnings for workers with the lowest productivity, despite the intention to help workers with disabilities and provide greater employment protection. Estimates from simulations suggest that total wages paid would increase on average by 5.7 percent across all of the nonprofit agencies that participate in the AbilityOne program if they retained all of their workers and continued to pay them for the same number of hours they currently work. However, most of this increase would be concentrated at the subset of agencies that pay many workers with low productivity using Section 14(c), where total wages paid would increase on average by 60 percent. As indicated in survey responses, agencies would likely try to mitigate some of the impact by hiring workers with higher productivity. Through simulations we estimate that if these agencies let go all workers below 50 percent productivity and replaced their hours using workers with higher productivity, total wage bills would go up only by 2.5 percent, or by 21.5 percent at the most affected agencies.