Recent Goodwill Story

Recently the local branch of Goodwill got some bad press. The story is here. I heard it on NPR, which is what my alarm clock plays when it wakes me up in the morning.

Whenever I dig into the details of a popular news story or the Outrage of the Week, I find that the dominant narrative is wrong in important ways. This one was no different. The story is being reported as: Goodwill decided to lay off all its disabled employees. See the very first sentence of the State Journal Register story above.

A day after Land of Lincoln Goodwill Industries reversed a decision to lay off workers with disabilities because the state’s minimum wage is increasing, the organization’s president and CEO submitted her resignation.

The NPR story used similar language. My immediate reaction was, "WTF? There's no way that's correct." At work, I had just been through a corporate management training event, a day-long session on interviewing skills, which included a long discussion of which things are not legal to ask in a job interview or use as qualifying criteria for a job candidate. It is completely illegal to make hiring or firing decisions on the basis of someone's disability status. (There was even a video with an actor playing the clueless hiring manager asking an older lady "Are you disabled?", and the lady making an annoyed face.) You can state the physical requirements of the job and ask if the candidate can handle them, and presumably you can fire someone after their job performance makes clear that they can't handle a job. But the news story was making it sound like Goodwill identified all of its disabled employees, marked their personnel file with a big red "D", and announced it was going to fire them. That's not what happened.

Goodwill actually runs a special training program for the disabled, ex convicts, and other people who have trouble finding meaningful employment. See their own description of their program here. Or read about Jonny at the bottom of this document. (These are Goodwill sources, so they may be biased, but if you find a well argued piece that's critical of Goodwill feel free to share it.) These are not traditional employment, so they have an exemption from the minimum wage.

Section 14(c) of the FLSA allows employers to pay wages below the federal minimum to employees who have disabilities that directly affect their job performance. Employers are able to do this through a special minimum wage certificate obtained from the U.S. Department of Labor’s Wage and Hour Division.

Some commentators try to argue that Section 14(c) is just a "loophole" that is cynically used by employers to exploit disabled workers. But this is wrong. The sad truth is, having a disability (depending on the disability) makes you generally less productive, and thus less valuable to an employer. Many of these people would not find employment at all if all employers had to pay them the minimum wage. Section 14(c) was explicitly built into the Fair Labor Standards Act because even advocates of the (then new) minimum wage realized it would throw the least productive members of society out of work. See this (generally critical) paper:

Section 14(c) of the FLSA included an important exception to the innovative minimum wage for people with disabilities 21 that, at the time, did not alarm the legislature. It was based on definitions and classifications set forth in the National Industrial Recovery Act (NIRA) of 1933. Under NIRA, President Roosevelt defined a person with a disability as one "whose earning capacity is limited because of age, physical or mental handicap, or other infirmity." Section 14(c) stated:

The Administrator, to the extent necessary in order to prevent curtailment of opportunities for employment, shall by regulations or by orders provide for.. .(2) the employment of individuals whose earning capacity is impaired by age or physical or mental deficiency or injury, under special certificates issued by the Administrator, at such wages lower than the minimum wage . 

Citations omitted.

So even Roosevelt was conceding (quite explicitly) that certain conditions make workers less valuable and built in an escape hatch to spare them the disemployment effects of the minimum wage. I believe some critics of 14(c) think that these employees will all keep their jobs if we did away with it, they'd just make more money. That's a pretty implausible assumption.

(By the way, I hate this usage of the term "loophole." Section 14(c) is a feature of a law that's doing exactly what it's supposed to be doing, not some clever hack that wasn't intended by the authors.)

Back to Goodwill. They are running a program where disabled people self-identify in order to get job training and some experience (and, plausibly, a sense of purpose in a life that would otherwise be spent in unemployment). If they have disabled employees who got their job the normal way, going through the usual application process, these people would not have been targeted for layoffs. It's not like Goodwill grabbed everyone in a wheelchair or in crutches and ushered them out the door; they are running a charity and decided to be slightly less charitable along one dimension. Legally, Goodwill has to be agnostic about their regular employees' disability status, even if it's something obvious.

In a statement, Goodwill had mentioned rising minimum wages as a factor in their (now reversed) decision to lay off employees under their 14(c) program. Some people were quick to criticize this rationale, because 14(c) explicitly allows them to pay less than the minimum wage. But Goodwill is right to be concerned about minimum wages, because there is a lot of political activism aimed at ending this exemption to the minimum wage. In fact, the United States House just recently passed a bill that would 1) increase the minimum wage to $15/hour and 2) removes the exemptions available to some workers. (The Reason piece doesn't mention Section 14c, but this Reuters piece makes clear that that's what the bill is targeting.) This likely won't pass the Senate, so probably won't become law. But Goodwill is surely following these efforts and trying to get ahead of them. If they suddenly have to adopt all of their job trainees as full employees and pay them $15/hour, that's likely to be a massive financial hit, possibly a fatal one. I hope all charities are as scrupulous about managing their finances as Land of Lincoln Goodwill. Some clueless commentators also pointed out that Illinois' minimum wage hasn't even started to increase yet. The $15/hour minimum will be phased in over the next several years, but the first increase hasn't hit yet. This criticism makes no sense. Businesses and (presumably) charitable organizations do long-term planning. They look ahead to manage their expenses. If they know that a minimum wage increase is coming and will soon increase their labor costs, they will start responding to it now with layoffs and other forms of cost curtailment.

(This is actually a major criticism of the minimum wage literature. Many studies find "no effect" on employment, but any effect is likely to be understated because employers are anticipating these kinds of changes, even before the law gets passed. They are likely to have already taken steps to mitigate the impact. It's not like they're in a binary state that's one way before the law passes and the other way after. They make probabilistic assumptions about what their future costs will look like.)

The public backlash is really unfortunate, and so are the efforts to end Section 14(c). Organizations running similar services for the marginally employed now have this hanging over their heads. They know that they can't walk back a program if it starts to become a political and financial liability. Anyone who is currently thinking about beginning or expanding such an operation is likely to have second thoughts about it now.
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Maybe it's just Goodwill propaganda and I'm falling for it, but here is their story about Jonny:

But getting to Goodwill wasn’t easy. Johnny was born in the late 1970s with a rare trisomy chromosome imbalance, which limits his speech and cognitive abilities, in addition to other developmental and physical disabilities. When he was 10 years old, he was assaulted by an adult caregiver and became scared, withdrawn and rebellious. For many years, he wouldn’t go out in public or speak to people other than his father — the only person he trusted. But his father didn’t give up. In fact, he became a passionate advocate for his son.

Over the years, Butch left no stone unturned in seeking help for Johnny, and he even moved to Dallas, OR, where his son could live in a facility that he’d heard was “the best.” But Johnny wasn’t receptive to the help of the facility staff and wouldn’t talk to anyone. When the Butch first learned of the programs at Goodwill Industries of the Columbia Willamette (Portland, OR), he was hesitant, but gave them a try.

Johnny enrolled in the Goodwill’s Community Integration Project II, which provides employment and vocational training to people with multiple and/or severe disabilities under a special minimum wage certificate. The Goodwill’s staff recalls that when Johnny first entered the program, he was crying and shaking. But through training, he learned basic vocational skills and appropriate workplace behaviors. 

“Johnny has transformed from a frightened and profoundly insecure person into a confident and integrated young man,” says Michael Miller, the agency’s president and CEO. “His success today is a product of his father’s devotion, coupled with Goodwill’s intervention.”

Maybe Jonny is a cherry-picked example of the most sympathetic individual Goodwill could find, and I'm naively falling for their trick. But there are certainly people like Jonny who wouldn't be able to find meaningful employment at the current minimum wage (much less the absurdly irresponsible $15/hour some activists are peddling). I think about the pan handlers I see downtown on my lunch break. Some of them have obvious disabilities. It's hard to imagine any employer taking a risk on these people knowing they'd have to pay $15/hour. It's unlikely that most of these people could add that much productivity to the employers bottom line.

I've said quite a lot in this post about worker productivity, the value of an employee to the employer. I hope no reader mistakes this for the value of the person. It's not a statement about a person's moral worth or the value they bring to their friends or family. My very young children are incredibly valuable to me, but of no value to any employer. In fact, they probably would impose negative returns on any employer trying to coax meaningful work out of them, given the amount of instruction, monitoring and double-checking required to get a task done. Your value to an employer is not the same as your moral worth (however you might measure the second thing). Think what a non-sequitur it would be for a parent to drop off their teenage son to work at McDonalds and then get indignant that their child was "Worth infinitely more than $7.25 an hour!" ("Um, perhaps you are confused about the nature of this transaction. I'm not trying to buy your son from you, ma'am. I can only afford to pay him what he adds to this store's revenues, at most. Which, unfortunately, is not that much.")  This seems like an obvious point, but I've seen this mistake enough times that I wanted to preempt it. People need to drop this idea that your inherent moral worth as a human being imposes a duty on an employer, the duty to pay you some minimum amount for your labor. No, that depends entirely on what you add to the employer's bottom line. It's a morally neutral concept. By moralizing this concept, some misguided activists are saddling us with bad policy and casting inherently employable job-seekers out of work. To expect our value judgments to be fully reflected in market prices is just crass materialism.