Working Paper
RISEI Lab Working Paper No. 2026-06 · September 2026
The Firm Response to State Elimination of Section 14(c) Subminimum Wages
Download Working Paper (PDF) ↓Abstract
Section 14(c) of the Fair Labor Standards Act permits certified employers to pay workers with disabilities below the federal minimum wage. Existing research on state policies eliminating subminimum wages has focused primarily on worker outcomes, with less evidence on how disability-service providers adjust to these policies. We construct a novel employer-year panel of U.S. Section 14(c) certificate holders from 2015 to 2024 using comprehensive administrative records obtained through a Freedom of Information Act request to the U.S. Department of Labor and link these records to IRS Form 990 filings to measure nonprofit organizations’ continued operations and financial outcomes. Exploiting the staggered implementation of state laws eliminating subminimum wages, we find that the annual probability that a certificate holder exits the Section 14(c) program increases by approximately 25 percentage points following policy implementation. In contrast, we find no corresponding increase in organizational closure as measured by the cessation of Form 990 filings. Among organizations that remain active, revenues increase by approximately 17 percent, while we find no statistically significant changes in officer compensation or non-officer wage expenditures. Combining our firm-level estimates with existing evidence on workers’ post-policy employment and earnings, we conduct a supplementary fiscal analysis of the transition away from subminimum-wage employment.
At a glance
Key numbers
Overview
The policy debate over eliminating Section 14(c) subminimum wages has centered on what happens to workers. This paper turns to the organizations that hold the certificates: sheltered workshops and other disability-service providers. It asks whether ending subminimum-wage authority forces these providers to close, or whether they adapt and continue operating under a different model.
The evidence comes from a first-of-its-kind national employer-year panel, built from complete Department of Labor certificate records obtained by FOIA request and linked to each organization’s IRS Form 990. That linkage lets the study observe both participation in the 14(c) program and the broader financial health of the organization over a full decade.
The central result is a distinction that matters for policy design: providers leave the 14(c) program at sharply higher rates after their state acts, but they do not disappear. Continued operation, and rising revenue among those that remain, is consistent with providers reorienting toward competitive integrated employment services rather than shutting down.
Findings
What the paper finds
- Providers exit the program, not the sector.The annual exit rate from Section 14(c) rises by about 25 percentage points after a state eliminates subminimum wages, but closures (measured by the end of Form 990 filings) do not increase.
- Remaining organizations grow revenue.Among providers that stay active, revenues rise roughly 17 percent, consistent with a shift toward funded competitive-employment services rather than financial distress.
- Compensation is stable.There is no statistically significant change in officer compensation or in non-officer wage expenditures, so the revenue change is not being absorbed as executive pay.
- A fiscal lens on the transition.Linking firm-level estimates to existing worker-side evidence on post-policy employment and earnings supports a supplementary fiscal analysis of eliminating subminimum wages.
Cite this paper
Yin, M., & Vu, H. (2026). The Firm Response to State Elimination of Section 14(c) Subminimum Wages. RISEI Lab Working Paper No. 2026-06. Northwestern University.
Funding & disclosure
This working paper uses Section 14(c) certificate records obtained through a Freedom of Information Act request to the U.S. Department of Labor, linked to IRS Form 990 filings. Views expressed are those of the authors.