Spike in minimum wage could cost low-income workers, experts say

A preliminary analysis of a potential boost in Vermont’s minimum wage shows that without concurrent policy changes to public assistance programs, low-wage workers might lose more in benefits than they gain in earnings.

The finding was presented to the House Committee on General, Housing and Military Affairs on Tuesday afternoon. The committee holds jurisdiction over labor issues, and is pondering a graduated increase in the state’s minimum wage from $8.73 cents per hour to anywhere from $10.10 to $12.50 or higher.

Rep. Helen Head, D-South Burlington, chair of House General, said she is willing to take more testimony after a public hearing scheduled for 6 p.m. Thursday at the Statehouse. She hopes to move the bill out of her committee by the end of next week, if not sooner.

Gov. Peter Shumlin recently called for a gradual increase to $10.10 over three years, in line with President Barack Obama’s national campaign. A “consortium” of four New England governors have fallen in line with the initiative: Shumlin, Dannel P. Malloy of Connecticut, Lincoln Chafee of Rhode Island and Deval Patrick of Massachusetts.

Legislative economist Tom Kavet. VTDigger file photo

Legislative economist Tom Kavet. VTDigger file photo

Legislative economist Tom Kavet and Joint Fiscal Office staffer Deb Brighton wrote a memo based on an immediate wage hike to either $10.10 or $12.50, starting in 2015. They said impacts likely will vary by sector, and repercussions for workers and the state budget are complicated.

Because some businesses theoretically will not be able to afford the same number of workers at a higher wage, about 250 job losses could occur from an increase to the lower threshold, they wrote. Those who retain their positions could earn about $30 million more, however. That would lift some people off public assistance programs, Kavet told lawmakers.

“The reduction in federal transfer payments as a result of lower federal aid participation, however, could result in approximately $5 million in reduced Medicaid, EITC (earned income tax credit), SNAP (3 Squares) and other payments to the State,” the report states.

Kavet said the effect of such a drastic hike in the minimum wage is difficult to predict because it’s uncharted territory. He said no matter the size of the raise, it will directly affect a tiny fraction of the state’s total labor force, and the bigger the raise, the bigger the impact will be.

To that end, a jump to $12.50 per hour could result in approximately 3,200 lost jobs, or about 1 percent of total employment. Aggregate income gains for low-wage workers might reach $250 million. And the loss of federal funds the state would experience could be roughly $35 million.

Kavet said he would need to conduct further study of the data to forecast more specific impacts. Lawmakers were particularly curious about the differential between Vermont’s minimum wage and that of neighboring states, especially New Hampshire, which reduced it to match the federal minimum of $7.25 per hour in 2011.

They also may ask him to take a closer look at the interaction between the state’s minimum wage rates and federal assistance programs. Lawmakers are concerned that workers might lose more than they gain by working extra hours or earning more money, and they’re also worried about hidden, indirect pressure on state coffers should there be an exodus of low-wage workers leaving social welfare programs.

Kavet suggested there might be ways to work around regulations to keep federal aid while directing more earned income back to the pockets of low-wage workers.

Head said keeping the state’s minimum wage in line with neighboring states is particularly attractive because a group of states would have more leverage in negotiations with federal partners.

Hilary Niles

Comments

  1. sandra bettis :

    that’s an argument – that people won’t be eligible for welfare programs anymore??? and the loss of jobs – just another scare tactic from the business community……

    • J. Scott Cameron :

      Ummm, Mr. Kavet’s is a respected economist who works for the Vermont Legislator. His testimony was based on a thorough analysis of wage growth and current federal/state benefit practices. It’s called “cause and effect”.

  2. Janice Prindle :

    In this day and age, it is ridiculous that we are even having this discussion. Workers deserve a living wage, period. If that means we lose some federal aid, revamp our tax code to fairly tax the wealthy in our state — as long as it echoes the federal code, it is another injustice inflicted on Vermonters. As for leverage — someone has to go first, and historically, that has often been Vermont.

  3. Wendy wilton :

    It’s hard enough for high school and college students to find jobs now. A jump in minimum wage will not be helpful.
    The legislature should bear in mind that few full time employees work at minimum wage. Employers cannot afford to pay trainees at higher wages because the productivity is simply not there especially with younger, less skilled workers. Widely available entry level jobs are essential to training young people for work.

    • krister adams :

      Ms. Wilton: I have worked in the affordable housing world for many years. It is simply not true that “few full time employees work at minimum wage”. I don’t know where you come up with this. If the min. wage is raised, we’d see many families rise from poverty. Period. Why is that wrong?

      • Wendy wilton :

        @Mr. Adams, like you, I have many years of experience working with the public. My experience has been in mortgage lending, msmall business, and now tax collector for the City of Rutland…a pretty broad cross section of Vermonters, some wealthy, some poor, most middle class. The only people I recall with minimum wage, or close to, jobs were part time employees.
        The average gross annual income for individual Vermonters is somewhere in the $38,000 range, that’s about $15 per hour–double minimum wage. But the majority of Vermonters do not live alone and average household income in VT is about $70,000 per year. Given those stats I think I am correct that few people work at minimum wage FT positions.
        Many of the comments here indicate that one cannot pay for rent and food at a full time minimum wage position. I agree. It isn’t realistic at an entry level wage. However, it’s also unrealistic that most small businesses can afford to hire full time help or pay much more than minimum wages. These jobs suitable for students, retirees or a second job due to their flexibility, fewer demands, and ease of access.
        My daughter is a college student who is working a part time food service job at about minimum. It’s enough to pay for her portion of the rent in a house she shares, food and gas for her car. Boost that minimum to $12.50 and she’ll get fewer hours and might not be able to make enough to cover those costs.

        • Lee Russ :

          If you haven’t personally seen them, Ms. Wilton, they are described in detail in the report that Tom Kavet was commissioned to make to the state legislature.

          http://www2.leg.state.vt.us/CommitteeDocs/House%20General/Bills/H.552/Witness%20Testimony/3-18-2014~Tom%20Kavet~H.552~Memo%20on%20Minimum%20Wage.pdf

          Relevant points from that report:
          54% of those earning less than $10.00 per hour and 65% of those earning less than $12.50 per hour are older than 30.

          Most low wage workers who are over 22 years old are full-time (72% of those
          earning less than $12.50 and 67% of those earning less than $10.00 per hour).

          Of All Workers Earning Less than $10.00,
          52% earn more than 1/2 of their family’s income.

          Of All Workers Earning Less than $12.50,
          55% earn more than 1/2 of their family’s income.

    • John Greenberg :

      “The legislature should bear in mind that few full time employees work at minimum wage.” Could you document that statement please. Thanks.

      • Wendy wilton :

        The average annual individual wage for a Vermonter is somewhere close to $38,000, or $15 per hour, or twice minimum wage. However most Vermonters live in households with annual incomes closer to $70,000. That math says to me that few full time employees are at minimum.

        • Doug Hoffer :

          First, this is a discussion about the needs of low-income working people, not “most Vermonters.”

          Second, the average is not the best figure because it is skewed by relatively few high-wage people. It’s better to use the median, which is the mid-point; 50% above and 50% below.

          For example, for all households, the average income was $73,034, while the median was $53,046.

          Third, the figures Art presents excluded a third of all Vermont households. He refers to “families” which includes only those related by marriage, blood or adoption. He therefore excludes 95,000 households.

          Median family income was $64,585, while median non-family income was $31,796.

          In any case, citing figures about averages and most people is not helpful when we’re talking about working people struggling to meet their basic needs. And if you check the Census micro-data, you’ll find that a large percentage of them are not students or retirees. Furthermore, the BLS data shows clearly that a lot of those working part-time would prefer full-time jobs if they were available.

      • Wendy wilton :

        Here’s some data on median household incomes:
        http://www.vteconomy.com/PresentationArtWoolf2014.pdf
        You can get median individual wage info from the state Dept of Labor economic profiles series.

    • Lance Hagen :

      I think both Ms. Wilton and Ms. Adams need to show their numbers. It would also be helpful if state released the numbers as to how many people no longer needed social welfare programs as a result of increasing the minimum wage.

      • krister adams :

        That’s Mr. Adams. And I won’t be citing graphs & charts. 15 years experience is all I got.

  4. I just love experts who think that raising the minimum wage to a level that in 3 years still won’t be a living wage is harming workers! When working people earn less than a living wage we all pay and workers are perpetually harmed. We pay financially in terms of health care, food stamps and other subsidies. And we pay morally knowing that we perpetuate the cycle of poverty. The absurdity of the thinking that by keeping the wages low means we can squeeze more Federal dollars, as if that is an answer makes my brain hurt! Are these the same experts who whine about Big Government taking over? A livable wage is common sense . Workers who earn more have more to spend! Even Henry Ford (hardly known for his philanthropy) knew that . He wanted workers who could afford to buy his products! Paying a living wage is the right thing to do. Interestingly a California Libertarian, Ron Unz who is not normally recognized for his people-friendly ideals, has proposed that the minimum wage rise immediately to $12. Although his reasoning is certainly not from the Dept of Warm and Fuzzy, his goal makes sense. Maybe the Grinches in this article would like to check out his opinion! http://hereandnow.wbur.org/2014/03/17/unz-minimum-wage

  5. walt amses :

    I thought we were getting away from the “I’m keeping you poor for your own good” argument regarding minimum wage. Aren’t we hoping to eventually get to a place where fewer people qualify for public assistance? Isn’t that the entire idea? And the old saw about a higher minimum wage simply costing jobs does not appear to be an accurate assessment of the situation. One among many economic theories suggests job losses would be limited to teenagers who are working part time and that those jobs could then be supported through programs funded with a portion of the billions of dollars that saved by having fewer federal benefit recipients. People need to earn enough money to support themselves. Without a living wage “the dignity of work” is an oxymoron.

    • Walter Carpenter :

      “Isn’t that the entire idea? And the old saw about a higher minimum wage simply costing jobs does not appear to be an accurate assessment of the situation.”

      True. Our capitalistic system needs minimum wage or just barely above minimum to make its profits.

  6. Judith Levine :

    Although further model work is ongoing, preliminary impacts indicate that a $10.00 minimum wage would result in about 250 fewer jobs (or an equivalent reduction in hours), less than 0.1% of total employment,

    • krister adams :

      Why is that??

  7. Judith Levine :

    didn’t finish comment above —
    my point: Put it in CONTEXT.

    less than 0.1% of total employment.

  8. My comments are not meant to be be judgmental of the pros and cons of raising the minimum wage. They are instead directed at a Governor who consistently acts without doing his homework.

    And here is another example of not doing his homework or the Governor’s “Ready, Fire, Aim” management style that has so frequently gotten him in trouble. This Governor repeatedly acts before doing his homework and people usually wind up paying the price.

    Without hearing from the relevant economists, the Governor jumps on board for an increase in the minimum wage. He gives no consideration as to what the overall consequences maybe. He seems to be more interested in the political points he may score than what is best for the state overall.

    Let’s hope that the legislature will properly vet this topic before acting, the 250 to 3,200 people who could lose their jobs are counting on it.

    • I don’t know whether the Governor has done his homework or not but he did not introduce this bill. So the point of using it as a vehicle t take potshots (correctly or incorrectly) is irrelevant and only serves to minimize an important issue. This is an issue being debated in many State Senates around the country. Hopefully most of them will come down on the side of the right of people to earn a living wage.

  9. Rep. Paul Poirier :

    As the main sponsor for the 12.50 minimum wage bill. I would like to clarify some points from the Kavet report.
    There are 86,000 vermonters working for under 12.50 an hour. The majority of them are woman. 70% are over the age of 30 and of those 56% are head of households. 85% are over the age of 22. At 12.50 an hour the estimated savings to the state is 20 million which would be re-invested to eliminate the cliffs in the safety network.
    Many of the safety network programs are dependent on federal funds and it is clear, as what happened with the food benefits this year, 90.00 reduction per month, that the congress is moving away from supporting the safety net.

    • Lance Hagen :

      Mr. Poirier, thank you for these figures. Do you have any figures as to, how many people no longer needed social welfare programs as a result of the last time the minimum wage was increased?

    • Chet Greenwood :

      Rep Poirier,
      Your statistics don’t tell us what industries or how many of the 86,000 were part timers. My guess is that a significant number work in the hospitality/service industry and would be part time.
      I think the $20mil savings was calculated the same way as the savings on Green Mtn Health Care. If the majority are part timers and 56% are H/Household then they will still be eligible for Snap, WIC, rent assistance, fuel assistance,subsidized child care, health insurance, EIC to name a few.
      If raising minimum to $10 loses 250 jobs, how many does raising to $12.50 lose?
      I would love to see everyone making more money and the best way to do this is to grow the economy-reduce taxes, regulations and restrictions.
      If you have 16,000 unemployed (actually more but not looking) looking for work then the employer has a definite advantage.
      Final thought-what and how much is a livable wage?

      • Chet Greenwood :

        To be clear, I am not opposed to people receiving benefits on safety net programs.
        I do have a problem with the way they are administered, as in the SNAP fiasco.

        It is a shame that we give out too many benefits to those who “want” therefore reducing benefits from those who “need”.

      • Doug Hoffer :

        Mr. Greenwood

        The livable wage was first discussed in the Job Gap Study in the 1990s. Subsequently, the legislature asked the Joint Fiscal Office to do the calculations using methodololgy based on the original Job Gap Study (although modified a few times through the years).

        The latest livable wage figures are here.

        http://www.leg.state.vt.us/JFO/reports/2013%20Basic%20Needs%20Report%2001-15-2013.pdf

        The figure generally considered to be the livable wage is one half of the amount required to meet basic needs for a two-person household (two adults, no kids).

        There are a number of assumptions used in the methodololgy, all of which are discussed in the Appendix.

      • Lee Russ :

        The answers to several of your questions are in the state-commissioned report at:
        http://www2.leg.state.vt.us/CommitteeDocs/House%20General/Bills/H.552/Witness%20Testimony/3-18-2014~Tom%20Kavet~H.552~Memo%20on%20Minimum%20Wage.pdf

        There are a lot more full timers than most people think, and there are a hefty percentage of low wage earners with some college education.

  10. Ron Austin :

    Raising the minimum wage is going to kill what was a good retirement package that I was getting. As everything increases in price (and it all will as businesses pass the cost along to consumers) we will only be creating an additional group of needy people. This is no more than another ploy by the left to buy votes by those too ignorant to see past next week’s paycheck. Bribing low information voters is NOT going to strengthen the economy. How about CREATING some new jobs for people that are smart enough and willing to work at them? Flipping burgers pays minimum because that what it SHOULD pay. Half of those morons can’t put a package of ketchup in a bag properly and you want to reward them? As a retiree, I too have a minimum wage job for a little extra and something to do. Increasing that wage nets me nothing as my other income becomes worth less and less.

  11. Renée Carpenter :

    Thanks for the article and discussion–a good one, as usual. And thanks to the person who asked “How much is a livable wage?” because $12.50/hour definitely is not for a single wage earning head of household in Vermont.

    Back in the 80s during the discussion of Clinton’s/Dean’s “Welfare Reform,” Dr. Paul Elwood wrote (in statistifally-supported detail) that all six factors around basic living expenses–food, housing, health care, transportation, child care and education–needed to be looked at together to fully lift people out of poverty (at a national level).

    If Vermont wants to lift people out of poverty there are three basic actions that would make a good start:

    Raise revenues by taxing the wealth (upper income earners & corporate profits) of the state to fully fund all social programs to pre-welfare “reform” levels, and to

    Raise the Earned Income Tax Credit, and

    Subsidize the development and ownership (or rent) of energy-efficient, sustainably designed affordable housing.

  12. J. Scott Cameron :

    It is amusing to read all the posts from people who believe that you can legislate wealth and prosperity. Would that it were so.

    If the State of Vermont or the Federal government wants to make an real impact on poverty it should look at the tax code. Perhaps enact a minimum income level for all citizens? Or put more funds into Earned Income Credits and extend them to low income people without children?

    Of course, that would require re-shuffling priorities and passing broad based taxes, not a popular thing to do. Many, if not most people support addressing poverty issues until the government takes money out of their pocket to do it.

    Raising the minimum wage is a no-brainer for politicians. You don’t have to raise taxes, you simply shift wealth, which in Vermont means primarily from the owner/operators of small, family retail establishments to their staff. Rule #1 of economics: increase the price of something and consumption will decrease.

    As a business owner let me say that I am proud of the fact that we pay much better than either the current or proposed minimum wage. We push wages upward as often as we c an, and we are able to attract and retain good people as a result. However, decisions about raising wages are made after analyzing the business and sales trends; otherwise, we could jeopardize the entire operation and that wouldn’t be good for anyone. That’s the problem with the legislature trying to make these decisions for us – they have no idea of the ramifications of their decisions.

    In closing, here is the Cycle of Democracy, attributed to Dr. Alexander Tytler, a Scottish professor:

    “A democracy cannot exist as a permanent form of government. It can only exist until the voters discover they can vote themselves largess from the public treasury.

    From that moment on, the majority always votes for the candidates promising them the most benefits from the public treasury, with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship.

    The average age of the world’s greatest civilizations has been 200 years. These nations have progressed through this sequence:

    From bondage to spiritual faith;

    from spiritual faith to great courage;

    from courage to liberty;

    from liberty to abundance;

    from abundance to selfishness;

    from selfishness to apathy;

    from apathy to dependence;

    from dependency back again into bondage.”

    • Lee Russ :

      “It is amusing to read all the posts from people who believe that you can legislate wealth and prosperity.”

      I don’t think anyone’s comments here indicate any such belief unless you have an unnaturally broad definition of “wealth” and “prosperity.” You can, if you have a sufficiently affluent nation, legislate a minimum standard of living, which is an entirely different thing.

      And the quote you attribute to Alexander Tytler is widely believed not to be from him at all. Not that it matters much who said it. Nor, for that matter, that is was said at all. What exactly is the relevance of the quote to a discussion of a minimum wage increase? Do you think that the desire for an increase means that the society is heading into dependence? Or is the resistance to it a sign that we’re heading from abundance to selfishness?

      • J. Scott Cameron :

        The relevance is that it is just one more example of politicians doing something which will not address the real issue of poverty in order to appease their perceived supporters.

    • “If the State of Vermont or the Federal government wants to make an real impact on poverty it should look at the tax code.”

      Or maybe they should look at the way money is created. Almost all money (something like 97%) created in the US is created by private banks as debt. It has been estimated that 30-40% of everything spent goes towards paying interest. As interest gets compounded, the amount that we get charged for goods and services gets increased and the value of the dollar gets decreased as a result.

      Congress has the power to create debt-free sovereign money which could be spent into the economy in a manner that would create more demand for goods and services which would, create more jobs (hopefully in the US instead of some foreign country). Congress, however, turned money creation over to the private banks when they created the privately owned federal reserve. Along with the power to create money, the private banks now have the power to control the government which they use quite often and quite forcefully.

  13. John Jacobs :

    As Chair of the Board at VT Law School, you were involved in laying off employees last year. Is that because VT Law School insists on ‘push(ing) wages upward as often as we can’ for some, at the behest of others?

    • J. Scott Cameron :

      I was not the Chair of the Board at the time, having reached my term limits a year or two earlier. I had no involvement with those decisions.

      That having been said, only an idiot would think that any institution could, would or should continue to employ and spend at current levels when faced with an economic crisis. Over the last several years there has been a dramatic loss of entry level jobs in the legal field, which led to a massive decline in law school applications and enrollments. VLS entering classes declined from over 200 to about 135. Revenue dropped by several million dollars.

      As you all know, student enrollment in the Vermont public school system has also declined dramatically over the years, while school staffing has increased. Public schools often avoided layoffs notwithstanding soaring per pupil costs by simply passing the costs on to the taxpayers, who largely accepted them because their elected officials told them there were no alternatives and that it was for the good of the children. VLS, however, is a private institution and had to live in the real world where it had to pay its bills with its own funds. As a result, the Dean and the Board of Trustees made the difficult decisions that had to be made, and many fine people lost their jobs. It is my understanding that the folks who were laid off received solid severance packages.

      If VLS Trustees and leadership had not made the decisions they did the viability of the entire institution would have been threatened. Unlike the federal, state and local government, private businesses and institutions have to deal with reality.

  14. J. Scott Cameron :

    You are uninformed.

    I was not on the Board at the time these decisions were made.

    In the private sector, lay-offs reflect a weakening of revenues, such that the company or institution can no longer operate at the same level it had in the past. Lay-offs have no relation to the minimum wage issue.

    Law school applications and enrollments have declined precipitously at VLS and most other schools around the country; entry level jobs in the legal field have declined and students are seeking other types of professional education and training.

    Faced with a decline in enrollment VLS did not have the funds to retain all of its excellent staff.

    That’s the way the real world works. It’s a shame, but it was either lay off some or let the whole school fail. The VLS Trustees and leadership did the right thing.

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