Cillo: Vermont’s minimum wage increase will boost economic growth and help workers

Editor’s note: This op-ed is by Paul Cillo, the president of the Public Assets Institute,  a nonpartisan, nonprofit fiscal policy think tank based in Montpelier.

While stagnant wages and sluggish job growth continue to cloud the post-recession recovery, there’s a bright spot for Vermont: Approximately 11,000 of the state’s lowest-paid workers got a raise on Jan. 1, as the state’s minimum wage increased by 14 cents to $8.60.

Thanks to a law signed by Gov. Jim Douglas in 2005, the state’s minimum wage automatically adjusts every year to keep pace with the rising cost of living – this key policy reform, known as “indexing,” has already been adopted by nine other states as well. As a result, the wages paid to those Vermonters who wake up each morning to do the hard work of cleaning office buildings, serving food, and providing care for the elderly will not gradually erode each year as the cost of basic expenses like food, gasoline and utilities continues to rise.

According to an analysis from the nonpartisan Economic Policy Institute, Vermont’s minimum wage increase this year will boost the average affected worker’s pay by $240 per year, generating over $1.4 million in new consumer spending.

As the country debates how best to create jobs and accelerate the economic recovery, our elected officials in Washington could learn from the example that Vermont has set in addressing the urgent problems of America’s low-wage economy. After more than three years since the official end of the Great Recession, average wages are actually declining in real terms, even as workers throughout the U.S. put in longer hours to help make ends meet. As a result, workers with less disposable income are holding back on spending, depriving local businesses of the sales revenue they need to expand their operations. In a country where consumer spending makes up 70 percent of the total economy, stagnant wages spell limited growth and a continued weak recovery.

By contrast, the modestly higher wages received by low-paid workers in Vermont this year will go right back into the economy, generating economic growth as these workers put food on their tables and raise their families. According to an analysis from the nonpartisan Economic Policy Institute, Vermont’s minimum wage increase this year will boost the average affected worker’s pay by $240 per year, generating over $1.4 million in new consumer spending.

While the value of higher wages for Vermont’s low-paid workers remains clear, those who oppose any increase in the minimum wage still claim that higher wages will only slow job growth or burden local businesses. These concerns find no support from the facts: Indeed, businesses that pay fair wages to their employees ultimately benefit from reduced turnover and higher worker productivity, as their employees are spared from the struggle of balancing multiple jobs in order to make ends meet.

In fact, the real strain on economic growth in today’s economy stems from the decision made by many national fast food chains and big box retailers to inflate their profits by paying rock-bottom wages, siphoning money out of local communities and impoverishing the customer base needed to sustain economic growth.

And yet, while this year’s 14 cent minimum wage increase will mean a lot to workers that are struggling just to get by, the truth is that Vermont’s minimum wage remains well below the level needed to ensure that full-time work provides a path out of poverty. Contrary to myth, over 71 percent of workers benefiting from Vermont’s minimum wage increase this year are adults over the age of 20. Sixty-five percent of these workers are putting in more than 20 hours per week, and 42 percent have at least some college education. When large numbers of skilled adult workers find themselves relying on the minimum wage to make ends meet, then a national response is required in order to preserve the American Dream of upward economic mobility.

Congress has only acted three times in the last 30 years to raise the federal minimum wage. It’s time for a new level of leadership. It’s time for Congress to learn from Vermont’s example by raising and indexing the minimum wage.

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