Vermont’s current minimum wage is around $3 dollars an hour higher than the federal level but it’s still substantially lower — after adjusting for inflation — than its peak in the late 1960s, according to analysts.
Last week, state economists told lawmakers that raising the minimum wage to $15 an hour would have both positive and negative effects on the economy. Predicting the long-term effects, they said, is difficult because of the magnitude of the proposed increase.
Tom Kavet, the Legislature’s economist, said the higher minimum wage would give more than a third of Vermont’s workforce a raise in 2022 — but it might also cost 3,000 jobs by 2028, or about one percent of the total workforce at that time.
Reaching $15 an hour by 2022 would be a new record high ‘real’ minimum wage and would require an unprecedented pace of increase, Kavet said.
The current minimum wage in Vermont is $10 an hour and is scheduled to go up 50 cents in January. The federal minimum wage is $7.25 per hour, which hasn’t changed since 2009.
Joyce Manchester, a senior economist in the Legislature’s Joint Fiscal Office, said that the prediction of 3,000 lost jobs is based on “the conventional wisdom of the day” learned from much smaller previous increases.
“As we learn more about the response of employers and workers and so forth to higher and higher increases in the minimum wage,” she said, the model’s results “could very well change.”
Legislators from the House and the Senate discussed raising Vermont’s minimum wage earlier this year. A bill introduced in the House suggested reaching $15 an hour by 2022 after a series of annual incremental increases.
The Legislature created the Minimum Wage Study Committee, which first met last week, to learn about the effects of such an increase. The committee is also charged with exploring how to address an increase in wages leading to a disproportionate loss of state and federal support, a phenomenon called the “benefits cliff.” Experts told the committee that working parents are most vulnerable to the “benefits cliff.”
Reports Kavet and Manchester submitted to the committee show that, for the past several decades, real wage growth in Vermont has been slow — and occasionally negative.
Manchester told the committee that, using inflation-adjusted dollar figures, the highest Vermont’s minimum wage has been was in 1968.
Using the same inflation adjustment, the minimum wage has been approximately 14 percent lower over the last several years, Kavet said.
Kavet told the committee that around 25 percent of Vermont’s workforce will be earning below $15 an hour in 2022 if no changes are made.
If the increase goes through, Kavet said about 10 percent of the workforce, in addition to those at the bottom, would also see their hourly wages increase as employers adjusted their incomes to stay ahead of those making minimum wage.
In his report, Kavet wrote that raising the minimum wage as proposed would increase the total income of affected Vermonters by more than $240 million by 2022. This would lead to “powerful, positive local economic effects,” higher tax revenues, and lower expenditures on state benefit and support programs.
But, Kavet also wrote, these positive effects would be “largely offset” by higher prices for some goods and services, higher federal income and payroll taxes, reductions in federal benefit and support payments, reductions in private employee benefits, and businesses cutting jobs and hours.
“It’s gonna increase prices,” Kavet told the committee. “In industries where they can pass along prices, they will.”
When companies can’t pass increased labor costs on to the consumer, “it has to come out of something else,” Kavet said.
Business owners, he said, will ask themselves “Can I get by without those workers? Can I put a machine in that does everything?”
Kavet said businesses with high labor costs and many low-wage employees, such as retail stores, hotels, motels and particularly restaurants, would be most affected.
Responding to a question from Rep. Brian Keefe, R-Manchester Center, about where lost jobs and work hours would be concentrated, Kavet said rural areas would probably be the hardest hit because the jump to $15 an hour would constitute a larger increase over their current lower wages.
Sen. Michael Sirotkin, D-Chittenden, said the target of $15 an hour “is not cast in stone.” He said he wants the committee to more generally consider how to close the gap between the wages many Vermonters earn and the cost of their basic needs.
Kavet said that Vermont is not alone in considering whether to substantially increase its minimum wage, but doing so is “a big experiment.” In 2017, 21 states and Washington, DC, increased their minimum wage. New York, California and Washington, DC are all moving toward a $15 hourly minimum wage.
Many states, Kavet said, are recognizing that “there’s this enormous inequality that exists, that people at the bottom are really struggling, and there’s a hopelessness associated with that.”
But, Kavet added, “nobody really knows at what level” raising the minimum wage would be “counterproductive.”
“This is sort of aspirational,” he said.