On minimum wage, what we know is that we don’t know

In this first in a three-part series on the potential effects of raising the Vermont minimum wage, VTDigger looks at what we know and what we don’t know about the consequences to employers — and their workers — of providing the increase.

Economists who have studied minimum wage increases from coast to coast and overseas agree that workers are better off when wages rise. But there’s little consensus on the impact to businesses and the economy.

The Vermont Legislature is examining a proposal to raise the minimum wage — now $10.78 an hour and linked to increases in inflation — to $15 an hour by 2024. It’s a big step up. Similar wage increases in other areas are so recent it’s too soon to use them as guides for what might happen in Vermont as a result.

Without that precedent, the Vermont wage increase would be an experiment of sorts for the state.

“The proposed minimum wage increase is outside the bounds of anything that has been done or studied,” said Tom Kavet, a state economist. “It’s not study-able. The California market is different from the Vermont market. Until the wages are in place, we can’t really know what the impacts are.”

Raising the minimum wage is popular with anti-poverty advocates. Over the years, neither the federal minimum wage nor the existing higher state minimum wages have kept pace with the cost of living, according to the Public Assets Institute.

“Workers making minimum wage are worse off than they used to be,” the Montpelier group said in a brief this month.

First set in 1938 at 25 cents, the federal minimum wage is now $7.25. About 30 U.S. states have added to that within their own borders. Last year, Seattle raised its hourly minimum wage to $16 for its very largest employers. But in most states, the wage doesn’t have the purchasing power equal to the minimum wage when it reached its highest point – adjusted for inflation – of $1.60 an hour in 1968. To achieve that purchasing power now, the wage would have to be $11.55, according to the Bureau of Labor Statistics.

Andy Sebranek, a Burlington restaurant worker, testified to the House General Affairs Committee in February that raising the minimum wage for tipped restaurant workers would enable more young people to move to Vermont or to stay in Vermont. Attracting young workers is a policy priority for the Scott Administration.

“Wage insecurity for tipped workers is the greatest drawback for seeking a job in the service industry,” Sebranek told lawmakers. “I can speak personally to this issue.”

Cary Brown, the executive director of the Vermont Commission on Women, testified to the Senate Committee on Economic Development, Housing, and General Affairs this winter that increasing the minimum wage would help close the wage gap between men and women and help reduce the poverty rate.

Brown said twice as many women as men receive public support in Vermont. Among workers earning less than $12.16 an hour, every $1 increase in hourly wages reduces the likelihood of receiving means-tested public assistance by 3.1%.

Raising the minimum wage might also save the public money on programs such as health care assistance. According to the Federal Reserve Bank of Boston, 51 percent of the public assistance spending in New England supports working families – about the same as the national average. Researchers for the bank said the New England states spent $1.8 billion a year on public assistance to working families through the Medicaid/CHIP and TANF programs from 2009 to 2011.

But opponents say raising the wage would hurt employers — including the state, through programs like Medicaid, where many low-wage workers are employed. Most employers have only two choices in managing the rising cost of inputs: increasing income or reducing the costs like labor. Erin Sigrist, president of the Vermont Retail & Grocers Association, testified to lawmakers in January that raising if the minimum wage goes up, “employers will resort to cutting expenses.”

Many other employers and business groups argue a minimum wage increase would make Vermont companies less competitive and would force job cuts. The Legislature’s Joint Fiscal Office started studying proposed minimum wage increases in 1999, and its findings are consistent: there would be some loss of jobs, said Kavet, who works for the Legislature. A JFO analysis estimated that raising the wage to $15 by 2024 would result in an annual loss of 1,850 jobs, about .4% of the state’s total.

But Kavet cautioned it’s very difficult to predict what would happen. Factors such as new regulation, changes in trade policy, the rise and fall of the local economy, and specific market forces such as the low milk prices now affecting Vermont dairy farmers all play a role in earnings and in job gains and losses.

So while there is an abundance of studies, there’s little agreement on what happens when a mandated wage increase goes into effect.

“Many studies find that minimum wage laws reduce employment, and many other studies on the exact same laws find they have little or no effect on jobs,” wrote Dee Gill at the University of California’s Anderson School of Management in October. “Some 60 years and hundreds of research papers from prestigious universities, government agencies and private organizations have created little consensus on the subject, academic or otherwise.

“Just last year, separate Seattle minimum wage studies by researchers at the University of Washington and the University of California Berkeley suggested polar opposite effects,” Gill wrote in the UCLA Anderson Review.

Next: On the farm