The Vermont Senate recently passed a bill that will mandate a $15 minimum wage for Vermont by 2024, with incremental increases from today’s $10.78. This sounds nice, giving low-income workers a raise; however, there are some significant consequences to this that the proponents of the bill and the media are not telling Vermonters.
Hurting, not helping, the poor
The majority of Vermonters living in households classified as “poor” do not have earned income. These are seniors living on Social Security and other fixed income sources, or people reliant on social safety net programs. They will not benefit from an artificial wage increase; rather, they will be harmed by the inflationary effect of the wage increase as the prices for the goods and services they need increase as a result. Fixed incomes will not stretch as far. So, a $15 minimum wage will actually end up hurting more of Vermont’s poor than it will help.
For those who do earn a low-wage income, some will benefit from a $15 minimum wage, but many will lose their jobs entirely or see their hours cut to the point where the wage increase does not have a positive financial benefit. According to a survey by the NYC Hospitality Alliance, in response to New York’s $15 minimum wage, “76.5 percent of full-service restaurant respondents said they had to reduce employee hours and 36 percent said they eliminated jobs in 2018 in response to the mandated wage increase.” (U.S. News & World Report, Jan. 16). They expect this trend to continue.
The Vermont Joint Fiscal Office concluded the wage increase would result in a net annual long-term “disemployment” rate of 2,250 jobs from 2028-2050. As a share of total jobs in Vermont, this amounts to 0.5 percent, but as a share of minimum-wage jobs, it is 3.3 percent. In other words, the negative impact on low-wage workers is substantial and disproportionately impacts low-income workers.
The benefits cliff
Parents who earn low-wage salaries who do see a bump in take-home pay could, according to the JFO, see that bump more than offset by a greater loss in childcare subsidies. JFO calculated that a couple working full time in minimum- wage jobs with one child in care would see an annual income increase of $1,155 in the first year of proposed minimum- wage increases, but they would lose $1,334 in benefits.
Many childcare workers in Vermont currently fall below the $15-an-hour threshold, so the artificial wage increase will have a significant impact on that industry. Even the child advocacy group, Let’s Grow Kids, warned the wage increase “might even exacerbate the [childcare] situation …” which they already see as in “crisis.” A prominent Lamoille County childcare center warned at a legislative breakfast that the $15 minimum wage would result in a $40 increase in price per child per week. If the increased costs cause some childcare providers to close up shop, young parents could find themselves with fewer options at higher costs and, because of the benefits cliff, with less support.
Health care access
The Vermont Department of Disabilities, Aging & Independent Living submitted a report warning if we were to adopt a $15 minimum wage, the increased price for labor would cost Medicaid $41,904,930 and Medicare $9,086,865. This will result in either higher taxes to make up the difference or cuts in services. Since Medicare is a federal program, we do not have the option of increasing taxes. Medicare services will have to be cut.
Overall economic prosperity
JFO estimated the impact of the $15 minimum wage on state GDP would be negative 0.3 percent. That may seem like a small number; however, in 2017, Vermont real GDP grew by only 1.1 percent. Stifling economic growth is not helpful to anyone, particularly the poor.
In conclusion, this is a truly bad economic policy that will end up hurting those it is meant to help, as well as others it does not even consider. Even California Gov. Jerry Brown said, “Economically, minimum wages may not make sense.” He is right about that. He went on, “but morally, socially and politically they make every sense.” He is wrong there. It is not moral to create economic pain, especially to the poorest members of our communities. Deliberately causing economic decline only increases poverty and, therefore, does not make sense socially. And, a $15 minimum wage only makes sense politically if people do not bother to look beyond the slogans and remain blind to the full impact of what is being proposed and what it will do.
Patricia A. McCoy is a Republican state representative for Rutland-1 Ira-Poultney and is the House Minority Leader.