$15 Minimum Wage Summer Study Committee Opens the Can of Worms

by David Flemming

If some legislators get their way, Vermont will adopt a $15 minimum wage as soon as January 1, 2019.

The six Vermont legislators comprising the Minimum Wage Study Committee met for the first time on Thursday to research and discuss the potential impacts of such a policy. The Committee will meet four more times before December 1, and will make a recommendation when the full legislature returns in January.

Raising the state minimum wage seems like a simple concept. However, it soon became clear that actually doing so would have serious consequences.

Bennington County Representative Brian Keefe (R-Manchester) worried that a standard minimum wage covering the entire state would cause more unemployment in low income areas than in those areas that can afford to pay higher incomes. For example, Bennington County’s Median Household Income is below $50,000 while Chittenden County’s is over $63,000.

Then again, constructing a minimum wage that allowed for geographical flexibility has its own problems. Legislative Counsel Damien Leonard explained how New York’s uses a stratified minimum wage that varies based on industry, area of the state, and number of employees. As a result, New York has 21 different calculations for the minimum wage. This led Representative Jean O’Sullivan (D-Burlington) to exclaim, “I don’t know how anyone does business there!”

So, a uniform minimum wage in Vermont might cause the most unemployment in the areas with the lowest incomes. On the other hand, a minimum wage that attempts to be flexible enough to consider industry, geography, and size of company could create uncertainty in the business community and potential legal problems for businesses that have no idea which minimum wage applies to them.

The Legislature’s Economist Tom Kavet noted the difficulty in calculating the macroeconomic impact of a historically higher minimum wage on Vermont: “$15 is outside the range of what has been studied or experienced elsewhere.” Kavet expressed his wish for “better data collection,” especially in regards to “hours worked per employee.” Without more detailed data, if employers compensated for higher labors costs by cutting back all employees’ hours instead of letting some employees go, Vermont’s job totals would look exactly as they had before the minimum wage increase – although workers would certainly be negatively impacted in either case.

But Vermont does not collect “hours worked” data (only four states do), so it will be difficult to judge the real impact of an increased minimum wage.

Armed with ‘hours worked’ data, Vermont could better understand the impact of the higher wage and, hypothetically, slow down or stop increases if employers began to cut back on hours. But collecting new data presents problems as well. Not only would employers be paying higher costs for employee labor, they would also have to pay the cost of collecting and reporting the employee hours information to the state. Call it adding insult to injury – or task to tax.

No matter how you cut it, a $15 minimum wage will make it more difficult and expensive for employers to hire workers. Beyond that basic unpleasantness, it is clear from the first day of debate that the unforeseen and unintended consequences of mandating such a policy will be significant.

The Minimum Wage Study Committee: Sen. Michael Sirotkin (D-Chittenden), Chair, Rep. Helen Head (D-South Burlington), Vice Chair. Members: Rep. Brian Keefe (R-Manchester), Rep. Jean O’Sullivan (D-Burlington), Sen. Brian Collamore (R-Rutland), and Sen. Ann Cummings (D-Washington)

David Flemming is a policy analyst for the Ethan Allen Institute

{ 6 comments… read them below or add one }

SBarrows August 12, 2017 at 4:07 am

So how much you are paid as an employee is based on how much value you bring to the company. So let’s say I open a brewery and I am the only employee. To make the math easy let’s say I profit $5 for each pint sold. A 40 hour week at $15 an hour equals $600 per week. So to be able to pay myself $600 a week means I have to sell 120 pints per week at $5 per pint profit (note that this simple calculation does not factor in operating costs, materials, taxes, etc). Now let’s say my beer is not that great and my customers do not see the value in paying for 120 pints per week and they only buy 100. Which means I only get paid $500 per week or $12.50 per hour. Who is going to give me the extra $2.50 per hour ($100 per week, $400 per month, $4800 per year)? Someone should, the minimum wage is $15 per hour! It does not matter that my beer does not provide the value my customers are looking for. As an employee it is my right to be paid $15 an hour no matter what! Are we going to set up a fund for all the small business owners to be paid at the same rate as their employees?

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Fred August 12, 2017 at 9:08 am

Here’s a thought from my dusty old mind, are the states raising the minimum wage to $15.00 to curb the “eligibility” of people who would otherwise qualify for assistance, thereby “saving the State” money for other bloated projects???

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Rob August 12, 2017 at 11:53 am

It’s a good thought, Fred. Oddly though, getting people off public assistance isn’t the goal of our legislature. A large part of the first day’s discussion in this committee was about what a problem this would be if people lost their benefits as a result. Ironically, the inability to untangle that knot may be what ultimately kills the $15 min wage. T

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Jay Eshelman August 12, 2017 at 12:32 pm

RE: “…are the states raising the minimum wage to $15.00 to curb the “eligibility” of people who would otherwise qualify for assistance…”

Temporarily, perhaps. However, consider the interesting correlation between minimum wage and assistance “eligibility” over time.

This is an excellent point.

The level of household income in Vermont designated as the poverty level has increased faster than Vermont’s minimum wage because ‘market equilibrium’ is real. Not only does raising the minimum wage increase the costs for those hiring minimum wage employees (costs that are passed on to consumers, including minimum wage employees) – labor markets adjust to the increase and 95% of those employees not in the minimum wage category ultimately demand a commensurate wage increase too (‘Equal Pay For Equal Work after all), thereby increasing the employer costs passed on to consumers exponentially more than merely increasing the wage for the lowest paid employees.

The net economic effect isn’t so much that employers don’t hire as many minimum wage employees at the ever higher wage rate, although, indeed, they don’t. Of far greater consequence is that the purchasing power provided to those receiving the minimum wage increase actually decreases to less than before the minimum wage increased.

It’s simple ratio analysis. If we really want to arbitrarily redistribute wealth, lower the minimum wage by, let’s say, 10% and force the other 95% of workers to lower their wage a commensurate percentage.

But good luck with that communist manifesto. I can hear the teacher’s union rumbling now over the prospect.

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Charlie Lusk August 12, 2017 at 10:18 am

A company has two employees. One is being paid $17 per hour, the other $10. If the lower wage is mandated to $15 per hour, how does the employer respond to the shrinkage in pay difference, which previously was based on things like seniority, incentive, value to the company, replacement cost, etc? Suppose the two were being paid $13 and $10. Is one going to get a two dollar boost,and the other five? When researching the cost of the #15 per hour minimum, I hope the study group will take into consideration the impact of the $15 minimum on the entire payroll on any given business.

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Jim Bulmer August 12, 2017 at 11:03 am

Interesting make up of the committee. Four Dems and two Republicans. Dollars to donuts the Dems will simply look for ways to justify the $15 because their mind is already made up. That’s the way they usually operate. Find a cause just or otherwise then find arguments to support it.

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