A $15 Minimum Wage Would Be Disastrous (December, 2017)

By Rob RoperRob Roper

When the legislature returns in January, it appears that passing a law mandating a $15 minimum wage in Vermont will be a top priority. This is what Senate President Pro Tem Tim Ashe (D/P-Chittenden) has promised, and a six member summer study committee voted 4-2 along party lines to recommend moving forward with some pathway to a $15 an hour.

Don’t do this.

Ashe said in an interview with VPR, “There is no policy right now that I’m aware of that compares with the potential magnitude of benefit of as increasing the minimum wage.” Actually, the opposite is true. It’s hard to imagine a policy that would do more damage to the economy in general or to the low-income workers the policy is intended to benefit.

Consider that if Vermont were adopt a $15 minimum wage, the cost to hire unskilled or entry-level labor here would be more than double what it is in New Hampshire where the hourly minimum wage is, and is likely to remain, $7.25. This, described by the Joint Fiscal Office as “the largest historical spread on record,” would be a crippling competitive disadvantage for Vermont employers. Who in their right mind would start (or keep) a business dependent upon low-skilled workers in Vermont given this disparity?

We know the sales tax differential between Vermont and New Hampshire (6% vs. 0%) has been a powerful motivator driving economic activity across the border, but a $15 minimum wage would be explosively so. Think of it as a 107% tax on Vermont labor. This would not only drive employers to New Hampshire, but more customers as well. With wages at half the rate of their Vermont competition, New Hampshire businesses would be able to offer products and services at much cheaper rates – as well as tax free! This dynamic will not end well for Vermont.

While we can understand, respect, and sympathize with the desire to help our friends and neighbors who are struggling to make ends meet, mandating a $15 minimum wage will be more harmful than beneficial to most.

The Vermont Joint Fiscal office warned that were this to pass between two and three thousand low-wage workers would lose their jobs. The Heritage Foundation did a study estimating that number could be as high as 11,000. Everybody on the summer study committee agreed that a large number of Vermonters will see their hourly wage go to zero as a result of this increase, not $15.

Proponents, however, believe sacrificing these folks is worth it because many more will benefit. But will they? Seattle, which raised its minimum wage to $13 on the way to $15 in 2021, has already witnessed workers who made $19 an hour or less lose an average $1500 a year in income as a result of employers cutting hours to compensate for the higher rate. According to a study conducted by Washington State University, Seattle businesses adapted to the minimum wage increases by reducing the hours for workers in low-wage jobs ($13-$19/hr.) by about 9 percent.

Moreover, of those who do manage to keep their jobs and pocket the benefits of the higher wage, many will end up losing state benefits with a greater value than their increased wages. Although one would hope moving people off of public assistance would be an objective of this policy, proponents of the $15 wage don’t necessarily see it that way.

VPR reports, “Ashe says the Legislature can devise ways to insulate low-wage workers from undue losses in benefits.” What that means, according to the summer study committee report, is increasing the threshold for benefits to negate harm. This “would cost between $4.8 and $12.8 million annually,” and, of course, would have to be funded by a reduction in spending in other parts of government or a tax increase.

We all want to see our economy succeed and our fellow Vermonters pocketing more money. But, the $15 minimum wage is a policy that will certainly cost thousands of low-income Vermonters their jobs, put our businesses at a historically severe competitive disadvantage with New Hampshire as well as other states, will increase the cost of local goods and services, and could require a $12.8 million tax increase to ensure people who are getting higher wages won’t lose benefits.

Is this really a policy we want to embrace? The warm fuzzy feeling advocates will get if this passes won’t last much longer than the celebratory press conference.

Rob Roper is president of the Ethan Allen Institute. David Flemming, policy analyst, contributed to this piece. 

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The Ethan Allen Institute is Vermont’s free-market public policy research and education organization. Founded in 1993, we are one of fifty-plus similar but independent state-level, public policy organizations around the country which exchange ideas and information through the State Policy Network.

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