Commentary: Suter Misjudges the Impact of a $15 Minimum Wage

by David FlemmingIMG_0471

Recently, Raise the Wage Coalition member Nathan Suter wrote an editorial entitled “Economic Evidence Points to Broad Benefits of a $15 Minimum.” The letter makes several dubious claims in support of Vermont raising the minimum wage to $15/hour. To make his case, Suter relies on four Berkeley studies, one of which was subjected to political interference by the pro-minimum wage Seattle mayor, and four Economic Policy Institute studies (EPI received 27% of its funding from labor unions, which often peg their contracts to a minimum wage baseline).

If Vermont’s experience with a $15 minimum wage is anything like Seattle’s experience, workers are in for a rude surprise. The University of Washington discovered that Seattle businesses adapted to an increase in the minimum wave to $13 minimum wage by reducing the hours for workers in low-wage jobs ($13-$19/hr.) by about 9 percent. The result was a loss of 14 million hours annually. Hourly wages in low-wage jobs did increase by 3 percent, but the net impact was that low-wage earners lost an average of $1,500 annually because of the cut in hours. And Seattle’s minimum wage has not even reached its zenith of $15/hour in 2021.

While Suter claims that past research shows “little negative impact on employment or hours,” Vermont’s Joint Fiscal Office (JFO) estimates that Vermont’s economy will have 2,830 fewer jobs by 2028 if Vermont enacts a $15 minimum wage. The Heritage Foundation estimates that Vermont could lose as many as 11,000 jobs. It is difficult to estimate the job loss because the “academic literature” has been confined to minimum wage increases “affecting 10% or less of those employed,” according to the JFO, while the $15 minimum wage increase is projected to impact 25% of Vermont’s workforce.

To compound the risk, there is the possibility that the Vermont-New Hampshire border could become what the JFO calls the “largest historical (wage) spread on record.” Should New Hampshire keep its minimum wage at $7.25 (and they show no signs of changing), this would be less than half of the proposed $15/hour minimum for Vermont. According to 2015 data from the Census Bureau, all six Vermont counties that share a border with New Hampshire have a lower median household income than the Vermont average. This suggests Vermont businesses along the border are less able than other counties in Vermont to afford a minimum wage increase. Vermont businesses will be forced to lay off workers in order to remain competitive with their New Hampshire counterparts who will have far lower labor costs.

The JFO notes that a $15 minimum wage’s “positive effects will be largely offset” by 1) lower quantities of products produced at Vermont businesses (not the “boost in business sales” Suter claims) 2) fewer federal transfer payments that the State has no control over, 3) higher Federal income and payroll tax payments for Vermont employers and workers, 4) higher local prices resulting in lower quantity demanded, and 5) an increased reliance on technology to take over work that is too expensive to pay employees to accomplish.

So, far from “offset(ing) a significant portion of the higher cost for employers” as Mr. Suter claims, a $15 minimum wage would not only make Vermont employers lives more difficult, it would make the lives of Vermont workers more difficult.

– David Flemming is a policy analyst at the Ethan Allen Institute.

 

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