Commentary: Vetoing the $15 Minimum Wage Was a Good Thing (May, 2018)

By Rob RoperRob Roper

After watching the debate in the State House over the $15 minimum wage it is hard to see how any rational or compassionate person could have, at the end of the day, supported the policy. The potential good that it may have done for a small minority of people was far outweighed by the potential damage it would have done to many, especially Vermont’s poor.

One of the facts presented to lawmakers that did not get much play in the media is that a majority of Vermont households living in poverty, particularly the elderly, do not have any wage income. So, while there is no chance that these people’s situations could benefit at all from an artificial increase in salaries, they would certainly be stuck paying higher prices for goods and services artificially inflated by the $15 minimum wage. Fixed incomes, already stretched, would not stretch as far.

The cost for in home care and other services that help the elderly would also become more expensive. Senator Richard Westman (R-Lamoille) noted that, for example, Lamoille Home Health and Hospice would have to raise or charge an extra $80,000 to cover wage increases for their visiting nurses.

Similarly, families with young children would take a substantial hit. Parents who earn minimum or low wage salaries might see a bump in their take home pay (assuming their hours aren’t cut), but due to the “benefits cliff” that bump would be offset by a greater loss in childcare subsidies. The Joint Fiscal Office calculated that a couple working full time in minimum wage jobs with one school-aged child would see an annual income increase by $1,155 in the first year of proposed minimum wage increases, but they would lose $1,334 in benefits.

Adding to that dilemma is the fact that a $15 minimum wage would undoubtedly increase substantially the cost of childcare, which is dependent upon low wage workers, and force some providers to close their doors. So, the couple mentioned above would be left with fewer resources to pay for a more expensive service that is at the same time harder to find. Even the child advocacy group Let’s Grow Kids warned that the wage increase “might even exacerbate the [childcare] situation…”, which they already see as a “crisis.”

The Joint Fiscal Office (JFO) also concluded that the wage increase would result in a net annual long term “disemployment” rate of 2250 jobs from 2028-2050. As a share of total jobs in Vermont this amounts to 0.5%, but as a share of minimum wage jobs, it is 3.3%. In other words, the negative impact of the $15 minimum wage on low wage workers is substantial and disproportionate.

One objective of the $15 minimum wage for its proponents is to help bridge the income inequality gap (even though JFO testified that there is no evidence that the policy would do this). But if some people get a raise from $10.50 to $15 while others lose their jobs and go from $10.50 to zero, wouldn’t that increase income inequality? Especially if the number of minimum wage workers losing their jobs is far greater than the number of higher-wage earners losing their jobs?

The state boasts it will net about $20 million in 2024 (the year the $15 minimum would be in full force) from increased tax revenue plus decreased benefit payments, but remember, this would ironically be money taken away from the same low-income workers the increased wage was supposed to help. On the federal side of the ledger, however, the state would lose an estimate $54 million in lost federal benefits and higher federal taxes. Again, a significant net loss.

Overall, JFO estimated that the impact on state GDP would be negative 0.3 percent. That may seem like a small number, but, in 2017 Vermont real GDP grew by only 1.1 percent. Stifling economic growth isn’t helpful to anyone, particularly the poor. As Rep. Cynthia Browning (D-Arlington), who has a PhD in Economics, warned her colleagues before the vote, “Good intentions and wanting to help won’t suspend the laws of economics.” The majority either didn’t listen or they didn’t care.

Governor Scott was absolutely right to veto the $15 minimum wage bill. Let’s hope he doesn’t have to do so again a year from now, and, if he does, he has the votes to sustain that veto.

– Rob Roper is president of the Ethan Allen Institute. He lives in Stowe

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