4.11.2014 – Minimum, Living, and Prevailing Wages and GE Progress
This week, we worked on two wage-related bills in the House – one having to doing with raising the minimum wage, H.552, and the other regarding the prevailing wage, H.878.
The discussion about the minimum/living wage is an interesting one. On the one hand, businesses are resistant to wage increases because of the effect on their bottom line. On the other, when workers are not paid a living wage, state and federally-funded programs have to take up the slack, which costs Vermont taxpayers money. With State budget constraints over the last several years, we have been looking for ways to save money and increasing the minimum wage will help.
The original version of H.552 called for an increase in the minimum wage to $12.50 per hour. The Joint Fiscal Office (JFO) has calculated that the living wage for a couple if they are both working full-time is $12.48 per hour – the original draft was meant to reflect that.
As the House General, Housing, and Military Affairs Committee worked on the bill, they had the benefit of a JFO study conducted by Tom Kavet, one of our State economists. The study looked at the measurable consequences of raising the minimum wage to either $12.50 or $10.00 per hour on January 1, 2015.
The study revealed some interesting details including the fact that 20,000 Vermonters work at the 31,000 jobs that pay less than $10.00 per hour, indicating that the lowest wages are paid mostly to part-time workers. In fact, half of these hard-working Vermonters are women, earn half of the family income, and work full time hours no matter how many jobs they hold.
It is important for Vermonters to earn a living wage for a number of reasons. Federal and state programs, such as 3SquaresVT (food stamps), Medicaid (healthcare), and the Low Income Home Energy Assistance Program (heat), help low income Vermonters achieve a modest living but these programs require resources, so Vermont taxpayers are making up the difference due to the lack of a living wage.
After extensive public hearings, the House Committee recommended to increase the minimum wage to $10.10 per hour effective January 1, 2015, rather than making the jump to $12.50. The tipped minimum wage was changed to be one half the minimum wage and starting January 1, 2016, the minimum wage will be increased yearly by a cost of living allowance.
So what happens when we increase the minimum wage to $10.10? The beneficiaries include the 20,000 hard working Vermonters who hold minimum wage jobs, younger workers who may be saving for college or trying to start a career, the Vermont economy, and Vermont taxpayers.
While the JFO fiscal note indicates in a summary of the Kavet report that the increase would result in the potential loss of 250 jobs (less than 0.1% of total employment), the income gains to low wage workers would amount to approximately $30 million. The net fiscal gain to the state as low wage workers move away from benefit programs and pay more in taxes would be $3 million – including $1 million in increased taxes paid and $2 million in fewer benefits paid out.
A “down side” could be the reduction in federal money coming to Vermont due to the reduced need for Medicaid, Earned Income Tax Credit, and Supplemental Nutrition Assistance Program (food stamps) funding. While this loss could amount to $5 million, it would mean a reduction in what the federal government has to raise in taxes.
A positive effect would be the additional $30 million in the pockets of Vermonters, many of whom live paycheck to paycheck. This money would be spent in our communities and help to invigorate Vermont’s economy.
The Kavet study indicates who will be affected by the increase. There are 15,908 employers who have the 31,000 jobs paying under $10 per hour. These jobs are in the food, accommodations, retail, health care, education, waste management, and manufacturing sectors.
An amendment was offered to make the increase to $10.10 over a three-year period, but as the increase is spread over time, purchasing power is lost due to inflation. That amendment was rejected.
In Kavet’s Summary and Recommendations he states: “We find that a minimum wage increase to $10.00 would probably have negligible, if any, negative aggregate economic consequences and could be an important component in advancing some of the lowest income workers towards a livable income…”
The House also approved the Prevailing Wage bill, H.878, which would require construction companies to offer benefits to their workers in order to bid on state jobs. If benefits are not offered, a company can increase wages to an amount equal to what the benefits are valued at. The impact on Vermont’s capital budget is estimated to be $2-3 million, but this is money (or benefits) that will be going into the pockets of hard working Vermonters and into the Vermont economy. It also creates a level playing field for companies that want to bid on and do business in Vermont.
Finally, as an update to the progress of H.112, regarding the labeling of food produced with genetic engineering, it was voted out of the Senate Appropriations Committee unanimously and will be on the Senate Floor next week.