What Would A $15 Minimum Wage Mean For The Vermont Economy?

Aug 24, 2017

As the Vermont Legislature prepares for a debate next year over raising the minimum wage to $15 an hour, lawmakers are trying to figure out how the proposal would affect the Vermont economy.

But solid projections are proving hard to come by, since the proposed pay bump is “outside of the range of what has been studied or experienced anywhere,” according to the Legislature’s chief economist, Tom Kavet.

“As you get outside of the range of what’s been studied before, there’s greater uncertainty about what the impacts will be,” Kavet said recently to the Legislature’s Minimum Wage Study Committee.

Lawmakers have commissioned three minimum wage studies since 1999, the latest of which arrived from Kavet back in April.

The prospect of job losses will be perhaps the biggest economic concerns for lawmakers as they consider minimum wage legislation next year. On that front, Kavet’s findings might be reassuring.

“We estimated potential dis-employment ranges around 3,000 workers, and that’s a combination of reduced hours, reduced jobs,” Kavet says.

That means if lawmakers raise the minimum wage to $15 by 2022 — that’s the scenario Kavet analyzed — then Vermont would have about 3,000 fewer jobs by 2028 than if lawmakers did nothing.

Three thousand jobs represent about 1 percent of total employment in the state. And for the approximately 100,000 workers who would see their wages increase as a result of the proposed legislation, the benefits are potentially significant.

According to Kavet’s study, those workers would collectively see their pay rise by $240 million. 

"As you get outside of the range of what’s been studied before, there's greater uncertainty about what the impacts will be." — economist Tom Kavet

Kavet’s findings come with a major caveat, however.

A bump to $15 an hour is 50 percent more than what the minimum wage is now. And Kavet says none of large-scale economic studies available to lawmakers have contemplated boosts of that size.  

In his latest minimum-wage study, Kavet notes that the “the proposed wage change level in 2022 will be well above the historical experience of the minimum wage in Vermont or any other U.S. state or any nation.”

“Although other states have enacted future wage changes of this magnitude and relative level, none are effective to date and none have been studied,” Kavet wrote. “As a result of this, impact estimates are based on projections that are accordingly uncertain.”

Job losses aren’t the only potential pitfall of a higher minimum wage.

While Kavet’s analysis forecasts $240 million in new income for low-wage workers, he says those positive effects will be “largely offset by negative cost of production increases, reduced federal transfer payments to the state, [and] higher federal income and payroll tax payments by Vermont businesses and workers.”

Kavet says consumers will also see effects in the form of “higher local prices,” which will be most pronounced for goods and services produced by industries that rely heavily on lower-wage workers.

Chittenden Couny Sen. Michael Sirotkin, the Democratic chairman of the Minimum Wage Study Committee, says lawmakers intend to work with Kavet this summer to improve their economic projections.

“I’ve already met with him recently to have him start work on an updated modeling of some of the numbers, and some of the other proposals that have come out in other states and municipalities,” Sirotkin says.

Sirotkin says committee will be wrestling with a number of questions, such as what the minimum wage should be, and how long to phase it in.