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May 7, 2019

    The debate over the minimum wage is once again with us. Governor Scott's veto a year ago was ill-informed and ill-considered. Hopefully the bills will pass this year, and any veto be overridden. The real argument should be about paying a living wage, not some arbitrarily and politically defined minimum wage.

     We may be close to the date when it is again a moot issue for this legislative year.  Here are some of the essential talking points from  Part I:

     The bill that was proposed last year would have implemented an increase of the minimum wage in six increments of $.60 to $.90, after which the minimum wage would increase each year by the lesser of 5% or the rate of inflation (currently 2 - 2.4%.)
From 2018 Senate Bill 40:
January 1, 2019: $11.10 .
January 1, 2020, $11.75. 
January 1, 2021, $12.50.
January 1, 2022, $13.25.
January 1, 2023, $14.10.
January 1, 2024, $15.00,
Each subsequent January 1, the minimum wage rate would be increased by five percent.
High school student must be paid the current minimum wage under the new law minus $3.00
 
* The minimum livable wage for one adult with no dependents, in Lamoille County in 2016-17 was $11.67 (MIT economics) to $17.64 (Vermont Govt. calculation). Living wage is defined as self-supporting, without any recourse to social net services (food stamps, state/Federal subsidies, etc), and excludes all indulgences (vacations, recreation, restaurant meals, discretionary purchases). These numbers are surely higher by now.
* In order to prevent the direst consequences of poverty, businesses unwilling or insufficiently profitable to provide a living wage are subsidized with public funds.This process occurs very inefficiently through social agencies, with considerable frictional loss of value by the time the funds or the benefits of the expenditures reach the clients.
* Economic uncertainty/poverty degrades the health of the poor and increases crime, homelessness and social dependency, adding to the general tax burden. It especially impacts children, and is responsible for much of the burden of poor mental health impacting society. There is a large and current scientific literature to support this assertion.
* Accessing social support places an enormous burden on the poor in terms of time, effort, energy, and stress with resulting mental health burden. It amounts to a second, sometimes full-time, job.

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     It can be shown that a well-run business that hires people who are better motivated, better educated, better trained, and significantly better paid, is typically more profitable and more competitive, and can easily pay more in wages. The burden is on the employer to manage better, as it should be. It only remains for education to do better in producing workers ready for the better jobs. A higher wage will probably result in some workers becoming less employable, but that must be treated as a separate issue, to be addressed in the domains of education and mental health. Not every business deserves to remain in business. Most people are simply not suited to manage a business and employ workers. This is likely to be even more true of agency managers, who do not see themselves as essentially stewards of economic entities.

     Employers need to pay workers enough so they can afford to buy what the employers are selling. It was one of Henry Ford’s fundamental insights.
     In Barrons (April 22, 2019), Michael Pettis states: "Income inequality is harming the economy. Most people spend whatever extra money they earn. The rich, however, are disproportionately likely to save any additional income, which means that income concentration saps consumer demand and threatens the viability of new investments." Marriner Eccles, former Fed chairman, wrote: “...as mass production has to be accompanied by mass consumption, mass consumption... implies a distribution of wealth to provide... buying power equal to the amount of goods and services offered....” Factories are worthless if no one can afford to buy what they produce.

     The argument that the social agencies and human service providers, large and small, government agency, private non-profit and home-based, are structurally unable to pay a living wage, is irrelevant to the discussion of mandating living wages. This is a separate problem and should not obscure the main issue of bringing wage earners out of poverty.
     These critical social functions demand the best and most dedicated workers, really a special kind of person, and must be compensated fairly by any means required, through user fees where the market will bear it, and from government funds or grants if necessary. There are certainly inefficiencies in the design and/or operation of all these organizations that can be squeezed out to provide additional cash.
     Not to pay a living wage to workers who work so hard and bear so much responsibility is morally indefensible. To use the deliberate impoverishment of child care, health care, and social workers as an excuse to continue to keep other workers in poverty is something worse.

     All this said, the current debate should have included discussions of an alternate wage structure for special cases. It is a fact that not everyone’s labor is worth that much money. Examples: anyone under a certain age who is claimed as a dependent of someone else, and a training wage structure for workers learning skills on the job.

Other economic benefits of a livable minimum wage:

    Working-age Vermonters moving out of state to earn sufficient income to live has been one of Vermont's great ongoing problems.  A livable minimum wage would help address this for our least skilled and least educated workers. Of course, why so many young Vermonters are so ill-prepared to fill all the open jobs in a state economy with such low current unemployment is another question.

     The clock is ticking on the current economic expansion and bull market, during which asking for more money from the variety of players in the wage debate is at at least feasible. When the next recession starts, it will become nearly unmanageable.

     If home care for the elderly is impacted, the state will spend more, perhaps much more, on a far less desirable alternative. Most nursing homes are places of misery and decline for the residents.