Vermont’s legislature did what many members of Congress and the president would like to do. It raised the minimum wage in the state to $10.10 from $8.73. The federal minimum wage is $7.25. The increase will take place over four years. Now comes proof of whether the $10.10 wage will cause significant layoffs.
The Congressional Budget Office has offered research that shows a national increase to $10.10 could cost 500,000 jobs. Vermont’s population is slightly over 600,000, so, if this loss of jobs is spread evenly, the state might have an increase in unemployment of a few thousand workers. Vermont’s jobs economy is particularly strong. Unemployment is 3.4%, the second best in the United States after North Dakota. However, a job lost is a job lost. Some people are thrown out of work and most likely will lose their status as consumers.
Since it appears that Congress will not pass a law increasing the national minimum wage, Vermont and a few other states, which include Hawaii, Connecticut and Maryland at $10.10, will be the litmus test for whether the increase will trigger terrible jobs losses.
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In addition but overlapping the state debate, two groups of companies claim the increases will badly damage their profits. On paper, each has a reasonable position. Some small businesses will not be able to get to $10.10 and keep all of their employees. Huge firms such as McDonald’s Corp. (NYSE: MCD) and Wal-Mart Stores Inc. (NYSE: WMT) contend that workforces made up of low-paid workers are essential to profits and any increase in wages will harm their margins badly. Whether either can operate with fewer workers is impossible for outsiders to know. One would assume that if they could cut jobs to improve profits, they would already have done so.
Not all state job bases are created equal. Vermont only has five Walmart locations. Vermont’s median income per household is $53,000, slightly above the national average, so the state is not full of low-paying jobs.
A better measure of how much damage the minimum wage could do to employment is if a state with low median household income faced a mandated $10.10 minimum wage. Mississippi, as an example with a median income of $43,000, or Arkansas at $40,000. These states theoretically could face much higher increases in joblessness because of a high minimum wage.
The minimum wage experiment and how it will affect the economy will go on for years. The answers to its effects on employment are far, far off.