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Can You Live on $8.73 an Hour? Supporting an Increase in the Minimum Wage

April 15, 2014


Can you live on $8.73 an hour? Especially if you are not allowed to work 40 hours at that rate, with no job-related benefits? That is the current minimum wage, and on April 9, the House passed H.552, which proposes to raise the minimum wage to $10.10 in January 2015. $10.10 is the current level proposed by legislation at the federal level, but it, and a proposal by Governor Shumlin, is to phase this in over three years.

The stark reality is that you cannot live easily on $8.73 an hour, especially if you have children. You will need SNAP benefits (federal food stamps, which are constantly threatened by budget cuts), child care subsidies, heating assistance and the earned income tax credit. The federal and state governments do provide relief through these types of programs, but no one who receives them will tell you that they add up to a livable wage.

My committee, the General, Housing and Military Affairs committee, passed this bill out of committee on a 6-2 vote, and we to implement the rise in the minimum wage in one year for a number of reasons. First, our current minimum wage has an inflation rise built into it, and so it rises every year at a rate between 5% and, on the lower side, the rate of inflation. Since it went into effect, inflation has been less than 5% every year. Nevertheless, if we did nothing with the minimum wage, it would be about $9.35 in 2017, meaning that the minimum wage increase would be a net of 75 cents over three years for Vermonters. (It would be larger in parts of the country where they adhere to the federal minimum, $7.25.) Conversely, a wage of $10.10 raised in 2015 but in effect in 2017, when adjusted for inflation, has a buying power of about $9.60 in 2015 dollars, meaning that the net effect is a 25 cent raise over three years. We chose to propose raising the minimum wage in 2015 because it would represent real dollars in real time.

The minimum wage, as I mentioned, is not a living wage. We contemplated raising the minimum wage to $12.50 (the current estimated living wage for one person in a two person household with no children), and the State of Vermont, in its most recent contract with VSEA, will be paying most of its employees, temporary or permanent, that same wage. This would be a substantial increase, and it was clear that asking businesses across Vermont, but especially the smaller businesses, to bring nearly 50,000 workers up to that level immediately would be very disruptive. (We do know that the largest companies, including stores such as Wal-Mart, would have to raise the prices of items such as macaroni and cheese and DVDs a penny in order to pay over $13 an hour AND retain the same profit they enjoy today.)

Raising the minimum wage at all brings forth questions of the effects on businesses and on the benefits that workers receive at the current level. Our work relied on the research done by the economist we use in the state for many different forecasts, Tom Kavet, and by Deb Brighton. Both worked on a similar study in 1999. Their work showed that an increase to $10 would make a negligible negative impact on Vermont businesses, and would raise income for nearly 20,000 workers who currently make between $8.73 and $10. They estimate that only 250 jobs, or the equivalent hours, may disappear, and that the state may save nearly $3 million in benefits. The report also showed little impact on the so-called “benefits cliff.” where recipients of the benefits find working more or for slightly higher pay may be detrimental to the quantity and quality of the benefits they receive.

We found their work compelling enough to feel confident that the $10.10 level in January is appropriate.

Opposition to the minimum wage started by advocating a zero cent increase, and by the time passed, most people agreed it should be raised, perhaps over three years. The House voted against on amendment that matched the governor’s proposal.

No one can live on $8.73 an hour, simply on salary. And very few people who make this wage work for 40 hours a week in one job, at a level where benefits may be offered. Many, many people have to work two part time jobs to make up to a full time wage. $10.10 an hour may add $40 to a person’s weekly paycheck(s), which is roughly the amount of a week’s worth of food stamp benefits for an individual. It may not sound like much, but if you could earn that much more, it makes a large impact on your wallet.

H. 552 is now in the Senate, and there is a feeling that they may make a compromise closer to the governor’s three year phase-in. If you have any opinions about this bill, or any other, please feel free to contact us or your senators. Bringing some small amount of economic justice to the lowest paid workers in the State of Vermont is worthy of a fight, and we’ll need your help.

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