On Jan. 1, Vermont's minimum wage increased by 14 cents to $8.60 an hour, raising wages for an estimated 11,000 low-wage workers in the state.
Vermont's minimum wage increase means an extra $240 per year in wages for the average affected worker, and the increased consumer spending generated by the minimum wage hike will boost GDP by $1.4 million, according to an analysis by the nonpartisan Economic Policy Institute.
Vermont is joined by nine states that also raised state minimum wage rates on New Year's Day, boosting wages for nearly one million workers nationwide.
Vermont's minimum wage increase is the result of a law signed by Gov. Jim Douglas in 2005 that provides for annual rate adjustments to keep pace with the rising cost of living.
According to the Economic Policy Institute, an estimated 10,000 workers in Vermont will be directly affected as the new minimum wage rate will exceed their current hourly pay, and 1,000 more will see a raise as pay scales are adjusted upward to reflect the new minimum wage.
Seventy-two percent of these low-wage workers are adults over the age of 20; 65 percent work 20 hours per week or more; 42 percent have at least some college education.
“Vermont's modest annual minimum wage increases have proven incredibly valuable in promoting economic growth and protecting the real value of low-wage workers' paychecks during the weak post-recession recovery,” said Paul Cillo, president of the Public Assets Institute. “Congress should learn from Vermont's example and pass a federal minimum wage increase with annual cost of living adjustments to promote consumer spending and help cash-strapped workers make ends meet.”
While weak consumer demand is holding back business expansion, raising the minimum wage puts more money in the pockets of low-wage workers who have little choice but to spend that money immediately on goods and services.
In total, the minimum wage increases taking effect in all 10 states on Jan. 1 will generate more than $183 million in new economic activity and create the equivalent of 1,500 new full-time jobs.
As of Jan. 1, 19 states plus the District of Columbia will have minimum wage rates above the federal level of $7.25 per hour, which is just over $15,000 per year for a full-time minimum wage earner.
Vermont is among 10 states that increase their minimum wage rates annually to ensure that real wages for the lowest-paid workers do not fall even further behind: Arizona, Colorado, Florida, Missouri, Montana, Nevada, Ohio, Oregon, Vermont, and Washington. Nevada has not scheduled a cost of living adjustment to take effect in 2013.
Because the federal minimum wage is not indexed to rise with inflation, its real value erodes every year unless Congress approves an increase. Without further action from Congress, the current federal minimum wage of $7.25 per hour will lose nearly 20 percent of its real value by 2022 and have the purchasing power of only $5.99 in today's dollars, according to a new data brief by the National Employment Law Project.
The Fair Minimum Wage Act of 2012, introduced in the U.S. Senate and House of Representatives in July 2012, would help recover much of this lost value by raising the federal minimum wage to $9.80 by 2014 and adjusting it annually with rising living costs thereafter. It would also raise the minimum wage for tipped workers from its current low rate of $2.13 per hour, where it has been frozen since 1991, to $6.85 over five years. Thereafter, it would be fixed at 70 percent of the full minimum wage.
A large body of research shows that raising the minimum wage is an effective way to boost the incomes of low-paid workers without reducing employment.
A groundbreaking 1994 study by David Card and Alan Krueger, current chair of the White House Council of Economic Advisers, found that an increase in New Jersey's minimum wage did not reduce employment among fast-food restaurants.
These findings have been confirmed by 15 years of economic research, including a 2010 study published in the Review of Economics and Statistics that analyzed data from more than 500 counties and found that minimum wage increases did not cost jobs.
Another recent study published in April 2011 in the journal Industrial Relations found that even during times of high unemployment, minimum wage increases did not lead to job loss.
Strengthening the buying power of low-wage workers is especially critical in this economic climate. A recent study by the National Employment Law Project reveals that, while 60 percent of jobs lost during the recession have been middle- and high-wage occupations, low-wage occupations have accounted for 58 percent of jobs created in the post-recession recovery.