DURING the last session of the General Assembly, attempts to raise the state minimum wage failed to make it out of committee. This session, with a new Democratic majority, a bill (SB 7) patroned by Senate Majority Leader Dick Saslaw, D–Fairfax, stands a much better chance of being enacted into law. Two Senate committees have already advanced Saslaw’s bill, which would increase the state minimum wage to $10 an hour effective July 1, 2020, and increase it $1 every year until it reaches $15 an hour in 2025. A similar bill has also been proposed in the House of Delegates.
Although it may appear that raising the minimum wage would be good for unskilled, low-income workers, the data does not support that claim.
According to the Bureau of Labor Statistics, about 70,000 workers in Virginia were paid either at or below the federal and state minimum hourly wage of $7.25 an hour in 2017. But they made up only 3.6 percent of the 1.9 million hourly wage workers in the commonwealth. And according to the Virginia Employment Commission, more than half (58.6 percent) were teens or young adults under age 25, many of whom were employed in Virginia’s service and hospitality industries, which are also the fastest growing sectors of the state economy.
The actual percentage of older full-time workers scraping by on a minimum wage (about $15,080 per year) was less than 2 percent of all hourly workers. And those individuals were already eligible for a plethora of federal, state and local public assistance programs ranging from food stamps to Medicaid to earned income tax credits which, combined, raised their actual income much higher than $7.25 an hour.
Public policy for the entire commonwealth should not be based on such a small sliver of the population. The state should focus on training these older workers and heads of household for more lucrative jobs instead of forcing small businesses that can least afford it to pay everybody a state-defined minimum wage regardless of their economic circumstances.
Raising the minimum wage would also be a major disincentive for businesses and even government agencies to hire marginally productive employees for entry-level jobs, and likewise a major incentive for them to reduce labor costs by cutting hours or not hiring new employees.
Seattle instituted a citywide $15 an hour minimum wage ordinance in 2014. A study by economists at the University of Washington found that “it appears to have delivered higher pay to experienced workers at the cost of reduced opportunity for the inexperienced.” The result was a net decrease in earnings for the city’s lowest-income workers, and fewer entry-level employees hired in Seattle than across the entire rest of the state.
While a minimum wage of $10 or $15 an hour may have fewer negative economic repercussions in Saslaw’s affluent Northern Virginia district, there are many other places in the commonwealth where it will result in lost jobs and lost opportunities. Arguing against Saslaw’s bill, state Sen. Stephen Newman, R–Lynchburg, remarked, “We don’t live in Northern Virginia. We can’t do $15 an hour. ... You have no idea how devastating this bill will be. This will be murderous to the jobs of central and southwest Virginia.”
Even Sen. David Marsden, D–Fairfax, who introduced a substitute minimum wage bill, acknowledged during the same Senate hearing that he was “very, very concerned about the huge impact [of Saslaw’s bill] on the state budget and the Virginia economy.”
Sens. Newman and Marsden are right to worry. According to an analysis released last month by the NFIB Research Center, raising the minimum wage to $15 an hour by 2025 would “reduce Virginia private sector employment by over 130,000 jobs and result in a cumulative loss in real output produced by Virginia’s private sector of over $87 billion over the ten-year forecast window. Fifty-one percent of the forecast job losses are jobs that would have been in the small business sector of the economy.”
Those findings echo a study published in December by the National Bureau of Economic Research that found that increases in the federal minimum wage “worsen the financial health of small businesses in the affected states.”
Forcing small businesses to pay higher wages than they can afford may allow affluent legislators like Saslaw to feel they’re helping low-income workers. But they’re not if these same workers wind up losing their jobs because their employers go out of business, have their hours drastically cut, or miss out on the chance for upward mobility that only a steady job can provide by not getting hired in the first place.
A smaller, less disruptive hike in the minimum wage might be appropriate, but this one is too much—and way too fast.