Raise will benefit 11,000 low-wage workers and is expected to
boost consumer spending by $1.4 million
On Jan. 1, Vermont's minimum wage will increase 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 will also raise state
minimum wage rates on New Year's Day, boosting wages for nearly one
million workers nationwide.
Vermont's Jan. 1 minimum wage increase is the result of a law
signed by Governor 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 impacted 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
• 72 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
"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 ten
states on January 1 will generate over $183 million in new economic
activity and create the equivalent of 1,500 new full-time jobs.
As of Jan. 1, 2013, 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
Vermont numbers among ten states that increase their minimum
wage rates annually to ensure that real wages for the lowest-paid
workers do not fall even further behind.
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, 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.
The Fair Minimum Wage Act 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
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.
Public Assets Institute is a nonprofit, nonpartisan organization
that promotes sound budget and tax and economic policies to benefit
all Vermonters. Additional information is available at