Testimony to Senate Economic Development, Housing & General Affairs, January 17, 2018
Good morning, Mr. Chairman, members of the committee. Thank you for having me here today.
My name is Stephanie Yu. I’m a policy analyst with Public Assets Institute here in Montpelier. We’re a nonprofit, nonpartisan, public policy think tank that was established in 2003.
For those of you who don’t know about Public Assets Institute, we analyze Vermont fiscal policy—tax, budget, and economic policy— with the typical Vermonter in mind. We gather the facts, usually from state or federal data bases, and explain what they mean in a way that people can understand quickly.
We do this because we believe that facts matter. And giving Vermonters the tools and information to speak up in the public debate is the best way to ensure that their government is acting to promote their best interests and well-being.
We do this because we believe it is important to fulfill the purpose of the state budget, which is, according to the statute adopted in 2012, to “address the needs of the people of Vermont in a way that advances human dignity and equity” and that “[s]pending and revenue policies will … recognize every person’s need for health, housing, dignified work, education, food, social security, and a healthy environment.”
We regularly publish reports, fact sheets, and blog posts on our website www.publicassets.org. One of our regular publications is a monthly jobs report—published on the day the Bureau of Labor Statistics releases its monthly employment data. We also publish an annual report at the end of December called the State of Working Vermont, which is our state of the state. We analyze the previous year’s data about the Vermont economy, jobs, and employment and publish it in chartbook format. The 2017 report is based on the 2016 US Census data as well as data available from the State of Vermont. I’ve provided electronic copies to the committee and much of what I’m going to talk about today comes from that analysis. I’m also relying on some information from our 2016 report since not all data sources are updated annually.
My testimony today is focused around three main points:
- Income inequality is rising in Vermont and that is bad for Vermonters and the Vermont economy.
- There are many families in Vermont struggling to make ends meet, including middle class families.
- By any measure the buying power of the minimum wage is shrinking, and we need to get it back to a livable wage as soon as possible.
[slide 2] Income inequality has been on the rise in Vermont and the rest of the country since the late 1970s. We know that increasing income inequality slows the economy, increases poverty and reduces social mobility, and is also associated with a host of social ills. Here you can see what a striking difference there has been following the most recent recessions. Since the ‘70s, the benefits of economic growth have flowed more and more to the top 1%. And we know that the recent action in Washington will only make this problem worse.
[slide 3] To put this in perspective, the top 5% of Vermonters earn 12 times as much as those in the bottom 20%, or more than $300,000 more per year. Keep in mind that this is for a family of four.
[slide 4] and after the most recent recession, that pattern has held. The top 1% has seen their incomes grow much faster than the bottom 99%. A 2007 study by the Federal Reserve Bank of Boston found that while Vermont’s top-heavy income imbalance was less severe than in many other states, the state had the second-fastest growth in income inequality in the country between 1989 and 2004.
[slide 5] and it took much longer for low and middle income Vermonters to regain the ground they lost during the Great Recession. For those at the top, incomes were 22% higher by 2015 than they were pre-recession, while those at the median income and the bottom had just gotten back to where there were.
[slide 6] in fact, real median household income has been flat for twenty years.
[slide 7] just in case the point hasn’t been made thoroughly enough, income inequality continues to worsen as growth at the top far outstrips growth at the bottom. For the top 5 percent, average nominal income (not inflation adjusted) rose nearly 42 percent—the third fastest among all the states. The bottom quintile saw only a 6 percent increase in average income over the same period. Put another way, annual incomes for those in the bottom quintile increased by $700, while those for the top 5 percent increased by almost $95,000 from 2006 to 2016. Contributing to this gap are the different kinds of income that households take in. For instance, unearned income—gains on capital investments—mostly goes to people whose income from work already puts them in the upper brackets.
[slide 8] So much of the income inequality is driven by inequality in wages. The 10th-percentile wage grew less than 3 percent, after adjusting for inflation, from 2006 through 2016, while the 90th-percentile wage grew more than 8 percent. Three-quarters of Vermont tax filers—those bringing in $75,000 a year or less—rely primarily on salary and wages for their income. So increasing Vermont’s minimum wage would create a fairer distribution of economic gains.
From any angle, income inequality is getting worse. But I want to turn from the larger trends to what’s happening to Vermont families. It’s not just that incomes are stagnant, but increasing costs are squeezing families to the point where they aren’t able to make ends meet.
[slide 9] While poverty trended up in 2016, that’s likely a correction from 2015. However, looking at the longer trend, poverty has been on the rise in Vermont.
[slide 10] And the problem is not evenly distributed. We know that it disproportionately affects people of color.
[slide 11] and single parents.
[slide 12] I don’t think it come as a surprise that many single parents struggle to make ends meet. In past reports we’ve looked at poverty rates by family type and consistently found a higher rate of poverty for single parents. Child care is expensive and navigating the costs and schedules alone can make it difficult to work steadily. So this year, we took a deep dive in the Census microdata to figure out how many families can’t meet their basic needs. We only looked at certain family types that we could compare to those identified by JFO in their analysis of basic needs budgets. The findings on single parents fit, although it’s even more extreme than we might have guessed: two-thirds of those with one child and 80% of those with two children can’t meet their basic needs.
What’s surprised us were the findings on two adult households – even when both adults work, more than a third of them can’t meet their basic needs.
[slide 13] which may explain why the demand for services continues. There are still more Vermonters on food stamps than prior to the recession.
[slide 14] and more people find themselves in unaffordable housing.
We think of these measures as important indicators that tell us how Vermonters are doing, and as you can see, many of them are moving in the wrong direction or stuck. And it’s part of our job to think about what policy changes we can make at the state level to turn these around.
Which brings us to minimum wage. And a question that came up in the study committee is whether the minimum wage should be a livable wage. Our answer is unequivocally yes. And it’s not just that by any rational measure the buying power of the minimum wage has decreased – whether you look at productivity, or economic growth, or compared to the median wage, or the cost of child care or housing, and certainly compared to the wages of those in the highest-paying jobs.
[slide 15] for example: in 1980, a part-time minimum wage job could pay for the cost of UVM. By 2016, that same student would have had to work 56 hours a week to keep up – leaving little time for classes.
[slide 16] and compared to the livable wage, the minimum wage is not getting any closer.
So the minimum wage just doesn’t buy what it used to, and it certainly doesn’t cover the basic needs for even a single individual, let alone a family. Any steps you take toward narrowing that gap would be steps in the right direction, but the goal should be getting to a livable wage as soon as possible.
To sum up: income inequality and all the problems that go with it are on the rise, and much of that inequality is driven by the stagnation of wages from the middle on down to the lower end. We can’t always do much about economic forces at the state level, but this is one we have the power to control. Raising the minimum wage to a livable wage starts to push back against the forces driving inequality. We need to start with the premise that addressing the needs of workers and families is the way to a stronger economy, not the other way around.
Outstanding! Thanks