Testimony to Senate Economic Development, Housing & General Affairs, January 24, 2019

Good morning, Mr. Chairman, members of the committee. Thank you for having me today.

My name is Stephanie Yu. I’m the deputy director of 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 publish an annual report at the end of December called the State of Working Vermont, which is our annual 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 2018 report is based on the 2017 US Census data that came out in the fall as well as data available from the State of Vermont and others. 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 past reports since not all data sources are updated annually. Not that much has changed since last year, but I will go over our updated charts and share some new analysis we’ve done on wages in Vermont.

My testimony today is focused around three main points:

1. Income inequality continues to be a problem in Vermont and that is bad for Vermonters and the Vermont economy.
2. Wages are the problem in Vermont. More than costs or prices, low and stagnant wages are preventing families from making ends meet, including middle class families.
3. By any measure the buying power of the minimum wage is less than what it used to be.

[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 upward mobility, and is also associated with a host of social ills. Here you can see the difference in income growth since the ‘70s. The benefits of economic growth have flowed more and more to the top 1%. To put this in perspective, the top 1% of Vermonters bring in 16 times as much as those in the bottom 99%, with average incomes for the bottom 99% of just over $50,000 while the top 1% makes over $800,000 per year.

[slide 3] And we know that the most recent federal tax cuts will only make this problem worse, with two-thirds of the tax reductions going to the top 20% of Vermont taxpayers. In fact, [slide 4] all federal tax cuts since 2001 have disproportionately benefited the highest-income slice of Americans; all have exacerbated income inequality.

 [slide 5] Much of the income inequality is driven by inequality in wages. For ¾ of Vermonters, wages are their primary source of income.  We know that unearned income is concentrated at the top. So what’s happening to wages is the best measure of how most people are doing. And it’s not great. While high-wage workers have seen modest growth over the last decade, most people are facing wages that aren’t budging, even when you account for education level. And even those high-wage earners have had much slower growth than in the two decades before this.

[slide 6] Looking at wages from another angle leads to the same conclusion: wages are the problem. When you compare growth in wages to the growth in major costs like housing and child care, you see it’s not keeping up. And when you compare prices and wages across New England, you see Vermont’s prices are average but our wages are low.

[slide 7] And it’s not just a problem at the low end of the income spectrum. Vermont was one of only 10 states where median household income declined in 2017. While we don’t focus on the year-to-year changes too much, this chart shows that median household income has been flat for a decade.

So from any angle, income inequality is getting worse. But I want to look more closely at what’s happening to Vermont families.

 [slide 8] While the poverty rate has come down some since the recession, we have a persistent problem. The rate has hovered around 10-11% for decades—sometimes a little more or less, but it really hasn’t changed much, and Vermonters of color are much more likely to experience poverty than white Vermonters.

[slide 9] Children and young Vermonters are much more likely to be in poverty than Vermonters over 35, and more likely than their counterparts in other states.

 [slide 10] It’s not surprising 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. But we also know that the official poverty measure has its limitations. We wanted to get a better idea of how many families are struggling. So last year, we looked at the Census microdata to figure out how many families can’t meet their basic needs, as defined by the Joint Fiscal Office. 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 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 11] This may explain why the demand for services continues. The number of Vermonters on food stamps is still well above where it was pre-recession, with nearly 1 in 8 Vermonters needing assistance in 2017, and [slide 12] it’s particularly pronounced in the Northeast and Southwest parts of the state.

[slide 13] The cost of housing has been growing too fast for many Vermonters to keep up when their wages aren’t growing. More and more Vermonters are spending too much on housing; housing eats up half the wages for a minimum wage worker, which is unsustainable.

These are 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 last year 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 a year at 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] We also compared the minimum wage to the Vermont livable wage and while we’ve made some progress, there’s still a sizable gap between the two.

So the minimum wage 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 to narrow 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. It’s not the only policy change that we need for working families. Addressing the benefit cliffs, investing in early care and education, paid family and medical leave, affordable higher education and health care—all these should be part of the solution to the problems facing Vermont families. But we can start with the minimum wage.

[Link to slides]