As businesses struggle with the pandemic, Northam delays plan until May
RICHMOND– Virginia’s minimum wage was supposed to go up at the beginning of this month. But that was the plan last year, before the pandemic hit.
Thanks to COVID-19, Gov. Ralph Northam had to delay the raise until May. The goal is to give businesses more time to recover.
“This will ensure workers get the support they need while allowing greater economic certainty in the wake of the COVID-19 pandemic,” Northam said in a statement.
The governor finalized the amendment in April of last year, much to many labor groups’ dismay. The Virginia Interfaith Center of Public Policy was one of the groups. While they understood the need to delay, VICPP officials still have concerns.
“A living wage that is better than the current Virginia minimum wage is critical,” said Kim Bobo, executive director with the VICPP. “If we want to address poverty in Virginia, the largest number are of poor people in the country, including Virginia, work or live in households where people work. Work is no longer the way to get out of poverty.”
The Bill Already Wasn’t Ideal
The VICPP played a role in the passing of the minimum wage bill, arguing that a livable wage is key to improving Virginians’ overall quality of life.
But, hearing about the delay was more than a bit disappointing, especially with the staggered nature of the bill itself. When it finally goes into effect, the bill doesn’t automatically jump the minimum wage from $7.25 to $15.00. It raises the wage rate in chunks, first going up to $9.50 in May. Then, the rate will increase to $11.00 by Jan. 2022. Then, it will rise to $12.00 by Jan. 2023.
Virginia’s minimum wage will not be at $15.00 until at least 2026. And that’s not until three government agencies approve it. Under this law, the Virginia Employment Commission and two other agencies will hold a study, observing the effects of Virginia’s minimum wage.
Based on their findings, then the government will decide whether the $15.00 minimum wage is permanent.
“I think most advocates really were okay with (the delay) and we are looking forward to May, 1 increase” said Bobo. “$9.50 an hour is still not that much. You can’t raise a family on $9.50, but you certainly can’t do it on $7.25.”
Right now, with so many low paying jobs being considered essential now, there are people putting their lives at risk for a paycheck that isn’t even enough for them to live on. And they might not get that check until five years from now. However, this might be the state’s only option. Not only to help businesses, but to protect people’s jobs as well.
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Protecting People’s Jobs in a Pandemic
In an ideal world, raising the minimum wage would happen overnight. But jumping from $7.25 to $15 in one fell swoop might actually be more harmful than helpful. According to labor economist Dr. Leslie Stratton, this would give businesses incentive to get rid of their employees, in favor of a cheaper source of labor.
“They might cut the hours that individuals are working,” said Stratton, “They may try to switch to automation, to use robots to the extent possible or other machinery.” While, this automated source of labor might appear more expensive at first, it ends up saving companies money in the long run. And if left to their own devices, these businesses might just choose the cheaper option just to stay open.
According to Stratton, a raised minimum wage could also increase the competition for these jobs as well. And at a time where unemployment rates are at all time high, this might not be the best solution. The Virginia Employment Commission’s most recent data shows that November’s unemployment rates were double what they were last year.
“So economics theory would tell us that if you offered to pay people more, more people will seek employment that would constitute an increase in what’s called the labor force participation,” said Stratton. “At the same time, you force employers to pay more. That would cause a decrease in the employment rate because fewer employers would be willing to offer that higher wage employers will cut the number of workers.”
Northam’s staggered approach to raising the wage rate gives businesses more time to adjust to paying their employees more. While it may take longer, it’s will eventually help people’s job security in the long run.
“One reason, most legislation to increase minimum wage spreads that out over time is that they want to increasing the minimum wage by $5 an hour immediately would have a much greater impact than increasing it in smaller increments,” said Stratton.
The Importance of a Higher Minimum Wage
With all these risks in place, an increased minimum wage still has benefits. However, a higher minimum wage only works if every business implements it. And if it’s not a mandate, then businesses are not going to do it. By making a livable wage the standard, it levels the playing field so one business won’t have the upper hand because they pay lower wages.
“If you allow one business to not pay a minimum wage, then they won’t,” said Bobo. “It’s a bidding process. So if the employer is only paying $7.25 an hour and somebody else is paying 10 bucks an hour, then the employer providing 10 bucks is going to really struggle to get bids and then they will likely lose business and struggle. So for employers, it’s better to have a level playing field and they can compete on the quality of work and not compete by driving down wages for workers. “
According to Bobo, it’s hard to tell why this delay was necessary. While there are several businesses that are suffering due to COVID-19, there are many big businesses that are thriving in the pandemic. According to a MarketWatch story, Amazon had its most profitable year yet, hitting a record setting 9.78 billion in profit in Oct. So while these corporations are profiting, ultimately it’s their employees who’re suffering in the midst of the pandemic.
However, businesses like restaurants and landscaping are suffering big time due to the pandemic. They also have a higher volume of minimum wage employees than other fields. But, according to Bobo, a $2.75 rise in wages wouldn’t do too much harm.
“The reasons they’re struggling are seldom the difference between $7.25 and $9.50 an hour, it’s much more complicated economic factors,” said Bobo. “And it may take some businesses a while to get back. But again, as a society, we’re saying, if somebody works, they deserve to be paid at least $9.50 an hour. “
How It Would Affect Virginia’s Economy
The pandemic has done a number on the entire nation’s economy, Virginia included. Right now, unemployment rates have skyrocketed. Businesses, especially if they’re not national chains, are not doing well. But could a $15 minimum wage help? That answer isn’t that easy.
When low earning families get this raise, it’s most likely going to right back into the economy. This could mean good news for Virginia’s economy.
“If you increase the minimum wage, it doesn’t go into a savings. Generally it goes into paying for food, paying for rent, paying for all the things that really make our consumer economy thrive,” said Bobo. “So we believe that raising the minimum wage, is not only good for workers and their families, but also good in terms of stimulating the overall economy.”
However, there are more factors than just increased spending that factor into how the minimum wage would affect an economy. Some of these include employment rates, labor productivity and profits.
“There are costs and benefits to different people,” said Stratton. “And different people would weigh those factors differently.”
What Can We Do in a Pandemic?
For now, Virginians will have be patient for the next four months. At the same time Northam issued the delay, he also moved up payday lending reform that could potentially help struggling low wage workers from predatory lenders. A payday loan is usually a small amount of money given to people with insanely high interest rates.
Northam’s bill puts a cap on those loans. Now, these reforms went effect on Jan. 1 instead of July 1 as originally planned.
“Meanwhile, the governor actually pushed forward his reforms around payday lending under the same logic that families in crisis are going to be looking for loans and needing help,” said Bobo. “So we just need to regulate payday lending faster on a faster schedule than we would have otherwise. So, it was kind of a double edged sword on this one.”
The minimum wage will go up to $9.50 an hour on May 1, then it will increase to $11.00 an hour by Jan. 1, 2022. If you need access to resources for paid sick leave, livable minimum wage or other economic injustices, the VICPP offers a list on their website.
Arianna Coghill is a content producer with Dogwood. You can reach her at [email protected].