The Northam/Perriello Rural Poverty Plan

Let there be higher wages! Ralph Northam (left) and Tom Perriello on the campaign trail in Northern Virginia where they promoted a $15 minimum wage.

Let there be higher wages! Ralph Northam (left) and Tom Perriello on the campaign trail in Northern Virginia where they promoted a $15 minimum wage. (Photo credit: Washington Post)

Both Democratic candidates for governor, Ralph Northam and Tom Perriello, have endorsed a statewide $15-per-hour minimum wage, a sign, says the Washington Post, of how much momentum the national “Fight for $15” is achieving. (Virginia hews to the federal minimum wage of $7.25 per hour, which has not increased since 2009.)

Perriello backed the $15 minimum wage shortly after declaring his candidacy, and Northam followed the next day. Both candidates reiterated their support earlier this week when aligning themselves with striking workers at Reagan National Airport. Reports the Post:

“I would challenge anyone out there to go try to support themselves and support their families on $7.25 an hour,” Northam said Wednesday after his meeting with workers. “It is impossible. You can’t do it.” He said he would push to raise the minimum wage as governor by campaigning to unseat Republican lawmakers opposed to it.

“We know we have a long way to go,” Perriello told a wheelchair handler during his Thursday visit, wearing a purple Fight for $15 scarf. “This is about the dignity of work, but it’s also about economic growth in our community.”

Bacon’s bottom line: Economists have haggled endlessly for decades over the effects of the minimum wage, with neither side dealing a knockout blow. But it’s safe to say that the minimum wage would have the greatest impact on labor markets in areas where prevailing wages are the lowest — and in Virginia, those are rural areas.

Start by asking the following question: Why not raise the minimum wage to $30 an hour? Or $100 an hour? Because, even liberal economists will concede, employers will lay off workers who don’t deliver $30 or $100 in economic value. At some point the wages lost by those who lose their jobs will exceed the wages gained by those who received a pay raise. At that point the minimum wage becomes indisputably destructive. The question is at what hourly wage that threshold is crossed.

It is conceivable that a $15 minimum wage will work in the Washington metropolitan area in the sense that wage gains for lower-income workers will exceed the wages lost from employees who lose their jobs. That’s because Washington is already a high-cost-of-living, high-wage labor market, and the differential between prevailing market wages and the $15-per-hour minimum wage is relatively modest. The picture is very different in economically depressed Southside and Southwest Virginia communities where one of the few competitive advantages in the economic-development arena is a lower cost of living and a lower wage base.

The Virginia Employment Commission publishes labor market profiles of the Southwest Virginia Workforce Investment Area here and the Northern Virginia Workforce Investment Area here. Below, I extracted the average weekly wages for the largest occupational categories in Southwest Virginia (excluding government and mining/oil and gas/extraction).

For purposes of comparison, someone earning the current minimum wage and working 40 hours a week would earn $290 per week, while a $15-per-hour minimum wage would equate to $600 per week.

Clearly, such a minimum wage would have a greater impact on SW Virginia workers than NoVa workers where the average weekly wage (and by implication the average hourly wage) is 50% to 75% higher. On the plus side, the pay of SW Virginians would jump more… if they could hang onto their jobs. And there’s the rub. How many could hang onto their jobs after such a massive disruption to labor markets? While some SW businesses might survive by laying off marginal employees, one has to ask, others couldn’t even stay in business. Would a Pizza Hut franchise be able to keep the doors open if its cost of labor doubled? If not, how many business owners, store managers and others earning above the minimum wage also would lose their jobs?

Beyond the immediate impact, what would be the consequences for long-term job development? Would any corporation consider investing in SW Virginia, a region in which 11% of the workforce has an 8th grade education or less and another 12% has “some” high school, if the minimum wage were $15?

The idea of a $15-per-hour minimum wage was born in affluent urban areas with a high cost of living. It is totally inappropriate for poor rural areas with low living costs, low wage structures and high unemployment. I can think of no economic policy that would be more disastrous for Virginia’s rural regions.

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16 responses to “The Northam/Perriello Rural Poverty Plan

  1. 1. Ya want to send jobs oversees, and automate those that remain, as fast as possible? Just raise the minimum wage.

    2. Ya want to eliminate all those first, starter jobs our youth need to get work experience? Ya want to raise youth unemployment among those without diplomas and advanced degrees? Just raise the minimum wage.

    ” You can’t get blood out of a turnip.”

  2. Last paragraph dead on.

  3. Unless an employer believes a worker can deliver more than $15 per hour in value the employer is not going to hire that person. Too bad the two announced candidates for the Democrats’ gubernatorial nomination are too (something–fill in the blank) to understand this.

    And what about cutting off illegal immigration that pushes down wages for the less skilled? I doubt either gentleman could explain the economics of these two inconsistent positions.

  4. that level of labor is basically a commodity subject to supply/demand though there are places where the very same job demands higher pay…

    some or most of it is entry level teens and/or semi-retired folks on pensions..

    if it is a full-time job – the chances are the individual is getting earned income credit on their taxes, food stamps, ER medical care… TANF, apartment, home sharing… etc…

    In other words – when it’s not a “living wage”, the taxpayer fills the gap.

    Not arguing in favor of minimum wage.. just pointing out that the reality is such jobs that don’t pay a living age – taxpayers do.

    is that the best, most cost-effective answer – in the larger context?

    maybe..

    • I agree with you, both parts — but raising the minimum wage is a very inefficient way to get a living wage into the right hands. To answer your question — as inefficient as taxpayer programs to help the poor are, what I read says the taxes to pay for them cost fewer jobs and therefore do less damage to the economy. Also, there’s the regional cost of living differences, which tax-credit funded programs can address but a uniform wage minimum can’t.

  5. Single Moms and parents with kids – who work at minimum wage jobs – do get earned income plus child tax credit… that can amount to several thousand dollars in a tax refund:

    To qualify for and claim the Earned Income Credit you must:

    Have earned income; and
    Have been a U.S. citizen or resident alien for the entire tax year; and
    Have a valid Social Security number (not an ITIN) for yourself, your spouse (if filing jointly), and any qualifying children on your return; and
    Not have investment income exceeding $3,400; and
    Not be filing a Form 2555 or 2555-EZ; and
    File a return with the Single, Married Filing Jointly, Head of Household, or Qualifying Widower filing status, even if you’re not required to file a return.
    In addition, both your earned income and Adjusted Gross Income (AGI) may not exceed:

    $14,820 if you’re not claiming a qualifying child ($20,330 if filing jointly);
    $39,131 if you’re claiming 1 qualifying child ($44,651 if filing jointly);
    $44,454 if you’re claiming 2 qualifying children ($49,974 if filing jointly);
    $47,747 if you’re claiming 3+ qualifying children ($53,267 if filing jointly).

    Maximum Credit Amounts
    The maximum amount of credit for Tax Year 2016 is:
    $6,269 with three or more qualifying children
    $5,572 with two qualifying children
    $3,373 with one qualifying child
    $506 with no qualifying children

    To this point in time – I have not heard a single candidate for office, neither Democrat nor Republican – who have opposed the earned income and child tax credits.

    To the contrary – I have heard even Republicans support it – even increases to it.

    The earned income and child tax credits – are on top of other entitlements for folks in the lowest income categories but note above that earned income is paid to even people who make 3 times the minimum wage…

    The point?

    it’s not one issue… it’s a panoply yet over and over – people focus more narrowly in single issues.. as if they make that much difference by themselves.

    The simple fact is that the government – through it’s policies – compensates with entitlements – people with low incomes.

    And my question is – is that more efficient and cost effective than a minimum wage rule?

    Are we letting our biases and ideologies push us into decisions that not only don’t “work” (there are studies about fast food wages on either side of a state line with different minimum wage laws) but in the bigger scheme of things – if the govt is going to have a panoply of entitlements for low income – each with it’s own set of arcane rules, regulations and paid bureaucrats to administer….

    got more point now?

    is the current path the right path?

  6. None of the wizards in our state legislature seem to understand the importance of regional cost of living differences. A $15 minimum wage across the state would indeed become a rural poverty plan.

    • That’s an important point.. I agree… but I don’t see more than a few
      in the GA supporting a minimum wage to start with, no?

      However – it would be interesting to see (an honest) representation of how many in rural Va are getting entitlements and average amount.

      and I’d include the average amount the state is paying for students… for rural Va schools ( compared to NoVa per student payments).

      the point being – not to humiliate but to characterize and assess to determine if there are better ways to address the regional economic and poverty issues…

      How to help people that are adults is harder than kids. If kids get a decent education – they can go to where the jobs are .. which many other kids in non-poverty areas do – routinely. The problem is if the kids in the poverty areas do not get a good education.. it becomes a disincentive.

      what to do with Mom and Pop who are in their 30,s 40,s and up and who likely own a modest home … is harder… Moving to an urban area as a low-skilled worker who probably cannot afford even the most modest of places to live is frying pan into the fire stuff.

      • Your last point is key. What’s the point of all this re-training talk if the poor guy who’s getting retrained can’t afford to live where the new jobs are? I know, eventually some jobs will come to wherever there are potential employers, not the other way round, but not initially, or to where there are only a few employables.

        • I struggle with that argument. Illegal (or undocumented, if you prefer) immigrants stream into Northern Virginia without a penny in their pockets often speaking little to no English. Somehow, the vast majority of them make it just fine. Ten years after they arrive they are speaking decent to good English, many have some college or advanced trade education and quite a few are small business owners.

          People can successfully move from El Salvador to Northern Virginia but not from Wise County? C’mon!

  7. The “education-employment” gap is a threat to the economic security of this country.

    More and more jobs are going to be lost to globalization, automation, autonomous vehicles, drones, robots in the coming years and it’s not only rural – it’s inner city – it’s anywhere people are not getting sufficient education to be able to do the jobs that are left – and really will be in abundance. Drones alone will have hundreds of variants both military and civilian – everything from search and rescue to powerline/pipeline monitoring to urban street security… etc.. but the 20th century education that many are getting is woefully inadequate for anything other the remaining pockets of labor that is not suited to automation.

    All a lot of people have ever wanted – is a job with a good salary and health care and pension benefits and they expected companies to exist to provide them .. and all they needed to do was graduate from high school – or even just get a basic degree from college.

    Not only has that gone away – but jobs themselves have moved and now concentrate in urban areas where there is robust infrastructure, interstates, airports, broadband, medical, etc.. and highly specialized knowledge-based companies.

    there is a divide and it’s widening.. and the “haves” are going to end up with significant entitlement burdens for the “have nots” if we do not address the education gap… and people start understanding that what is taught in K-12 is no longer sufficient to provide people with the knowledge they need to compete for the jobs that are left and are available..

    Too many of us think we can let the rural and inner city fester and left to their own devices.. If we do – that “divide” is going to result in many pockets of “3rd world” in this country.. where we’ve washed our hands of entitlements.. because we have been unable to figure out effective entitlements and we’re tired of paying them and have them deliver nothing other than demands for more.

    That’s the challenge of politics running for office these days and they’ve been pretty much divided up into those who want to “spend money” to “invest” and those who say we should stop throwing money good money after bad for no return and force people to take far more personal responsibility for their own welfare..

    for some the latter is the right approach – for both inner city – AND for rural America… cut their sorry butts lose from taking money from us who do have jobs”!!!!

    • There is no right to live comfortably wherever you want. Rural America (and rural Virginia) have been de-populating for decades. From 1920 to 1950 Wise County’s population increased from 46,500 to 56,300. Today, 39,700 people live there. At least in the inner city you can get to jobs if you can get training. Where are you going to find work in rural Virginia? Even if you could make Roanoke a vibrant city for employment it’s 196 miles from Big Stone Gap to Roanoke.

      I don’t mean to be disrespectful but rural America has been in decline since 1950. There may be some steady state population level that can be supported by agriculture and raw material extraction but that level is lower than today’s population. I don’t see any scenario where jobs start growing outside of agriculture and extraction in rural Virginia, trained people or not.

      It may sound cruel but the state ought to loan young people in rural areas money for training or college in more urbanized areas and forgive the loans if they live and work in any of Virginia’s more urbanized areas for 10 years.

  8. re: ” The idea of a $15-per-hour minimum wage was born in affluent urban areas with a high cost of living. It is totally inappropriate for poor rural areas with low living costs, low wage structures and high unemployment. I can think of no economic policy that would be more disastrous for Virginia’s rural regions.”

    that’s no doubt true – but what is the argument against instituting a minimum wage that like other things is set according to the cost-of-living in a region?

    is the argument against minimum wage – in concept or are various implementation strategies being treated as if there can be no flexibility therefore the concept itself is no good?

    • I don’t see any reason a state minimum wage couldn’t be scaled by region within the state. Just don’t try to fine-tune it to the point that administration became difficult. Do you think maybe three levels would work for Virginia — northern tier, central/Tidewater, and Southside-Southwest?

      • Agree – we don’t want yet another bureaucracy administering yet another complex set of regulations that unfortunately could further burden employers.

        but I also wonder if this is something that could not be handled automatically in the tax code.. similar to the earned income credit.

        If someone got “enough” of an earned income credit such that they’d not be eligible for other entitlements – that could actually reduce bureaucracy..

        Even many Republicans seem to like the CONCEPT of earned income credits even though it’s essentially helicopter money… as long as the person has a job ..and “earns” .. they are eligible and the current law excludes those younger than 25 and older than 65.. so it doesn’t apply to teens or retirees.

        It might also be a way to provide basic health care – i.e. if you work -you got some level of coverage.. and again -that reduces the bureaucracy for the MedicAid means-tested entitlement.

        would that cost more than if we left the current minimum wage at the existing level and people who worked at that level would then continue to go apply for TANF, SNAP, MedicAid, etc? If you boosted the minimum wage – they’d still have to go apply to see if they might still meet the means-tested thresholds.

        I’m only interested in this or something like it – if it reduces the entitlement burden and incentivizes people to choose work over entitlements.

  9. re: ” Because, even liberal economists will concede, employers will lay off workers who don’t deliver $30 or $100 in economic value. ”

    when you go to a tourist place – or the only interstate exit in miles – do you
    think the guy that cooks your burger is providing any more or less “economic value than some other place where burgers are much more in abundance?

    it’s more complex than that.. it also depends on the location – and the supply of labor.. If labor is tight – it’s harder to attract it unless more is offered… just as businesses compete for customers.. they also compete for labor…

    A good employee.. a hard worker – who is dependable and on time – is worth more than an “average” employee.

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