Minimum wage for employees of the V.I. government and V.I. Economic Development Commission tax break beneficiaries could increase first to $10 per hour, and then to $12 per hour, if a recent living wage study’s recommendations are enacted, officials told the Legislature Wednesday.
Roughly 25 percent of local residents lived in poverty in 2008, which is twice the U.S. poverty rate of 13 percent, V.I. Bureau of Economic Research Director Wharton Berger told senators meeting in Committee of the Whole on St. Thomas.
Legislation passed in 2007 directed the BER to conduct a study to try and determine what a living wage – one that would provide enough to live above the poverty line – would be in the territory and how it might be achieved without causing harm to the economy, Berger said.
The study, entitled the "Living Wage Standard and its Socio Economic Impact on the U.S. Virgin Islands," found that to meet basic housing, clothing, food and transportation needs, a single V.I. resident needed $10 per hour, at 40 hours per week, with employer-sponsored health insurance, Berger said.
That figure increases with children and child care expenses, so that one parent with benefits and a single child must earn $16.28 per hour. Two employed adults with a child must earn a combined $23.96 per hour or $49,844 annually. The study found if a couple supported two children, the family would need a combined wage of $28.75 an hour or $59,799 annually, to make ends meet in the territory, he said.
To get there would require government intervention, but directly raising the minimum wage by such an amount might hurt the economy and employment, he said. Berger suggested the government could still push more gently in the direction of a territorial living wage.
The study recommends the government mandate an immediate $10 per hour minimum wage for all government workers, government contractors and EDC beneficiaries, Berger said.
"While implementing this mandate would not affect many workers, it is a symbolic movement in the right direction," he said, adding that all compensation-related costs associated with this mandate were minimal and “easily absorbed without any increases in revenues,” which he attributed to the fact that most workers in this category are already making $10 per hour.”
Next, the government could consider increasing that to $12 in three years, he said. This would affect about 15 percent of the government workforce – roughly 2,000 people – "and yet be absorbed within the present revenue trends," Berger said.
Making EDC benefits contingent on paying a living wage has the advantage of not actually mandating higher wages to any private company, Berger said. Any company would be free to pay prevailing wages – so long as they did not ask for tax relief.
"The greatest value of this approach is that it does not force the investor to pay the living wage standard. However, if the investor seeks assistance of the government, it must meet this important element of economic reform. The study concluded that this approach is similar to the leveraging programs for housing that have long been in place in the more progressive mainland cities," Berger said.
Increasing pay for direct employees and contractors would cost the government money which would be partially offset by increased local spending and tax collection, he said.
Raising government pay to $10 per hour would cost about $1.5 million per year, for a 0.18 percent increase to the government’s budget. Increasing it to $16 per hour would cost $29 million or 2.5 percent.
Contracting costs would increase much less – about $1.75 million per year for a $16 minimum wage. But as all the money would be payroll, it should add to the flow of money in the local economy, Berger said.
Human Services Commissioner Chris Finch, Labor Commissioner Albert Bryan, U.S. Office of Insular Affairs representative Basil Ottley, and University of the Virgin Islands Vice Provost for Research and Public Service Frank Mills also gave testimony supporting the broad outlines of the study’s conclusions.
Finch said, "At minimum wage, work alone does not raise a family out of poverty.” But federal and local assistance, from tax credits to Food Stamps, while also insufficient for many in the territory, must be taken into account when devising policy, he said.
Those benefits often decrease when income increases, so to be better off, "a family requires an increase in wages exceeding the corresponding loss of benefits," he said. A low wage worker receiving Food Stamps and rent subsidy, and who receives a dollar raise, may lose 25 cents in Food Stamps and 30 cents in rent subsidy thus gaining a net of 45 cents, Finch said.
"The worker is still financially better off with the raise and may indeed have increased pride from needing fewer subsidies. The point is that the full value of benefit and tax changes must be considered when adjusting wages to ensure the family is indeed better off," he said.
Senators’ questions revolved largely around the details of the study and numbers.
"I think you’ve given us a basis for approaching the federal government about how these incentives are distributed," Senate President Ronald Russell said.
No votes were taken and no legislation was pending.
