The minimum wage for workers in the USVI will increase by quick steps to $10.50 per hour by Jan. 1, 2017, and then be set by the currently defunct V.I. Wage Board, if a bill approved in committee Wednesday is enacted into law.
The bill [Bill 31-0236] sponsored by Sen. Jean Forde would increase the minimum wage to $8.35 per hour within several months of enactment, then again to $9.50 per hour by the end of 2016, and to $10.50 per hour by the end of 2017. The legislation also urges Gov. Kenneth Mapp to appoint nominees to revive the V.I. Wage Board, which has been defunct since the 1990s.
The increase is "an effort to assist all of the individuals who are making a very low minimum wage right now of $7.25," Forde said, introducing the bill.
"Most individuals who have the minimum wage, they have to rely on public assistance," he added.
Addressing likely criticism of the bill, Forde said, "The big question is can we afford a minimum wage increase … and the idea that many businesses will go under."
"I think the data show that is nothing more than a myth," Forde said, adding that turnover is high at low wages, costing businesses a lot of money and lost productivity, "so it will actually save businesses, particularly small businesses."
Forde said that while the territory is struggling, "the time is right because businesses have recently experienced a decrease in utility bills. Gas prices have also gone down."
He said, "This will in fact stimulate the economy. Certainly it will help reverse the cycle of poverty in the Virgin Islands and will improve the quality of life."
Officials from the V.I. Labor Department and Bureau of Economic Research testified in support of the bill, saying it would improve many lives and citing data suggesting the still-low pay level would be unlikely to hurt businesses and may increase the flow of money within the territory.
"The major argument for raising the minimum wage is that its real value has diminished over the years and not kept up with inflation," BER Director Bernadette Melendez said.
Labor Commissioner Catherine Hendry said, "Although the proposed increases will not eliminate poverty in the territory, these changes will adjust for inflationary factors seen in the costs of goods and services over the last five years since the rates were last adjusted by legislation."
"As the cost of living has been steadily increasing for food, clothing, shelter and rent, and recently decreasing for utilities and gas, earnings of entry level and tipped employees has not met or kept pace with inflation," Hendry said.
She said if the increase is enacted, "any business that hires low-wage workers may face a significant direct cost, potentially leading to job cuts and increased food and service prices."
However, Hendry noted, "On balance, the economic and societal benefits of putting more money into the hands of workers may outweigh the negative impacts and help to achieve an adequate standard of living for Virgin Islands workers and their families."
According to Hendry and Melendez, 29 states and Washington, D.C., currently have higher minimum wages than the $7.25 federal minimum; 14 states and territories, including Puerto Rico and the USVI, are set at the same level; and five, all in the Southeast, have no state-level minimum wage, although they must meet the federal minimum wage.
The USVI Hotel and Tourism Association gave qualified support for the change, asking for a longer phase-in period, while the St. Croix Hotel and Tourism Association opposed it, according to testimony from USVI Hotel and Tourism Association President Lisa Hamilton.
"We agree that a minimum wage increase is necessary in the Virgin Islands," Hamilton said. "However, we are recommending extending the implementation period beyond the 24 months as proposed to give the small businessperson and independent businesses a realistic timeline to implement the increases," she said.
Hamilton said it would create a "ripple effect, forcing pay for other low-wage employees aside from those at the very bottom.”
"If you have a housekeeper who has worked his/her way up to $10.50 an hour after starting at minimum wage, that housekeeper’s income needs to increase as well once the minimum wage bar has been raised," she said.
While hotel members were ready for the increase, many St. Thomas and St. John restaurant owners were concerned that increasing base pay for tipped employees would be a hardship and that it was unnecessary as servers make well above minimum wage, according to Hamilton. Restaurants might also have to pay line cooks more if waiters are paid more, she said.
"Our restaurant members stated that if the tipped employees are paid at 70 percent of minimum wage they will end up making more than the line cooks; therefore, those salaries need to be adjusted as well," Hamilton said.
“A 45 percent increase across the board over two years is more than most businesses have stated they can afford. We have polled our members and 70 percent of them stated that they can ill afford such an increase in such a short period of time," she said.
Based on that feedback, she said the Hotel Association would like the increase to be phased in more slowly, to reach $10.50 per hour in 2020.
While in favor of the increase, Hamilton emphasized that the USVI is competing for tourist business against an array of Caribbean countries with much lower minimum wages, especially Cuba. She said the recent increase in V.I. hotel room tax has put a strain on the business.
"We caution that any additional taxation to our industry will adversely affect our ability to be competitive as well as our ability to keep our doors open. As we near the total opening of Cuba to a market that represents over 90 percent of our business, it’s critical that we remain competitive in what we can charge our guests to ensure they feel they have received value for the money spent," she said.
Sen. Tregenza Roach questioned whether it made sense to directly compare USVI minimum wages to those of other countries, particularly in the Caribbean.
"It is hard to put a face on those numbers without looking at the cost of living in those countries, as well as different currencies," Roach said. He also said the increase was small and would still leave full-time workers on public assistance.
"I think it is important for people to see what these increases mean on an annual basis. It would go from $15,500 to $21,000. So really, considering the cost of living in the Virgin Islands we are just giving people a small boost, which they need and I agree to that," Roach said.
The St. Croix Hotel and Tourism Association did not attend the hearing but Hamilton read a letter from its president, Suzanne Rosbach, saying that group is opposed because the St. Croix economy is hurting.
"The cost structure is absurdly high and St. Croix is an expensive product with low volume," Rosbach wrote, according to Hamilton.
Hamilton also said "every businessperson knows that such automatic increases will lead to reduced hiring and probable layoffs."
Sen. Justin Harrigan questioned that conclusion, citing a 1994 study saying "economists have increasingly recognized that increasing minimum wages does not automatically mean employment will fall."
Hamilton responded, "I can say there is extreme sensitivity to any increase inn their cost of doing business because of the dire economic straits in St. Croix … so their reaction is to say we really can’t afford it.
She said several members said they would like to increase pay but can’t afford it. "And maybe they are not seeing the forest for the trees, but that is the overall mindset on St. Croix," Hamilton said.
Numerous economic studies have found little to no impact on employment from marginal increases in minimum wage, although those findings are hotly disputed by an ardent minority of economists – whose work is also, in turn, criticized as partisan and cherry-picked. (See related links below)
Some prominent conservative writers on economics have an ideological opposition to any minimum wage. For instance, Tim Worstall, a frequent Forbes Magazine contributor and senior fellow at the Adam Smith Institute, asserts it is better to have a $0.50 dollar an hour minimum wage, with workers making $20 for a full week’s work and $1,000 per year, than to risk any possible increase in unemployment.
"I think the correct minimum wage is $0, as with the 1970s New York Times. Because I regard even mild levels of unemployment caused by a low minimum wage to be undesirable," Worstall wrote in Forbes Magazine in August. (See: "As Paul Krugman Points Out, The Minimum Wage Can Be Set Too High" in Related Links below)
Sen. Forde returned to the fact that utility and gas prices have dropped drastically in the last year, saying, "The timing is right. Nobody’s doors ain’t going to be closed."
To emphasize how low the current minimum pay is, he pointed to the cost of a can of corned beef in the territory. "Corned beef is considered a poverty food. … Do you realize to eat a can of corned beef you’ve got to work a whole hour?" Forde said.
After amending the bill to remove provisions allowing lower pay for teenagers and high school students, the Committee on Education and Workforce Development voted without opposition to send it out of committee for consideration in the Rules and Judiciary Committee. If approved there, it will go to the full Legislature for a final vote.
Voting to send the bill out were Harrigan, Forde, Roach, Sens. Terrence "Positive Nelson and Kurt Vialet. Sens. Kenneth Gittens and Myron Jackson were absent.
The committee also voted to send forward a bill mandating the University of the Virgin Islands start a bachelor’s degree program in nursing on the St. Croix campus. The St. Croix campus stopped offering that program in 2009. UVI officials testified in support of the measure, saying there was a strong demand and it would help St. Croix produce and retain much-needed nurses for its hospital and medical facilities. The bill included $432,000 in funding, which was already included in UVI’s Fiscal Year 2016 budget.