Two new bills in the Vermont Legislature — S.67 in the Senate and H.743 in the House — propose another significant increase in the state minimum wage, this time by tying it directly to what lawmakers call the “livable wage.”
As of January 1, 2026, Vermont’s minimum wage stands at $14.42 per hour. Under these bills, it would rise to $18.60 per hour — an increase of roughly $4.20 an hour, or nearly 30 percent.
The proposed wage floor is based on the Joint Fiscal Office’s calculation of what a full-time worker needs to meet the state’s “basic needs budget.” S.67 would begin in 2026, while H.743 would begin in 2027.
Supporters argue the increase is necessary because Vermont has become increasingly unaffordable. But the debate over minimum wage is not just about the small number of workers currently earning the legal minimum. The real effects ripple far beyond that.
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Minimum Wage Increases Don’t Stay at the Bottom
Minimum wage policy is often discussed as if it affects only a narrow group: teenagers, entry-level workers, or the lowest-paid jobs.
In practice, raising the wage floor affects much more than that.
When the state mandates that the minimum wage must be $18.60 an hour, the change doesn’t stop with workers who were previously earning $14 or $15. Employers immediately face a broader problem: pay scales across the workplace begin to collapse.
Wage Compression Is the Immediate Reality
One of the most predictable consequences of a large minimum wage hike is wage compression.
That happens when experienced workers, who have spent years earning small raises and building skills, suddenly find themselves making barely more than a brand-new hire.
A worker who has been dependable for years at $18.70 an hour is unlikely to accept that a first-day employee — possibly a teenager with no experience — is now earning $18.60.
Most people would see that as unfair. And most employers understand it.
So businesses are pressured to raise wages not only for minimum wage workers, but also for everyone slightly above them, simply to maintain morale, retention, and basic workplace hierarchy.
That means the real cost of these bills is not “minimum wage goes up.”
It is that the entire wage ladder gets pushed upward.
The True Cost to Employers Is Much Higher Than $18.60
Even $18.60 an hour is not the true cost of hiring someone.
Employers also pay:
- payroll taxes
- workers’ compensation
- unemployment insurance
- training and supervision costs
- scheduling and administrative overhead
In real terms, an $18.60 wage can easily translate into $25–$35 an hour in actual labor cost once all factors are included.
And when wage compression forces raises across the board, the total payroll impact becomes far larger than the headline number.
Small businesses in Vermont — restaurants, shops, farms, contractors — operate on thin margins. They cannot absorb large mandated cost increases without responding somehow.
Higher Wages Mean Higher Prices
Supporters of wage hikes often treat higher pay as if it exists in isolation.
But labor is a primary input cost in the economy. When payroll costs rise sharply, businesses have only a few options:
- raise prices
- reduce staffing or hours
- automate
- cut benefits or services
- stop expanding or close entirely
In many cases, prices rise. Consumers pay more. And the cost of living increases further.
This is where the cycle becomes self-reinforcing:
- The cost of living rises
- The state raises the minimum wage
- Businesses raise prices to cover labor costs
- The cost of living rises again
- Lawmakers declare another wage increase is necessary
Minimum wage hikes are sold as a solution to affordability, but they can also become one of the drivers of higher prices.
The Policy Protects Employees, Not Risk-Takers
There is another structural issue rarely discussed.
Minimum wage laws apply only to employees.
They do not apply to:
- small business owners
- farmers
- independent contractors
- self-employed Vermonters
- people whose income depends on profit, not wages
The person taking the risk — opening the shop, running the farm, building the business — receives no guaranteed “livable wage.”
If the year is bad, there is no statutory floor.
The state can mandate wages for employees. It cannot mandate income for the people paying the bills.
Another Approach: Reducing the Cost of Living Directly
If lawmakers are serious about affordability, raising wage mandates is only one approach — and arguably the most blunt one.
Another approach would be to reduce the underlying cost pressures that make Vermont unaffordable in the first place.
That includes government-driven costs:
- taxes
- regulatory burdens
- public spending growth
- fees and compliance costs passed down to consumers
Instead of repeatedly raising the wage floor to chase rising prices, Vermont could ask whether state and local government expenses themselves are contributing to the cost of living problem.
Cutting spending, lowering tax pressure, and reducing cost drivers would raise purchasing power without forcing employers into wage compression and price hikes.
The Question Vermont Must Answer
S.67 and H.743 are not simply about paying minimum wage workers more.
They represent a major restructuring of labor costs across the economy, with predictable consequences:
- wage compression
- higher payroll burdens
- higher consumer prices
- continued affordability pressures
The core question is whether Vermont can mandate its way into affordability — or whether the state should focus on lowering the costs that made “livable wage” legislation politically attractive in the first place.
Dave Soulia | FYIVT
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