What's the Solution for Sluggish Wage Growth? Cutting Taxes or Increasing Minimum Wage?

Sep 6, 2017

Credit AP Photo / Steve Helber

Virginia may have emerged from the recession, although hourly wage growth in the Commonwealth is lagging far behind the rest of the country. Michael Pope has this look at what the two main candidates for governor would do about it.

OK, so here’s the problem, hourly wage growth is so sluggish in Virginia that it’s ranked near the bottom of states. Republican Ed Gillespie says cutting the individual tax rate is the solution. Democrat Ralph Northam says increasing the minimum wage is the solution. Jared Walczak at the Tax Foundation says both of those approaches require a trade-off.

Read More: Salary Growth in Virginia is Lagging Behind National Average

“With tax cuts, you need to make sure that there is a responsible way to pay for them. With minimum-wage increases, you need to make sure that you aren’t going to be losing jobs as you impose this new cost.”

Michael Farren at George Mason University says neither approach would really do all that much to attack the short-term problem of low wage growth in Virginia because governors don’t control the economy.

“And it takes really drastic action either to create large barriers in the economy or to relieve large existing barriers in the economy to actually have a political effect on wage growth.”

Farren says a tax cut would increase wages by less than one percent, which wouldn’t amount to all that much. And increasing the minimum wage would certainly create higher average wages, but he says that would be artificial because it wouldn’t show the jobs lost or reduced number of hours worked as a result.

This report, provided by Virginia Public Radio, was made possible with support from the Virginia Education Association.