by Chris Saxman

Economist Thomas Sowell’s famous line “there are no solutions, only trade offs” came to mind while watching the House Labor and Commerce Committee debate the upcoming increase to Virginia’s minimum wage.

HB1 would incrementally move Virginia to a $15 per hour minimum wage by January 1, 2028.

Why $15? No idea… oh, wait… It was Bernie’s campaign – Fight for 15! Alliteration sells. Hey, he’s not America’s most famous and lovable millionaire Socialist for nothing!

Proponents of the bill focused on how this would increase take-home pay of low skill, low wage workers.

What they neglected to mention was that the minimum wage is a wage floor that moves up most hourly wages, not just those who actually earn the current minimum wage of $12.77 an hour.

Virginia’s minimum wage floor has been moving up incrementally due to previous legislation. Begs the questions:

Why incremental?

Why not just raise all wages?

Why stop at $15?

Tradeoffs

There are tradeoffs to raising wages especially through government mandates.

Here are some of those tradeoffs or arguments against raising the wage floor:

Job losses and reduced hours: Opponents argue that when labor costs increase, employers—especially small businesses—may respond by cutting jobs, reducing hours, or hiring fewer workers. They point to economic theory suggesting that when the price of labor rises above its market value, demand for labor falls. Binding constraint and equilibrium wage.

Harm to small businesses: Critics contend that small businesses operating on thin profit margins can’t absorb higher labor costs as easily as large corporations. This could force some to close, reduce services, or raise prices significantly. Also – could force some to sell to larger competitors who will then raise prices due to less competition. #Monopolies

Reduced opportunities for low-skilled workers: Some argue that minimum wage jobs serve as entry points to the workforce, particularly for young people and those with limited skills. Higher wages might make employers more selective, shutting out those who need experience most.

Automation acceleration: Opponents suggest that higher labor costs incentivize businesses to invest in automation and self-service technology faster than they otherwise would, ultimately eliminating jobs entirely.

Regional differences: Critics argue that a one-size-fits-all minimum wage doesn’t account for cost-of-living variations. What’s reasonable in Arlington may be excessive in Abingdon or Altavista, potentially causing economic disruption in lower-cost areas.

Inflation concerns: Some economists worry that broad wage increases could contribute to price inflation, potentially eroding the purchasing power gains for minimum wage workers.

Raising the minimum wage also acts as a Wage Escalator:

Wage escalator

As an escalator, minimum wage increases tend to push up wages throughout the pay structure, not just for minimum wage workers.

How it works: When the minimum wage rises, it creates ripple effects:

• Workers earning slightly above minimum wage often receive raises to maintain pay differentials
• Employers adjust their entire wage structure to preserve internal hierarchies
• Workers use the new minimum as leverage to negotiate higher pay
• Compressed wage structures get reestablished at higher levels

Example: If the minimum wage goes from $10 to $15, a worker currently making $16/hour might successfully argue for a raise to $21/hour to maintain their premium over entry-level workers.

This escalator effect is why minimum wage increases can affect a much broader portion of the workforce than just those earning the minimum, and why the total impact on labor costs can exceed the direct effect on minimum wage workers alone.

Analysis

Raising the minimum wage across the entire Commonwealth will have mixed results and obvious tradeoffs.

It’s not great economics, but the tradeoff politically far outweighs the mostly hidden downsides.

It just depends on what businesses are going to be impacted and in what districts.

Below is a screen shot from the Fiscal Impact Statement that accompanies HB1 as it now is in the House Appropriations Committee. The General Assembly will have to trade off the cost of raising the minimum wage for state employees, just like every business with hourly employees will have to do.

CNBCC ranking impact

These are the states with minimum wages at $15 an hour or higher and their respective CNBC 2025 Top State for Business Ranking in BOLD

Washington $16.66 – #14

California $16.50 – #22

Connecticut $16.35 – #28

New York $15.50 – #23

New Jersey $15.49 – #30

Delaware $15.00 – #29

Illinois $15.00 – #13

Maryland $15.00 – #32

Massachusetts $15.00 – #20

Rhode Island – $15.00 – #46

How CNBC views cost of doing business:

Sowell is right – it’s all about trade offs.

Or as former Pittsburgh Steelers coach and Hampton native Mike Tomlin says;

It’s not about what you’re capable of, it’s about what you’re willing to do.

Why worry? It’s just money.

And math.

Chris Saxman is executive director of Virginia FREE. This commentary is excerpted with permission from his Substack account, The Intersection.