Earlier in the year, President Obama urged Congress to “give America a raise” by boosting the federal minimum wage to $10.10 per hour, a nearly 40 percent jump from the nation’s current wage floor. Congress hasn’t shown much interest in following through. The proposal recently failed a key vote in the Senate, and the idea is dead-on-arrival in the House.
Some advocates have portrayed this lack of action as politics at its worst. But the evidence suggests that policymakers’ caution on a new wage mandate is warranted, as it would hurt rather than help many of the low-income families the President is concerned about.
Speaking at the University of Michigan in April, President Obama waxed rhetorical, “Nobody who works full time should be raising their family in poverty, right?” But raising the minimum wage would not help most of these people. According to the Census Bureau, nearly 60 percent of the poor don’t work and thus can’t benefit from a “raise.”
Just 12.6 percent of workers who would be covered by the $10.10 wage proposal live in poor households, according to a forthcoming Employment Policies Institute study from economists at Cornell University and San Diego State University. By contrast, more than 60 percent of these minimum-wage workers live in households with family incomes far above the poverty line. Their average family income is nearly $55,000 a year.
How to explain the paradox? It turns out that just 9 percent of the employees who would be covered by the new $10.10 minimum wage are single parents supporting children. By contrast, 60 percent are second — or third — earners who are living at home with family, or with a spouse who earns a much higher income.
If poor targeting were the only fault with the proposed minimum-wage increase, it might still make sense to raise it. But that’s not the case: Studying past wage increases, economists writing in the Journal of Human Resources found that some employees received a bump in hourly pay while others lost hours at work or their job entirely. The net effect was an increase in the number of employees living in poverty or near it.
A recent report from the nonpartisan Congressional Budget Office on the president’s $10.10 proposal validates the fear of lost job opportunities. CBO found that increasing the minimum wage to $10.10 per hour would eliminate as many as 1 million jobs.
A better alternative to raising the minimum wage is expanding the Earned Income Tax Credit. Signed into law in 1975 by President Ford and expanded by both Republican and Democrat presidents, the EITC has bipartisan appeal, which is probably why you won’t hear much about it in an election year. The liberal Brookings Institution, for instance, has called the EITC the “country’s largest and most successful anti-poverty program.” Meanwhile, many Republicans support it because it is based on working and earning income.
Economists tend to favor the EITC because the evidence shows it’s better targeted at low-income families than a minimum-wage increase, and it boosts wages without the associated reduction in employment opportunities. To take one example, a 2007 study by an economist at the University of Georgia found that a higher EITC can increase both the wages and employment of single mothers. For a single mother with children, for instance, the EITC at the federal level creates an effective minimum wage that’s already above $9 an hour.
Improvements are still needed, in both the credit’s coverage for childless adults and in the frequency of payment. These are ideas that some Republicans support, and would do far more to help low-income Americans than a higher minimum wage. But election-year politics of “giving workers a raise” are apparently too tempting for some politicians. The unfortunate effect: we’re focused on the rhetoric of raising wages rather than the absence of evidence to support it.
Michael Saltsman is research director at the Employment Policies Institute, a nonprofit research organization dedicated to studying public policy issues surrounding employment growth.
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