Opinion

Calls to Boost Minimum Wage Are More Likely to Kill Jobs Than Help Poor

Evidence suggests that caution by policymakers is warranted.

Michael Saltsman serves as research director at the Employment Policies Institute.
National Journal
Michael Saltsman
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Michael Saltsman
May 14, 2014, 1 a.m.

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.  

HAVE AN OPIN­ION ON POLICY AND CHAN­GING DEMO­GRAPH­ICS?

 The Next Amer­ica wel­comes op-ed pieces that ex­plore the polit­ic­al, eco­nom­ic and so­cial ef­fects of the pro­found ra­cial and cul­tur­al changes fa­cing our na­tion, par­tic­u­larly rel­ev­ant to edu­ca­tion, eco­nomy, the work­force, and health. Email Jan­ell Ross at jross@na­tion­al­journ­al.com. Please fol­low us on Twit­ter and Face­book.

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