Tuesday, January 8, 2013

Don't Raise the Minimum Wage

In Bloomberg View, I explain why the best argument against increasing the federal minimum wage is the Earned Income Tax Credit:
Liberal arguments for increasing the minimum wage have a fundamental flaw: They restrict the set of policy choices to either a minimum wage increase or doing nothing. That means they overlook the single most important federal policy for the poor: the Earned Income Tax Credit.

The EITC is a measure in the federal tax code to support the living standards of the poor without creating a "welfare trap" by diminishing the incentive to work. Economists widely consider the credit a success for reducing poverty while increasing employment. Created in 1975, the credit has been successively expanded in five times since. It is now the nation's largest anti-poverty transfer program...

Democrats who want to address income inequality would be much better served by increasing the EITC rather than the minimum wage. Alternatively, if Republicans shifted strategy and suggested an increase in the EITC as a counteroffer to Democratic minimum-wage proposals, they would have the clearly stronger argument on merits. They have the opportunity to do so now, with the "fiscal cliff" deal only temporarily extending the 2001 and 2009 expansions of the credit.

Republicans could correctly argue that compared to the EITC, the minimum wage is a flawed and frankly out-of-date policy tool. First, the minimum wage is inefficient: The same income support could be provided at a quarter of the cost with the EITC, according to Forbes's Adam Ozimek. Second, its benefits are poorly targeted, with little going to the neediest families, according to Employment Policies Institute fellow Michael Saltsman. This is in part because, as Bureau of Labor Statistics data show, many minimum-wage workers are actually teenagers entering the workforce who come from middle-class families.

No comments:

Post a Comment