Fix poverty with minimum wage? Not so fast

The News TribuneFebruary 23, 2014 

Fast food employees and supporters demonstrate for a $15 per hour wage in front of a Tacoma Arby’s restaurant in August 2013.

DEAN J. KOEPFLER / STAFF PHOTOGRAPHER

Pop quiz. Which of the below is a typical bottom-wage worker:

a) A single mom trying to feed her children on a piteously small paycheck.

b) A middle-class teenager earning money for clothes, skis, a car, etc.

c) A spouse with a part-time position married to someone with a healthy salary.

d) A man with a dead-end job and no marketable skills.

e) A guy in his early 20s who’s bouncing around a bit before settling into a promising job.

If you said yes to all five, you’re right. And you probably recognize that a massive, across-the-board increase to the wage floor is a blunderbuss tactic against poverty.

The minimum wage issue lends itself to oversimplification, though, which makes it handy to pitch in an election year.

President Barack Obama and his allies want to increase the federal minimum from $7.25 an hour to $10.10 an hour over three years. Gov. Jay Inslee proposes to increase Washington’s minimum – the nation’s highest – from $9.32 to maybe $11.82.

The most enthusiastic advocates want to guarantee all workers – middle-class teenagers and all – at least $15 an hour.

Why not $20 an hour? Why not $30? There is a tipping point at which increases hurt large numbers of employers and do more harm than good for workers.

A new study from the nonpartisan Congressional Budget Office suggests that even Obama’s $10.10 minimum could eliminate 500,000 jobs held by low-income workers – a very serious blow.

His supporters point to the CBO’s conclusion that the increase could bolster the income of 16.5 million people. But there’s an inconvenient detail: Only a fifth of the additional income would go to families below the poverty line. Most would go to people who are better off – like the double-income couple and the skiing teenager. Roughly 29 percent of the benefit would go to families that earn at least three times the poverty level.

Many economists believe that modest increases in the minimum wage produce no net loss of jobs. But they’re not talking about $15 an hour. And low-income jobs can still disappear under a “no net loss” scenario.

That $7.25 federal minimum could certainly do with a bump. On the whole, though, there are far better ways to help the working poor.

The earned income tax credit, for example, precisely targets low-income wage-earners by returning more money than they pay in taxes. This year, a single parent with two children could see a maximum benefit of $5,460 – the equivalent of $2.60 an hour.

Expanding the tax credit would deliver the relief right where it belongs. And unlike minimum wage mandates, it would relieve the poor without invisibly squeezing a subset of employers who may be struggling themselves.

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