By deciding to raise its minimum wage 70% over the next five years to $15 an hour, America’s second-largest city is taking a big gamble with the lives and futures of some of its most vulnerable residents. Maybe economist Arindrajit Dube is correct that “the best evidence suggests that state and federal minimum wage increases have had a very small impact on employment, while moderately reducing turnover, poverty and inequality.” And maybe Jeffrey Clemens and Michael Wither are wrong that minimum wage increases “significantly reduce” upward mobility for low-skill workers who “become significantly less likely to transition into higher-wage employment.”
The debates goes on. Certainly LA’s big minimum wage hike provides an excellent laboratory for study. From the New York Times piece: “Even economists who support increasing the minimum wage say there is not enough historical data to predict the effect of a $15 minimum wage, an unprecedented increase.” So if the results don’t look good, perhaps the increase can be halted and reversed. I imagine, though, the politics of doing so would be treacherous. And as economist Don Boudeaux wrote earlier this year, “Keep in mind that if minimum-wage proponents are wrong in their analyses, then the bulk of the ill-consequences of minimum-wage legislation falls on people who can least afford to be burdened by misguided government policies.” And that would be a shame when there is a better way. AEI’s Aparna Mathur:
To my mind, a risk-free strategy to boost incomes for minimum wage workers is to expand the Earned Income Tax Credit program. The federal EITC program is now the largest anti-poverty program for non-elderly workers in the United States. It does so by encouraging work and increasing the after-tax wage for those with low earnings. Since it is a refundable tax credit, it is available as a cash payment to those without a tax liability. As per a recent estimate, almost 28 million people received over $66 billion in EITC payments for tax year 2013. The EITC has lifted an estimated 6.5 million people above the poverty line including 3.3 million children. There are other programs that help low-income households as well, such as SNAP (food stamp program) and Temporary Assistance for Needy Families (TANF). However, these are not as effective as the EITC in helping people move out of poverty. As opposed to minimum wage hikes which are potentially associated with losses in employment and less income mobility for low-skilled workers, a vast literature shows that the EITC increases employment of low-skilled adults while supplementing incomes. Studies suggest that the EITC was responsible for 60 percent of the 8.7 percentage point increase in labor force participation of single mothers between 1984 and 1996. The EITC is also associated with better healthoutcomes for children and mothers in households that receive EITC support.
Here also is AEI’s Michael Strain on the EITC …
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