Not the best antipoverty tool

Article Highlights

  • Seattleā€™s decision to jack up the local minimum wage by more than 60% to $15 should thrill economists.

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  • Washington policymakers who want to help the working poor shouldn't wait for Seattle's bold experiment to play out.

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  • The federal Earned Income Tax Credit is laser-focused on workers in low-income households.

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Editor's note: The following is James Pethokoukis' response to the New York Times Room for Debate question: Can the minimum wage be too high?

Seattle’s decision to jack up the local minimum wage by more than 60 percent to $15 an hour should thrill economists. Not that those experts will necessarily think the move is a good one for the city’s low-wage workers. It's a live debate within the field.

When the University of Chicago’s business school recently polled top economists on whether raising the federal minimum wage to $9 per hour would make it harder for low-skill workers to find jobs, 34 percent agreed, 32 percent disagreed, and 24 percent were uncertain. None of the respondents were so confident as to choose the options “strongly agree” or “strongly disagree.”

The Seattle decision, though, gives economists opportunity to put their fancy models aside and instead study the real-world impact of an extreme policy action. "Uncharted, unevaluated territory," one City Council member called the move. True, it’s not exactly a randomized controlled trial as if, for instance, Minneapolis sharply raised its minimum wage and next-door neighbor St. Paul didn’t. Those sorts of natural, side-by-side experiments are rare. Still, what happens in Seattle in the next few years may go a long way toward clarifying just how minimum wage laws interact with 21st century labor markets.

But Washington policymakers who want to help the working poor shouldn't wait for Seattle's bold experiment to play out. Whatever the employment impact of the minimum wage, it is a poorly targeted anti-poverty program. Only a small share of benefits go to households below the poverty line, according to the Congressional Budget Office. The minimum wage, after all, treats workers the same whether they are adults heading a household or teens from upper middle-class families working a part-time job.

In contrast, the federal Earned Income Tax Credit is laser-focused on workers in low-income households. Rather than raise the minimum wage right now, better to make the tax credit far more generous to childless workers while also mitigating marriage penalties for parents. Policymakers might also consider adding a direct wage subsidy, funded by taxpayers, to boost take-home pay for working-class adults currently making minimum wage. Both policies would help workers without the risk of making low-skill workers less employable. No experiment necessary.

 

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James
Pethokoukis

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