Not the best antipoverty tool

Article Highlights

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

    Tweet This

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

    Tweet This

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

    Tweet This

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.

 

Also Visit
AEIdeas Blog The American Magazine
About the Author

 

James
Pethokoukis

What's new on AEI

Holder will regret his refusal to obey the Constitution
image 'Flood Wall Street' climate protesters take aim at their corporate allies
image 3 opportunities for better US-India defense ties
image Is Nicolás Maduro Latin America's new man at the United Nations?
AEI on Facebook
Events Calendar
  • 29
    MON
  • 30
    TUE
  • 01
    WED
  • 02
    THU
  • 03
    FRI
Thursday, October 02, 2014 | 9:00 a.m. – 10:30 a.m.
Campbell Brown talks teacher tenure

We welcome you to join us as Brown shares her perspective on the role of the courts in seeking educational justice and advocating for continued reform.

Event Registration is Closed
Friday, October 03, 2014 | 12:00 p.m. – 1:00 p.m.
Harnessing the power of markets to tackle global poverty: A conversation with Jacqueline Novogratz

AEI welcomes you to this Philanthropic Freedom Project event, in which Novogratz will describe her work investing in early-stage enterprises, what she has learned at the helm of Acumen, and the role entrepreneurship can play in the fight against global poverty.

No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.
No events scheduled this day.