wage and Earned Income Tax Credit (EITC) policies each benefit the working poor
in different, but equally important ways. Precisely because each uses a
different strategy, one policy can add support where the other policy falls
In fact, by relying on both in combination, we can achieve
more than just getting workers out of poverty. Our research shows
that ambitious, yet realistic, expansions to both policies can guarantee that
work will support a decent living
standard for the majority of U.S. workers.
of minimum wage laws, however, often set the two policies against each other,
arguing that EITC programs should replace minimum wage laws. A version of this
“either/or” argument appeared in a recent Spotlight commentary by Michael Saltsman,
which argues that, unlike EITC policies, minimum wage laws largely benefit
middle class teenagers, rather than the poor. Saltsman asserts that “only 10.9
percent of the benefits of such a wage hike [a hypothetical $9.50 minimum wage]
would go to the working poor.”
get a figure this small requires defining the poor as only those living at an
extreme level of economic deprivation—households living below the U.S. Census
Bureau poverty line. But major government programs to assist the poor, such as
Medicaid and SNAP (formerly food stamps), often use a dollar threshold that is double
the poverty line to identify families in need. According to the same study Saltsman cites, 38
percent of the benefits from the President’s proposal to increase the minimum
wage would go to such families.
fact, even triple the poverty line falls below the average income for the
typical three-person family. If we use this to define lower-income households,
then the majority of minimum wage benefits – 59 percent – get to households
that could use them.
EITC policies, minimum wage benefits do not go exclusively to lower-income households.
Minimum wage laws enforce the widely popular idea that all workers have a right
to some minimally acceptable wage.
a backstop on wages, minimum wage laws can minimize a potential negative, but
unintended consequence of EITC policies—they may enable employers to pay lower wages.
This can happen because, as EITC benefits draw more low-income workers into the
workforce, employers find they can offer lower wages and still attract workers.
Research bears this connection out, and at least two studies link
lower wages with higher EITC benefits.
support the either/or argument, Saltsman also cites research only 15 percent of low-income households
benefitted from the federal minimum wage hike to $7.25. Yet this should lead us
to the conclusion that the minimum wage rate is too low. Once we set aside the
30 percent of low-income households without any wage earners that still leaves
55 percent of low-income households whose members earn at wage rates beyond the
federal minimum’s influence. This conclusion seems more persuasive than the
either/or argument, especially when a four-person household supported by two
full-time minimum wage workers would still qualify for major anti-poverty programs.
programs complement minimum wage laws by filling in support for workers where
minimum wage laws fall short. This includes workers with too few hours at
higher wages and workers with children who typically have substantially greater
income needs than childless workers.
second major criticism of minimum wage laws that either/or advocates level is that
they reduce employment. But a 2009 paper by Hristos
Doucouliagos and T.D. Stanley decisively refutes this view in their analysis of
nearly 40 years of research. Similar to the study that Saltsman
cites on this topic, Doucouliagos and Stanley find the balance of studies point
to negative employment effects. However, they take an important additional step:
they distinguish between more and less precise estimates and find that the most
precise estimates yield no minimum wage impact on employment.
fact that the majority of published studies show negative effects reveals that
journals favor studies that confirm, rather than challenge, the traditional
view that minimum wage laws lower employment.
should not be misled by this bias. The reality, supported by research, is that
we need both policies – minimum wages and EITC programs – to reduce most
effectively the ranks of the working poor. Minimum wages protect the lowest
paid workers, the majority of whom are lower-income. They also protect against the
potential for EITC policies to push down wages. Yet EITC policies also provide
a complementary role, supporting those workers whom minimum wage laws do not
current rates both of these policies combined still fall far short of enabling
households to cover their basic needs. Our analysis demonstrated that an economically
feasible proposal to make work pay and to support a decent, rather than
impoverished, living standard, requires significant expansions of both
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Jeannette Wicks-Lim is an assistant
research professor at the Political Economy Research Institute at the University