Saturday, July 15, 2006

Ken R. Goldstein on the Minimum Wage versus the EITC

Ken R. Goldstein writes:
"[David Prenatt has] good points if the only purpose behind a raise in the minimum wage is to 'help the working poor.' I think that is a part of it, but to me it is mainly a simple matter of fairness. The minimum wage has not kept pace with inflation - indeed, it hasn't even been raised one cent since 1997 - meaning that minimum wage workers are loosing pace with the economy each year that the minimum wage remains stagnant."
There are several flaws in Ken's argument, the first being the apparent assumption that the people who were earning minimum wage in 1997 are still earning minimum wage. Job market statistics tell a very different tale. To wit, very few people work for minimum wage for very long. Rather, as soon as a minimum wage earner gets some marketable skills, he or she becomes a valued employee, and his or her employer will usually raise said earner's hourly wages well above the minimum wage rather than go through the hassle of losing said employee and having to hire and train a new employee.

As I pointed out in a previous blog post, there are some 520,000 people who are, in fact, working for minimum wage, as well as some 1.5 million people who are working for *LESS* than minimum wage, not to mention an unknown number of people who are working for free as volunteers and interns. Very few of these people will be earning at or below minimum wage for very long, but a small handful of minimum wage earners are people who have no marketable skills and lack the wherewithal to obtain marketable skills. If the minimum wage is increased, these people stand a pretty good chance of losing their jobs and being replaced by better educated, more skilled workers. This is exactly what happened when the first minimum wage law was passed in 1933, and some 500,000 African Americans lost their jobs, subsequently being replaced by better educated, more skilled White Americans. [Citation.]

Ken continues:
"As to whether or not the 'burden' of the minimum wage falling on a small group (their employers) is unfair, I ask, who better to pay the price than those who reap the economic benefit of their work?"
If only it were that simple. As I pointed out above, the people who are most likely to pay the price for an increase in the minimum wage are not employers, but the most uneducated, unskilled, and vulnerable members of the work force.

Ken continues:
"Why should this cost be born by all taxpayers (in the form of a tax credit) to the benefit of that small group of employers? The EITC doesn't just help low-income families; it is also a subsidy to those employers who do not pay a living wage."
This argument assumes that a significant number of people who receive the EITC are the same people who are making minimum wage, and that's not the case. Paradoxically, very few people who earn minimum wage qualify for the EITC, as very few of them live in poverty. As pointed out by a paper published by the Center on Budget and Policy priorities, single and stay-at-home mothers and their children are the primary beneficiaries of the EITC:
"[T]he EITC has substantial positive effects in inducing single parents to go to work. . . . [T]he proportion of single mothers who are in the labor force rose sharply between 1984 and 1996 and . . . the EITC expansions instituted during this period are responsible for more than half of this increase."
"[T]he EITC has been strongly praised by some conservatives for the support it provides to low-income working families with stay-at-home mothers."


Anonymous Ken Goldstein said...

True, as written, you could assume that I believe that those who earned minimum wage in 1997 are still earning it today. To be more accurate, what I should have written is that the value of a minimum wage job (regardless of how many times it turns over to a new person) has decreased in relation to the rest of the economy due to inflation.

Minimum wage workers (as a group, not as individuals) are worse off now than in 1997 - the last year the minimum wage was increased. Hence, I favor a long overdue increase.

And - as you correctly point out - these are not necessarily the same people who benefit from the EITC. So - since we agree that they are different groups - why suggest (in a comment to my blog) that the EITC is a better option than an increase in the minimum wage?

My original post was only about the minimum wage - not the EITC. You made the connection, not I.

To be clear, I favor each, the EITC and an increased minimum wage, but for different reasons. I never connected the two until you asked me to compare them. And I, like a fool, bit your bait.

Not that I don't feel honored to be the subject of your posting.

5:42 PM, July 15, 2006  

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