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A way that works

March unemployment numbers, released this week, offered a reminder that these still are challenging times. While private-sector jobs here increased last month and now exceed the number before the Great Recession, the metro jobless rate rose to 8 percent versus 7.9 percent a year earlier and 5.6 percent in March 2008.
 
The number of unemployed people locally also rose last month, to 42,100 from 40,700 a year earlier. Statewide, it was the same story.
 
In this context, the push in Albany to boost New York’s minimum wage should give us pause. The proposed increase would boost New York’s required minimum from $7.25 to $8.50 an hour, with annual indexing to changes in the Consumer Price Index.
 
At a time when many employers are extremely reluctant to hire, is it really wise to ratchet up labor costs? Indeed, many researchers who have studied minimum wage increases say they can result in net job losses.
 
Often lost in the debate over minimum wage hikes is that New York has another, more effective way to help lower-income households. The Earned Income Tax Credit is available to all personal income tax filers. In fact, nearly one-fifth of New York households received EITC payments totaling $4.6 billion in 2009.
 
The federal EITC was created in 1975; New York’s EITC, which is linked to the federal credit, started in 1994. In simple terms, this credit is a negative income tax: When it exceeds the taxes owed, the difference is received as a tax refund.
 
Russell Sykes, a senior fellow at the Manhattan Institute who helped design New York’s EITC, outlines its history and describes how it works in a new policy briefing. He uses the example of a parent with two children who has a full-time job paying $7.25 an hour or $15,080 annually. This person gets a combined state and federal EITC of $6,646-effectively raising her hourly wage to $10.44 and annual income to $21,726.
 
The credit is structured so the greatest benefit goes to the truly needy, whereas research has shown that most minimum wage earners are not below the poverty level.

The EITC is not perfect; in particular, it could do more to help individuals and couples without children. But its drawbacks are minor compared to those that come with a minimum wage hike.

4/27/12 (c) 2012 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email rbj@rbj.net.

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