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The $10.10 equation

In the seemingly endless debate over the minimum wage, one fact appears to be indisputable: No matter which side of the argument you are on, you can find research to support it.

A new report by the non-partisan Congressional Budget Office proves the point—by offering fodder to both sides. Yes, the CBO researchers conclude, raising the federal minimum wage to $10.10 an hour from $7.25 would boost the earnings of more than 16.5 million low-wage workers and help lift 900,000 Americans out of poverty. But at the same time, an estimated 500,000 workers would lose their jobs.

Predictably, both supporters and opponents of the proposed increase to $10.10 an hour, which President Barack Obama endorsed in his State of the Union speech, were quick to selectively cite portions of the CBO report. But in the end, the new study—like many before it—is likely to settle nothing.

Indeed, one of the chief arguments against the minimum wage as a primary weapon in the fight to help low-wage workers is that raising it creates losers as well as winners. Among the latter, the CBO report notes, “the income of most workers who became jobless (due to the minimum wage hike) would fall substantially, and the share of low-wage workers who were employed would probably fall slightly.”

Moreover, the minimum wage is not well-targeted, applying to both poor heads of households and suburban teenagers. The hike would increase earnings for low-wage workers by $31 billion, the CBO estimates, but “just 19 percent … would accrue to families with earnings below the poverty threshold.”

As argued here before, there’s a better way to help boost lower-income households: the earned income tax credit. It is available to all personal income tax filers, working as a negative income tax; when the EITC exceeds the taxes owed, the difference translates into a tax refund.

Critics say the earned income tax credit does not do as much as it could for individuals and couples without children, and this is true. But compared with the minimum wage, it delivers much more benefit to the truly needy.

Unfortunately, with so much wrapped up in the politics of the minimum wage, that’s unlikely to matter.

2/21/14 (c) 2014 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or email [email protected]


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