Expanding the EITC Would Help More Than Wage Hikes

Posted on September 08, 2010

A recent report claimed monthly rent payments remain out of reach for many low-income Bay Staters (Gonsalves: “Staying involved, do the math,” Sept. 1). Unfortunately, the poverty-reduction strategy most popular among legislators and advocates — raising state and federal minimum wages — is also one of the least effective.

New research from economists at the University of Alabama and East Carolina University found 85 percent of poor families received no benefit from the most recent increase in the federal minimum wage.

Here’s why: Recent Census Bureau data show that the average family income of a minimum wage earner is over $48,000. The majority of minimum wage earners don’t come from low-income families. Rather, they’re middle-class teens living with their parents, or married couples where both spouses work.

This means higher minimum wages don’t translate to bigger paychecks for poorer families that need them most.

A better option is the Earned Income Tax Credit (EITC). Targeted specifically at those with lower family incomes, an expansion of the EITC would have lifted from poverty 1.95 million Americans — 2.5 times more than the 40 percent federal wage increase that took place between 2007 and 2009.

Michael Saltsman
Research fellow
Employment Policies Institute
Washington, D.C.