Benefits fail to reach their intended recipients

Original Article:

  • Author: Craig Garthwaite

  • Publication Date: January 2004

  • Newspaper: The Atlanta Journal Constitution

  • Topics: Minimum Wage

The commission appointed by Atlanta Mayor Shirley Franklin to study a “living wage” law for Atlanta holds its first public hearing Friday.

For nearly a year, the mayor has advocated a living wage, which would require firms doing business with the city to pay employees more than the federal minimum wage. In this she is supported by a variety of imported and home-grown union and activist groups who want to set the living wage more than 100 percent higher than the federal standard.

At the hearing, Aaron Yelowitz, a nationally respected labor economist from the University of Kentucky, will present evidence that the benefits of living wages never reach their intended recipients.

In an upcoming study in the peer-reviewed academic journal Economic Development Quarterly, Yelowitz found that as employees see their full-time wages rise to $11 an hour, their actual income barely changes. This is because they lose many benefits, such as Medicaid and the federal earned income tax credit. Yelowitz finds that for every new dollar earned up to $30,000, the employee receives only 2 cents — an effective tax rate of 98 percent.

Yet these employees are the lucky ones. Decades of research and scores of studies on government-mandated wages support Nobel Prize-winning economist Gary Becker’s conclusion that “a higher minimum will further reduce the employment opportunities of employees with few skills.” This is because these employees are unable to compete with the better-skilled applicants who are attracted to the new higher wage and are preferred by employers seeking to offset increased labor costs.

Even living wage supporters confirm this effect. David Reynolds, author of a living wage activist manual, wrote in his analysis that high minimum wages cause businesses to “attract and retain the best workers.” The union-backed Economic Policy Institute agrees, admitting that mandated wages “will attract good workers” — meaning less-skilled applicants need not apply.

Noted living wage activist Michael Reich concurs: “Some of the [productivity] increases [resulting from a minimum wage] can arise because new hires may come from a more experienced or skilled labor pool,” pushing out job seekers with fewer skills.

In addition to keeping these candid comments about the impact of living wages out of their campaigns, these activists have proved remarkably adept at manipulating statistics to make their case. The Atlanta-based Women’s Policy Group argues for a living wage in Atlanta because, members claim, families cannot support themselves unless they earn at least $48,000 a year in DeKalb County or $42,000 in Fulton County. Despite using a definition of poverty that is higher than the national median income, they offered these figures as “evidence” of the need for a living wage in Atlanta.

Survey results confirm what common sense suggests: the vast majority of Atlanta families making up to $48,000 annually — more than three times the poverty level — are in fact able to support themselves. A recent survey conducted by Feather, Larson and Synhorst DCI — a nationally respected polling firm — revealed that nearly 70 percent of Atlanta families below the “self-sufficiency standard” devised by the WPG believe they are able to live without government assistance.

Those Atlanta families who cannot support themselves by their wages alone are helped by the federal earned income tax credit, which provides up to $4,000 a year in tax-free income. And unlike the living wage, the tax credit helps them keep their jobs and benefits.

As the living wage campaigners peddle their misleading statistics and disingenuous arguments before Franklin’s committee, those who want to lend a hand to Atlanta’s poor families should take good notes when Yelowitz testifies.

– Craig Garthwaite is chief economist at the Employment Policies Institute, a nonprofit research organization dedicated to studying issues relating to entry-level employment.