The best anti-poverty program remains a job

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2016

  • Newspaper: OC Register

  • Topics: Minimum Wage

After passage of the state’s $15 minimum wage, state Sen. Mark Leno, D-San Francisco, triumphantly claimed that the policy would “lift up 2.2 million minimum wage workers.”

It’s a questionable claim on the senator’s part, given the overwhelming evidence that many of these 2.2 million workers will lose hours or their jobs as a consequence of the policy. But the senator’s argument – that a $15 minimum wage will help “lift up” the state’s poor – faces a more fundamental problem: A majority of Californians in poverty don’t work.

My organization used data from the Census Bureau’s Current Population Survey to study the working age population – 18 to 64-year-olds – living in poverty in each state. The analysis finds that, in 41 states and the District of Colombia, at least half of adults living in poverty are not employed. In California, just over 60 percent of individuals in poverty don’t have a job, and thus won’t be affected by the raise. (The best evidence suggests that this unprecedented wage hike will add many of those presently working to the ranks of the unemployed.)

Economists from American and Cornell University cast a spotlight on this targeting problem in a 2010 study examining the 28 states that raised their minimum wages between 2003 and 2007. Contrary to policymakers’ expectations, the authors found that these states saw no associated net reduction in poverty from the policy. They pointed to the large percentage of the poor who don’t work as one explanation. (Another explanation is that the gain for those who get raises is offset by those who lose all of their income.)

So is a $15 wage – that at best can only reach 40 percent of the working-age poor – the best way to address poverty in the Golden State? Economists don’t think so.

A recent survey conducted by the University of New Hampshire found that only 5 percent of economists believe a $15 minimum wage would be a very efficient means to reduce poverty. By contrast, nearly three-quarters of these same economists believe that the Earned Income Tax Credit is a very efficient way to address the income needs of poor families.

By targeting employees through the tax code, the EITC is able to boost the incomes of low-wage workers without putting their jobs at risk. And because eligibility for these credits is dependent on earned income, it can boost employment by creating an incentive to return to the workforce. For instance, research from the University of Georgia finds that a 10 percent increase in a state’s EITC supplement is associated with a 1.0 to 1.5 percent increase in employment for single mothers.

This likely isn’t news to California legislators. According to data from the Internal Revenue Service, 3.1 million Californians already benefit from the credit, to the tune of $7.4 billion. The state recently launched its own state-specific credit that has furthered the EITC’s reach. According to CalEITC4Me, a statewide campaign to raise awareness for the policy, the credit was expected to boost income for an estimated 600,000 families in the state this tax season.

Of course, an expanded EITC doesn’t satiate labor unions. They are more interested in raising minimum wage rates to benefit members who are directly affected by these laws, or have contract escalators tied to them. Unions have historically not cared much for those who get hurt if they aren’t paying dues. But if the best anti-poverty program really is a job, it does California’s poor no good when legislators put that job further out of reach with a $15 starter wage requirement.