To Help the Poor, Move Beyond ‘Minimum’ Gestures

Original Article:

  • Author: Michael Saltsman

  • Publication Date: April 2013

  • Newspaper: Huffington Post

  • Topics: Minimum Wage

Actor and director Ben Affleck made news this week with the announcement that he’ll spend five days living on just $1.50 — the U.S.-dollar daily equivalent of extreme poverty, according to the Global Poverty Project.

Affleck’s heart is in the right place, but his actions won’t provide a measurable benefit for people who actually live in poverty. On that score, Affleck’s actions are not unlike a series of recently-introduced proposals to raise the federal minimum wage — well-intentioned but ultimately empty gestures that will do little to raise poor families out of poverty.

For poverty-reducing policies to benefit the poor, the benefits first have to be properly targeted to people living in poverty. On this count, a higher minimum wage fails miserably. Census Bureau data shows that over 60 percent of people living below the poverty line don’t work. They don’t need a raise — they need a job.

Among those who do earn the minimum wage, a majority actually don’t live in poverty. According to a forthcoming Employment Policies Institute analysis of Census Bureau data, over half over those covered by President Obama’s $9 proposal live in households with income at least twice the poverty level — and one-third are in households with an income three times or greater than the poverty level.

That’s because nearly 60 percent of affected employees aren’t single earners, according to the EPI report — they’re living in households where a parent or a spouse often earns an income far above the minimum. (The average family income of this group is $50,789). By contrast, we found that only nine percent of people covered by President Obama’s $9 minimum wage are single parents with children.

It’s for reasons like these that the majority of academic research shows little connection between a higher minimum wage and reductions in poverty. For instance, economists from American and Cornell Universities examined data from the 28 states that raised their minimum wages between 2003 and 2007, and found no associated reductions in poverty.

Of course, poor targeting isn’t the only problem. The vast majority of economic research–including 85 percent of the most credible studies from the last two decades — finds that job loss for the least-skilled employees follows on the heels of minimum wage hikes.

That’s why better-targeted policies like the Earned Income Tax Credit (EITC) deserve the support of politicians and public figures who want to do something about poverty. It’s been empirically proven to boost employment and incomes, without the unintended consequences of a wage hike. Accounting for the EITC, the full-time hourly wage for many minimum wage earners is already above the $9 figure that President Obama has proposed.

Boosting the EITC might not have the same media appeal of a higher minimum wage (or of Ben Affleck’s pledge, for that matter), but it does what neither wage hikes or the Affleck pledge can — actually make a measurable difference for the poor.

Michael Saltsman is the research director at the Employment Policies Institute.