Minimum Wage/Living Wage
Minimum wage/living wage laws attempt to create a minimum standard of living to protect employees’ health and well-being by mandating a base level of pay from employers to certain covered employees. Policymakers must consider the serious consequences such laws can have on employment rates and economic growth.
A 2007 study from economists at the University of California-Irvine and the Federal Reserve Board examined the body of work on the subject and found 85 percent of the studies they considered credible demonstrate minimum wage laws cause job losses for less-skilled employees.
Supporters of minimum wage increases often argue employers paying their employees less than $15 an place an additional burden on government services but they assume the minimum wage earner is the primary breadwinner for a family, which is rarely the case. Economist Walter Williams wrote, “Workers earning the minimum wage or less tend to be young, single workers between the ages of 16 and 25. Only about 2 percent of workers over 25 years of age earn minimum wages.”
Proponents of these laws also argue minimum wage laws protect workers from exploitation by employers and reduce poverty. Opponents cite evidence increasing minimum wage laws is not an effective way to address poverty and often has the opposite effect by creating barriers to entry for workers with less skill and education. In a 2010 study, economists at Cornell University and American University found no reduction in poverty in the 28 states which raised their minimum wage laws between 2003 and 2007.
A sound policy alternative to the minimum wage is the Earned Income Tax Credit (EITC). The Earned Income Tax Credit is a refundable tax credit for lower-income working individuals and families. The amount of the credit is based on income level and the number of dependents the applicant supports. When the credit exceeds the amount of taxes owed, a payment is issued to those who qualify and claim the credit. Recent studies have shown the Earned Income Tax Credit is more effective than minimum wage laws at bringing low-income families out of poverty.
According to the Census Bureau, the EITC is the largest poverty reduction program in the United States, with around 21 million American families receiving more than $36 billion in payments through the EITC in 2004. It is designed to increase employment, stimulate spending in the economy, offset the burden of social security taxes, and encourage existing workers to stay employed.
Opponents of minimum wage laws argue these artificial wage hikes increase unemployment and poverty. Russell Sykes of the Empire Center for New York State Policy argues the EITC is more effective than increasing the minimum wage and overcomes many of its flaws. He notes, “It [the Earned Income Tax Credit] doesn’t lead to job loss, it doesn’t deter hiring, and, since it penetrates to about 80 percent of [low-income] working families with children, it already raises the effective minimum wage for a mom with two kids from $7.25 to $10.44 an hour.”