How to Really Help Low-Wage Workers
If the House and Senate are able to agree on a minimum-wage hike and the president signs the bill, some may say we will have done enough to help low-income workers. It's true that low-wage workers urgently need a raise, that millions of Americans work full time and still live below the poverty line. But while an increase in the minimum wage is better than nothing, alone it is an incomplete instrument for really making work pay.
We should raise the minimum wage while committing our country to a bigger bargain: If you work full time, then you and your family will live above the poverty line. This goal is not only morally right but one our country can afford.
Published statistics for 2004, the most recent year with solid available data, show that about 3.5 million full-time workers earned less than poverty-level wages. Factoring in government benefits, about 2.6 percent of full-time workers live below the poverty line. That is about 2.7 million Americans. And these struggling workers frequently support families, meaning millions more depend on them.
On its own, the minimum wage is an imperfect means for ensuring no full-time worker is poor. First, it almost certainly will not be raised enough. Even the plan to raise it to $7.25 an hour has been a political struggle, with success now likely but not guaranteed. It would take a wage of $10 an hour for a worker to earn $20,000 a year, about the poverty threshold for a family of four. Second, there are reasonable arguments that a $10 minimum wage would harm many small businesses. Finally, increases in the minimum wage are not indexed for inflation -- and may never be. The last increase was 10 years ago, and some full-time workers have fallen further below the poverty line since then. Even with a new raise, workers will once again slip into poverty if a decade or more goes by between increases.
A better approach would be to increase the wage and simultaneously expand the earned-income tax credit (EITC). This program, signed into law by President Gerald Ford and greatly expanded and popularized by President Bill Clinton, is designed specifically to reward work. It is one of the country's most successful anti-poverty programs.
The EITC program, however, has substantial shortcomings. It does not cover childless workers younger than 25, and the credit does not help meet the costs of raising additional children after a family's second child. Further, many people who are eligible don't apply for the credit. These holes have significant consequences.
How many reforms are enacted would affect the cost of the credit. Increasing the EITC for families with three or more children -- more than half of all poor children live in such families -- would help an estimated 3 million families and cost about $3 billion. Crucial actions such as improved outreach or removing a built-in marriage penalty could each be done for about $1 billion; more complete reforms that would also help those living barely above the poverty line could cost 10 times that or more. But this is the best time in a decade to make this bargain with low-wage workers. An increased minimum wage will help millions of poor people; combining it with a new commitment to the earned-income tax credit could take them the rest of the way out of poverty.
Arguably, supporting those who are working hard and playing by the rules is as important a societal good as tax breaks for companies or even encouraging home ownership. The question ultimately is about our nation's priorities. The federal budget is more than $2 trillion, and Congress's pork-barrel projects have been estimated at $47 billion. Home mortgage deductions -- a benefit for mostly middle-class Americans -- average about $9,500 a year per homeowner. By comparison, the cap on EITC payments last year was $4,400. The average EITC benefit in 2005 was only $1,872.
The issue of whether to make such a policy change is timely with a presidential contest looming. It's not unreasonable to hope that some candidate will want the world's richest country to make a new bargain with its poorest workers. We need to raise the minimum wage. But we should also make a larger commitment. If you work hard year-round, we will make sure you are not living below the official poverty line. You may not be rich, but you'll know that in America work pays.
The writer was a senior adviser to President Bill Clinton and is a visiting fellow at the Progressive Policy Institute.