Stop us if you’ve heard this one: “We know our economy is stronger when we reward an honest day’s work with honest wages. But today, a full-time worker making the minimum wage earns $14,500 a year … [A] family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.”
If that line from President Obama’s State of the Union address last night sounds familiar, it’s because we’ve heard very similar assertions from advocates of a higher minimum wage in New York. So Obama has picked up the same theme in pushing for an increase in the nationwide minimum, to $9 an hour.
But here’s the thing: thanks to the federal Earned Income Tax Credit (EITC), no full-time minimum-wage worker with a family has to remain below the poverty line. An estimated 26 million households across the country claimed $55 billion in earned income credits in 2010, and the Internal Revenue Service says the EITC has lifted nearly 7 million people out of poverty. New York State spends another $1 billion a year to supplement the federal credit with its own exceptionally generous EITC for low-income workers.As explained in this 2012 Empire Center Policy Briefing by Rus Sykes – as also noted here, here and here, among other places — the combined federal and state EITC in New York effectively raise the cash income of a single worker with two kids to $10.44 an hour. That doesn’t count the value of Food Stamp benefits, which add several thousand additional dollars to the annual disposable incomes of working parents in low-wage jobs. (It also doesn’t count the non-cash value of housing and health insurance subsidies.)
The minimum wage is a lousy way to raise the living standards of low-income workers, although it’s a pretty effective way to curtail their job opportunities. As Russell Sykes wrote in the Albany Times Union last spring:
Unlike a minimum wage increase, the EITC provides income support only to workers who really need it — without leading to job loss, deterring hiring or raising the cost of labor across the board.
By contrast, based on a comprehensive analysis of minimum wage studies, economists David Neumark of the University of California at Irvine and William Wascher of the Federal Reserve Board concluded that a higher minimum wage “neither helps low-income families or reduces poverty.” They found that the EITC “subsidizes earnings for low-income working families and creates incentives for employment among families with no workers — pursuing much the same goals as suggested by the rhetoric, if not the reality of minimum wages.”
Few minimum wage earners are the primary source of household income. A 2007 study by economists Richard Burkhauser of Cornell and Joseph Sabia of the University of Georgia found that only 13 percent of workers earning a wage of $7.25 or less were the primary earner in a household, while 46 percent were in families with incomes at or above three times the poverty level. The study concluded: The majority of low wage workers are not household heads … and an even greater share are not poor household heads.”
Advocates of a higher minimum wage, including the president, simply aren’t being honest when they keep implying that a lot of minimum wage workers are trying to support families on $7.25 an hour (not true) and that those who are live below the poverty line (also untrue).