A new CBO report issued in February 2014 says that of all the people with minimum wage jobs only 20% are in a poverty status. A minimum wage hike helps them, but most of the higher wages go to family members of the middle class.
As an anti-poverty tool the minimum wage hike is a blunt instrument of change. It disrupts low wage jobs across the entire U.S. job market but has a minor impact on poverty. With a little creative thought and effort we could design a much more effective tool. The CBO tells us that the benefit of a minimum wage increase to those in poverty totals $5.0 billion. That is peanuts in today’s welfare programs whereby we spend $357 billion annually. We could simply add a wage subsidy at the federal level and we already have the program to do it – EITC. Refocusing the EITC program would be easy and would not cause the loss of 500,000 jobs. A wage subsidy would work in concert with employers, not coerce them.
To truly help the poor we need more jobs created, even if they are under $7.25 an hour. Any amount of money paid to low-income workers adds to their self-esteem and independence and lessens the cost of welfare. To encourage work it would be far better to pay welfare as a subsidy to low wages as opposed to pure handouts with nothing in return. Employers working with the poor are invaluable and we should encourage more of them to do that. Dignity and life skills come from working – nothing is as good a substitute. Our federal government should encourage more low wage jobs through a low wage subsidy focused on those in poverty.
There is so much we could do to truly make a difference in jobs and poverty and if we did it right it would not cost us more money (see Welfare Reform). Instead we have a minimum wage debate following the same old, tired trend (see Welfare Ethics). We hold out examples of the poor and use them to establish new laws and programs which ultimately benefit the middle class far more than those in poverty. Here we go again.