Voters Need Information on Minimum Wage

Parth Kotak, Opinion Editor

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Fast food and retail workers in Milwaukee striking for a $15.00/hour minimum wage.

Fast food and retail workers in Milwaukee striking for a $15.00/hour minimum wage.

As we head closer to Election Day 2016, the candidates have discussed certain topics more often than others. Across party lines, the minimum wage has been one of the most contentious issues in recent history, ever since the 2012 strike of McDonald’s workers calling for a federal minimum wage of $15.00 an hour and the subsequent Fight for 15 campaign. The presidential candidates have policies regarding the minimum wage all across the spectrum. Ted Cruz believes that the federal minimum should remain $7.25 an hour, or even drop. Hillary Clinton has adjusted from $9 to $10.10 to $12, although she heralded New York’s decision to raise the wage to $15. Bernie Sanders has unequivocally called for $15 since the outset of his campaign centered on income inequality. Supporters of a federal minimum wage increase argue that the current minimum is inadequate because it does not act as a living wage in many locations, and a January 2015 poll conducted by Hart Research Associates found that 75% of Americans support raising the federal minimum to $12.50 by 2020; clearly, there is widespread support for ameliorating poverty through raising the minimum wage.

However numerous the benefits of raising the federal minimum wage, there are serious detriments to raising the federal minimum wage. First of all, if the purpose of the federal minimum wage is to keep households above the poverty lines, only one-third of minimum wage workers live below the federal poverty line. Raising the federal minimum is an inefficient policy for eradicating poverty because two-thirds of the people who benefit are not the target of the policy. Furthermore, the figure of $15 seems to be arbitrary, especially when one considers the fact that costs of living range from exurbs to suburbs to cities. A blanket increase in the minimum wage from coast to coast might overcompensate in rural areas, but prove woefully inadequate in cities like New York and Chicago. Finally, as the per unit cost of labor increases, businesses will either cut down on the amount of labor hired or increase prices and/or decrease output to reach a new market equilibrium. For some sectors of the economy, an increased wage is incentive to seek cheaper, illegal labor.

It is possible, however, to ensure that workers remain above the poverty line as long as they work. The U.S. operates a program known as the Earned Income Tax Credit (EITC), which essentially guarantees a small refund in federal taxes per $50 earned beneath a certain threshold of income that changes based on dependents and other circumstances. Rather than burden the private sector with an onerous marginal cost of labor, the government compensates for the shortcomings of the minimum wage by supplying a federal tax refund. Over 75% of economists surveyed at the American Economic Association believe we should expand our EITC program, perhaps to coordinate between the various costs of living amongst different locales to personalize the refund. In order to pay for an expanded EITC, the federal government could tax corporations, the understanding being that if the government mandated an increased minimum wage, corporations would have to pay more than the new tax, which specifically targets workers struggling with poverty.

At the very least, the public should pay more attention to solutions like the EITC, rather than solely focusing on raising the minimum wage. To some extent, “raising the minimum wage” has just become a key phrase for certain factions of society, rather than a policy decision with serious implications. A quick query for “minimum wage” on Google yields a variety of topical stories about recent strikes and statements by politicians, whereas a search for the EITC yields federal help websites and economic journals. Clearly, this needs to change.

 

 

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