Who would gain from higher minimum wage?

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Double click to enlarge

This chart shows that a large fraction of teenagers, high school dropouts and part-time workers work at minimum wage jobs.   An increase in minimum wage would affect many more people than just those workers.  It would directly affect all those whose wages are between the present and the new minimum, and indirectly might affect many more.

When I worked for the Rochester Democrat and Chronicle many years ago, I interviewed employers and was told that almost all of them, including those in low-wage businesses, paid more than minimum wage.  They nevertheless opposed an increase in minimum wage because they felt they needed to maintain a differential between the minimum wage and what they paid.

Click on How raising the federal minimum wage would help working families and give the economy a boost for a report from the Economic Policy Institute.

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4 Responses to “Who would gain from higher minimum wage?”

  1. Holden Says:

    I’ve seen research like this before, and I think it partially points out why most economists don’t typically support raising minimum wage. Doing so really wouldn’t have the desired effect of reducing poverty.

    There was an article in the New York Times yesterday that suggested if we really want to target those living in/near poverty we should instead focus on the Earned Income Tax Credit. Its an interesting idea.Lots of other good info too.

    http://www.nytimes.com/2013/03/03/business/the-minimum-wage-employment-and-income-distribution.html?smid=pl-share&_r=0

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  2. philebersole Says:

    Maybe an increase in the Earned Income Tax Credit would be better. But, like everything, it has its drawbacks. The drawback of the EITC is that it is a subsidy for low wages. Some employers may pay lower wages than they would without the EITC because the American taxpayer is making up the difference.

    The real key to reducing poverty in the United States is to move toward a full-employment economy. I must confess I don’t have a complete answer as to how to do this, although I can pinpoint policies that make things worse.

    As a side-llight, I have a friend who is an accountant in a poor neighborhood, and fills out tax forms for clients who get the EITC. He said many of them don’t know they get EITC. They think they pay income taxes (instead of just payroll taxes) and are getting a tax refund.

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    • Holden Says:

      Yeah, therein lies the problem. I hate to say it, but most of those who qualify for the EITC view it as just a big bonus every year they can use to go on a shopping spree. I’ve seen that with my own two eyes easily a hundred times! And that’s not an exaggeration.

      I think a full-employment economy could only be achieved if we started putting people to work to earn welfare instead of simply receiving it. Possibly not a bad thing if the government could get its act together.

      It’ll never happen.

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  3. philebersole Says:

    The potential problem I see with the Earned Income Tax Credit is slightly different from what you describe. It could enable employers to pay less than they otherwise would because the government is going to make up the difference.

    What you describe about people spending their EITC payment might be true of anybody who gets a large lump sum payment, whether an income tax refund, or a company bonus. When Eastman Kodak was at its height here in Rochester, NY, department stores scheduled their big sales to coincide with the payment of the annual Kodak bonus.

    Of course an increased minimum wage and an increased Earned Income Tax Credit are not mutually exclusive. They both have a part to play.

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