Study: Obama Wage Hike Not The Right Solution

Proposed Earned Income Tax Credit Much More Efficient At Curbing Poverty
  • Publication Date: December 2008

  • Topics: Minimum Wage

WASHINGTON – The Employment Policies Institute (EPI) released a new study today showing that President-elect Barack Obama’s proposed increase in the minimum wage would be an extremely inefficient method for helping the working poor. Obama’s platform includes a federal minimum wage jump to $9.50 by 2011. New research by Dr. Joseph Sabia of American University and Dr. Richard Burkhauser of Cornell University shows that only 10.5% of the beneficiaries of such an increase would be living below the poverty line, while 62% of beneficiaries would live in households making more than two times the poverty line.

In addition to inefficiently targeting poor individuals, the minimum wage hike would bring additional job loss to an already struggling economy. The authors found that at least 450,000 additional Americans would lose their job as a result of the wage hike.

The inefficiency in the minimum wage hike stands in stark contrast to one of Obama’s other poverty fighting proposals, the Earned Income Tax Credit. Due to the EITC’s sole focus on income, the vast majority of the poor families who receive no benefit from a wage increase to $9.50 benefit from an expansion of the EITC. The researchers cite a large body of empirical literature which shows how EITC expansion does not cause adverse labor demand effects and in fact increases employment.

“With the unemployment rate the highest it has been in 15 years, it is important that the Obama administration implements pro-growth policies that do not have negative, unintended consequences,” said Employment Policies Institute senior economic analyst Kristen Lopez Eastlick. “A federal minimum wage hike to $9.50 would help a tiny fraction of the poor families in this country and will mean lost jobs for many more.”

“This research shows that the right solution for reducing poverty in America is an expansion of the Earned Income Tax Credit, not an unnecessary minimum wage hike that will do more harm than good.”

View the full study here: http://epionline.org/study_detail.cfm?sid=114