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Minimum Wage Hike Would Cut Job Openings For Low-Income Workers

April 06, 2012

By Russell Sykes

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The New Jersey Legislature is moving forward to increase the state’s minimum wage by 17 percent, to $8.50 an hour with annual indexing, guaranteeing future increases. But there are much better ways to help the working poor, including one that already exists: a refundable state tax credit.

Legislators, particularly Assembly Speaker Sheila Oliver (D-Essex) and Senate President Stephen Sweeney (D-Gloucester), say a higher minimum wage will help the poor without harming the economy. But much evidence suggests they are wrong on both counts: The higher minimum wage would reduce job opportunities for the very people it’s supposed to help, even as the benefits flow mainly to households that aren’t poor.

What’s more, New Jersey’s minimum wage already is much higher than the nominal $7.25 an hour. Legislators pushing a minimum-wage hike ignore an important federal and state boost to low-income working households: the refundable earned income tax credit.

Wage-hike proponents say no one should have to live on an annual minimum-wage income of $15,000 a year. Thanks to the EITC, no one does.

The federal EITC dates to the mid-1970s; with bipartisan support, it’s been greatly expanded over time. New Jersey adopted its own EITC in 2000, which — after cuts in 2010 and 2011 — is worth 20 percent of the federal credit. Together, the federal and state EITC adds nearly $1.4 billion a year in wage supplements to more than 500,000 low-income New Jersey workers.

Unlike the minimum wage, the EITC boosts effective wages without killing jobs and driving up the cost of hiring unskilled workers.

Consider a single parent with two children working full time and earning the minimum wage of $7.25 an hour, or $15,080 a year. The federal and New Jersey EITC adds $6,134 to their income. That boosts yearly household income to $21,214 and makes the effective hourly minimum wage $10.20.

Maximum EITC benefits, unlike the minimum wage, are targeted to working families earning $10,000 to $20,000 a year. The EITC is specifically designed to provide the greatest benefits to households with children. Those with three or more children can get a maximum federal and state refund of $6,901 (with two children, $6,134; with one child, $3,713). As income rises, EITC benefits phase down until eligibility ends at $49,078 for married filers with three children (and stops at lower amounts for households with fewer children).

Economists David Neumark and William Wascher have compiled studies on the effects of minimum-wage hikes. Most studies show negative effects on employment and little or no effect on poverty. The authors note: "The EITC pursues much the same goals as suggested by the rhetoric, if not the reality, of minimum wages."

A Congressional Budget Office study in 2007 showed only 15 percent of a minimum-wage increase went to households with income below the poverty level, while 60 percent of EITC benefits reached poverty-level earners.

A 2008 study by Richard Burkhauser and Joseph Sabia, in neighboring New York, predicted 29,000 jobs would be lost if the state increased its minimum wage to $8.25 at the time.

Gov. Chris Christie will discuss the proposed minimum wage hike, but has reservations about its effect on jobs and hiring. He should. The increase to $8.50 hourly raises the cost of each full-time worker by $2,600 a year — a big lift for small business.

If the governor truly cares about the job prospects of low-income workers, he should steer clear of it and get out his veto pen.

You simply can’t sweep the $1.4 billion in wage-supplementing EITC benefits currently going to New Jersey’s low-income working households under the rug.

The truth hurts, especially when it negates the noise of those who argue loudly for a well-intentioned but misguided minimum-wage increase.

Original Source: http://blog.nj.com/njv_guest_blog/2012/04/minimum_wage_hike_would_cut_jo.html

 

 
 
 

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