There’s a Better Way to Raise the Lowest Incomes
(Bloomberg Opinion) -- Some Democrats in Congress are having second thoughts about the party’s effort to increase the federal minimum wage to $15 an hour by 2024. They’re right to: Desirable as it is to raise low incomes, setting a minimum wage that high for the whole country would put jobs at risk in areas where prevailing wages are much lower than average.
Minimums that allow for regional variation, together with an expanded program of low-wage subsidies, would be a much better approach.
Representative Terri Sewell, an Alabama Democrat, is proposing a plan that would tie the minimum wage to the regional cost of living. That makes more sense than applying the same federal minimum to New York City (where the median household income is over $57,000 a year) and McDowell County, West Virginia (where it’s less than half that).
Setting a minimum wage doesn’t necessarily destroy jobs. The current federal minimum — $7.25 an hour, unchanged since 2009 — is so low it makes no difference in most of the country’s labor markets. Moreover, the evidence suggests that moderate increases in the minimum, sufficient to nudge the lowest incomes above what the market would dictate, can be consistent with maintaining high levels of employment. (Employers pass the cost on to consumers, or strive for greater efficiency without shedding workers.)
But in many low-income areas, an increase to $15 an hour could put jobs at risk.
Ideally, states and cities would set their own adequate minimums, taking local conditions into account. But if there’s to be a federal policy to protect workers from poverty nationwide, it ought to make allowance for the wide variation in labor costs. An approach that takes chances with employment opportunities in the lowest-wage areas could harm many of the people it’s especially intended to help.
You might object that the lowest-wage areas are the very ones where the government most needs to step in. Absolutely. That’s why discussion of minimum wages needs to be tied to proposals to subsidize low-wage workers. The earned income tax credit is the main such subsidy — and it’s a notably effective tool for raising the lowest incomes while increasing, not suppressing, the demand for workers.
The EITC would be more useful, however, if it were broadened (to better support childless workers, for instance), enlarged (to phase out more gradually as incomes rise), and simplified (to make it easier to monitor compliance). An expanded EITC would benefit the lowest-wage areas disproportionately, making it the ideal complement for a regionally variable minimum wage.
The Democrats’ focus on ending poverty in work is admirable. The issue demands the most urgent attention. But the right blend of subsidy and regulation attuned to local conditions would do more for the working poor than a one-size-fits-all minimum wage.
Editorials are written by the Bloomberg Opinion editorial board.
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