Raise the Minimum Wage?

Wage raise is popular, but economically inefficient: NCPA

Source: NCPA

Raising the minimum wage is a politically popular – but ultimately inefficient – way to lift people out of poverty, according to a new report by National Center for Policy Analysis Research Associate Joshua Latshaw.

“The Earned Income Tax Credit (EITC) efficiently targets those in poverty, without the negative employment effects that offset wage increases,” says Latshaw. “The EITC encourages individuals to earn income and develop employable skills, making it a much better tool for fighting poverty than simply raising the minimum wage.”

Compared to raising the minimum wage, the EITC:

  • More effectively targets the working poor, with two-thirds of EITC beneficiaries earning less than 1.5 times the poverty level.
  • Avoids the predicted 5 percent decrease in U.S. employment – saving 2.4 million jobs.
  • Increases the income of those who work and employment for those who, without the increased returns to working, would otherwise choose not to work.

Increasing the EITC, rather than the minimum wage, could increase employment by up to 15 percent, says Latshaw.

“There seems to be other motivations for raising the minimum wage to $15 an hour, because most poor families are not helped by a higher minimum wage,” added Senior Fellow Pam Villarreal.

Lifting Workers Out of Poverty: The Minimum Wage versus the Earned Income Tax Credit