The Best Anti-Poverty Tool: Jobs

May 13, 2014

The economic debate over poverty has focused on the minimum wage and government programs, but it should be focused on jobs, say Charles Blahous and Keith Hall, senior research fellows with the Mercatus Center.

The majority of Americans between the ages of 18 and 64 who were in poverty in 2012 were not employed, even for just one week, and only 11 percent had full-time employment. The answer to this poverty problem is jobs, not government spending.

  • There has never been a drop in the poverty rate that wasn't associated with a rise in the employment rate.
  • Since the late 1990s, an increase in the employment rate has been the only reliable poverty reducer.

Unfortunately, more Americans are giving up on work. In 2013, the labor force participation rate in the U.S. was at its lowest point in more than two decades for every age range between 20 and 54 years old. This drop in labor force participation has been much greater than that anticipated by the Congressional Budget Office (CBO), with serious economic consequences:

  • The CBO projected a 160 million-person labor force in 2013, but the actual figure was 155 million.
  • That five million-person difference is the equivalent of a $557 billion shortfall in potential national income.

Policymakers are looking to increase the minimum wage, which will only raise hiring costs and increase unemployment even more. Additionally, the Affordable Care Act penalizes employment, with the CBO finding that it will cause more than 2 million full-time workers to leave the work force in just a few years. This loss of work will have a serious impact on American families, even those who are able to find new employment:

  • Research indicates that those who find a job after losing one experience reduced earnings for up to two decades afterwards.
  • Those without a job for the long-term may never enter the labor force again.

Laws that raise labor costs and reduce work incentives will not foster employment. Lawmakers need to understand the consequences of such programs and instead focus on policies that encourage work and hiring.  

Source: Charles Blahous and Keith Hall, "Jobs: The best way to fight poverty," Economics 21, April 30, 2014.

 

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