Minimum wage hike, minimum effect

Marketplace Staff Jan 9, 2007


KAI RYSSDAL: Today it was terrorism on Capitol Hill. Tomorrow it’s minimum wage. The House is expected to pass an increase in the federal minimum from $5.15 an hour to $7.25. The Senate Finance Committee will be holding a hearing on what a raise would mean for small businesses. Economist and commentator Susan Lee says an increase isn’t the best way to help those who might need it most.

SUSAN LEE: Raising the federal minimum wage law isn’t a silver bullet. Businesses with revenues of less than $500,000 a year are exempt. They are just the firms likely to pay low wages. Places like mom and pop shops.

Also exempt are farm workers on small farms, seasonal workers, companions to the elderly, and newspaper delivery people. And what about the people who are covered? Well, a substantial amount of them aren’t poor.

Consider: Over half the people subject to the minimum wage work part-time. And over half of all minimum-wage workers are under the age of 25.

In other words, an increase in the minimum wage would benefit lots of teens and college students who work weekends at McDonald’s or Burger King. And studies show that 70 percent of them live in families nowhere near the federal poverty line or below it.

The minimum wage targets wages, not income, so any increase simply benefits more middle-class people than the working-class poor. It’s like flying a plane over Yankee Stadium, dropping bushels of $100 bills, and hoping that only hot dog sellers will pick up the money.

There’s a better way to help the working poor: Just expand an excellent program already in place.

It’s called the Earned Income Tax Credit. And since it’s based on income, not wages, it specifically targets poor families.

In 2005, this credit benefited about 21 million poor families — boosting more than 5 million of them above the poverty line.

Here’s how it works. Families get a credit that can be subtracted from any income tax they might owe. Any amount left over is refunded — actual money in the pocket.

The credit itself increases as earnings increase. Then, at a certain level — around $38,000 a year depending on family size — the credit disappears.

Congress, put the money where the mouths are.

RYSSDAL: Susan Lee lives in New York City.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.