So, what's better?
We had a nice diary today on how the federal minimum wage has fallen to its lowest level in real terms in over fifty years.
Somewhere in there we ran into some disagreement about whether it is better to raise the minimum wage to "living wage" levels, or to instead focus on refundable tax credits like the EITC. I've seen a lot of argument on both sides after clicking through google a bit, and I'm having a hard time identifying what the real level-headed progressive approach should be.
Below the flip is brief discussion, and a thumbnail of each side - please weigh in with what you know.
From reviewing its
wikipedia entry, we see that minimum wage is somewhat controversial among economists. It looks like the basic consensus is that minimum wage has a net benefit to economies for as long as labor demand is inelastic. But, as soon as labor demand becomes elastic, and businesses choose to curtail hiring, most economists believe that at that point, minimum wage is a net drag on the economy.
Now, what is that magic point? I'm not sure people really know that. It's obvious that Republicans think that point is lower than Democrats do. Crazy Rick Santorum would probably make the case that it's around two bucks.
I've read quite a few articles that claim that you can get most of the benefits from an expanded minimum wage, without the costs, by instead having an expanded refundable tax credit. Our own Earned Income Tax Credit was established in 1975. If you don't make much money, then each dollar you make in wages can be refunded to you in taxes. What's more, if you don't make up to the maximum of the EITC, it gets refunded to you anyway, so for some really poor people, they actually receive a net amount from the government. Bill Clinton expanded this program during his presidency.
In real terms, our federal minimum wage has never been above $9.00 . When people talk about living wages, the amount bandied about is usually around $10 - $12. Considering the costs of the minimum wage on businesses, and the alternative of the EITC, it is hard not to wonder if the living wage might be too high, and if we should be arguing for an expanded EITC instead.
This is where it gets controversial among progressives. The living wage is a very popular concept among the more progressive and the Green party. The concept of the living wage is that it calculates how much one would need to make in order to support oneself (or a family) on one 40-hour/week job with a small amount left over for savings, medical expenses, and recreation.
However, if the calculation is merely limited to that, it does nothing to address the supply/demand curve in any local hiring society. I know that here in norther Oregon, if our minimum wage were raised to $11.50 / hr, our business environment would be at a major disadvantage compared to our friends just over the river.
I've found one study by (self-declared) nonpartisan economists that claim that in local markets, an EITC-type option is a far more efficient alternative to a living wage. Its basic points are that the EITC applies to all poor people, while the living wage only applies to low wage-earners, whether or not they are poor.
But I've also found discussion that criticizes the EITC and argues in favor of living wages. From one such article:
The Right, still wedded in the 21st century to 19th century market fundamentalism, cannot be reasoned with about the minimum wage; it must simply be defeated by a coalition of liberals and centrists. The greatest challenge to the formation of a powerful liberal-centrist bloc in favor of a living wage is the seductive alternative of the earned income tax credit (EITC). Many moderates view it not as a supplement to high wages but as a substitute for them.
[...]
There is much to be said for the EITC. To begin with, it doesn't have the political design defects of unpopular welfare programs like the abolished Aid to Families with Dependent Children. Because only working Americans are eligible, it cannot be portrayed as a reward for idleness. It is administered by the Treasury Department through the IRS, so this is one antipoverty program not about to be captured by a special interest group--as was the food stamp program that now serves the interests of the farm lobby more than those of poor people. Finally, the EITC benefits enough working Americans to avoid being stigmatized as a bone thrown to a tiny minority. All of these reasons explain why many conservatives as well as centrists and liberals have supported the program's expansion in the last quarter century.
It is unlikely that the EITC would have received the enthusiastic support of many pro-business conservatives and moderates, however, if it did not disguise a business subsidy. Sponsored by Louisiana's Senator Russell B. Long, it was enacted in 1975. In the Clinton Administration its greatest champion was Treasury Secretary Lloyd M. Bentsen. That the EITC should appeal to relatively conservative Southern Democrats like Long, Bentsen and Clinton is no coincidence. The weakness of organized labor in the South means that Southern Democratic politicians have often been as dependent as Republicans on the support of business lobbies and investors. The EITC permits them to do something for low-wage workers without threatening their donors in industries that rely on cheap labor.
In effect, it is a double subsidy. By aiding the worker the EITC enables the employer to continue paying far less than is needed to survive at or above the Federal poverty line. The Southern cotton mill owner pays his workers a pittance--and you and I, fellow taxpayers, cough up an additional "social wage," the EITC. The consumer, who otherwise would have to forgo the good or service or pay more for it, also benefits. Make that a triple subsidy.
In addition, the EITC is probably an interregional corporate welfare program. To my knowledge nobody has studied the issue, but it is a fair guess that the South, with the lowest wages, the lowest levels of employment benefits, and the lowest rate of unionization in the United States, receives a disproportionate share of Federal EITC money.
The bipartisan Southern oligarchy has therefore scored twice, if you think about it. The Southern Bourbon ruling class, having used legislation and violence to smash organized labor early in the 20th century, build low-wage textile and car factories to force those in high-wage regions like New England and the Midwest out of business. Later Southern Democratic politicians in Washington like Long, Bentsen and Clinton arranged for tax-payers in the former mill towns of New England, as well as the Midwest, the Prairie, the Mountain States, and the West Coast, to supplement the inadequate paychecks of exploited Southern workers. A pretty good trick. First you steal their jobs by paying your local workers next to nothing, then you tax them and make them pay a "social wage" to your underpaid employees. No wonder the EITC is the favorite domestic policy of the Democratic Leadership Council's disproportionately Southern membership.
Now, by the time they said "oligarchy" and "Bourbon", it was about enough for me to discount it. But it makes me wonder how many among progressives subscribe to this view.
It seems fairly obvious to me that most of the economic problem over the last thirty years has been the expansion of the wealth gap. That is what really needs the fixing. Living Wage seems valuable as a statistical concept, but more to illustrate just how extreme the wealth gap has become - it doesn't mean that such a living wage is actually sustainable in our economic reality. In other words, supporting a living wage might have been more economically feasible thirty years ago, before the wealth gap started growing like crazy, than it is today. If the minimum wage is increased to living wage levels, it seems it would negatively impact small businesses started by middle-class entrepreneurs, and that's not where we want the wealth redistribution to come from, is it?
In other words, as John Edwards would say, we have two Americas now. Two economies. Our costs are driven to large extent by the rich economy. But many of the employers that would be affected by the minimum wage laws are from the poor economy. A living wage tries to make up for the damage that the rich economy has caused. But most of the cost of the living wage would be assessed against the poor economy. Doesn't this seem wrong?
Wouldn't it be better to argue for a more moderate raise in federal minimum wage, indexed to inflation, and then seek other ways to reduce the wealth gap, such as an expanded EITC? Using an expanded minimum wage to shoulder the wealth-distribution burden doesn't seem sufficient or wise.
Completely unrelated poll attached.