Income Tax Credits,.

Not Minimum Wage Hike, Will Benefit the Working Poor

THE MINIMUM WAGE is an outdated mechanism that does not help the working poor fight poverty, asserts a Cornell economist. In fact, he says, 83 percent of minimum-wage benefits go to teenagers and other workers living in families above the poverty line, the majority of whom live in middle-class families far above the poverty line.

"Minimum wage policies should be abandoned and placed in the museum of antiquated policies," says Richard Burkhauser, the Sarah Gibson Blanding Professor of Policy Analysis and Management. A prominent economist and policy scholar on the minimum wage, Burkhauser testified before the U.S. House of Representatives Committee on Education and the Workforce in April.

"Instead, we should expand Earned Income Tax Credits (EITC), which more effectively target the working poor," says Burkhauser. "Workers who have children but low family incomes, for example, receive a 34 percent to 40 percent tax credit, which essentially boosts their minimum wage rate from $5.15 to $7.21 per hour. And because it's government supported, the labor force doesn't lose jobs as it does when the minimum wage goes up.

Congress is likely to vote soon on whether the minimum wage should be raised to $6.15 by 2002. Some economists calculate that such a minimum wage increase could cost the labor force some 436,000 jobs.

Burkhauser points out that only one out of three of the working poor gained from the last federal minimum wage hike in 1996. The others were poor despite having higher rates because they either earned more than the minimum wage, worked part-time, or had large families. Of the $3.39 billion in additional wages generated by the last minimum wage hike, Burkhauser found that only 17 percent went to the families of the working poor. The other 83 ...