In the minimum wage debate in Oregon last week, there was a hearing held at the Capitol on Thursday night. Some folks from Eastern Oregon made the long drive over to testify about the potential harm in raising the minimum wage on their farms, ranches and businesses. They were heard but not before facing a gauntlet of hatred from those in favor of the raise, mostly from the Portland area. I received an email from one of the Eastern Oregon travelers and I thought I would pass it on to you as it’s quite good.
Editorial: There’s a better solution than the minimum wage
Gov. Kate Brown is the latest state politician to have a plan to increase the minimum wage. She wants two tiers — one in Portland and one everywhere else in the state. By 2022, the minimum wage would be $15.52 in Portland and $13.50 in the rest of the state.
Her goal is to address poverty. But there are policies that are better targeted to reduce poverty.
Read what Gov. Brown said: “The costs of essentials such as food, child care and rent are rising so fast that wages can’t keep up. … Many Oregonians working full-time can’t make ends meet, and that’s not right.”
Think carefully, though, about what the minimum wage does. It targets individuals with low wages. It does not target the real objective, which is families with low incomes. They aren’t quite the same thing.
Is increasing the minimum wage the right policy, or might something else be a better tool? We’ll give away the answer: Increasing the earned income tax credit is better.
Economist David Neumark recently ticked off several reasons in a paper for the Federal Reserve Bank of San Francisco. Many poor families have no workers. In fact, 2014 data showed 57 percent of poor families with heads of household ages 18–64 have no workers. Increasing the minimum wage won’t help them. Other data shows that the problem for many workers is more low hours than low wages. And, of course, many minimum wage earners are teens, who do not live in low-income families.
If you are keeping track, that’s three ways in which the minimum wage loses. The benefits of raising the minimum wage wouldn’t go to many of the people Brown wants to help.
Minimum wage increases would help lift some families out from under the federal poverty line. But when employers are compelled to increase the minimum wage, some employers do decide that they need to employ fewer workers. That makes increasing the minimum wage good for some and bad for others. That’s another way in which the minimum wage loses.
Consider, instead, the earned income tax credit. It’s a federal subsidy to earnings. Some states, including Oregon, supplement the federal credit.
The earned income tax credit is based on family income and the composition of the family. It does target low-income families by need.
Basically, it’s better than increasing the minimum wage. And there’s a point worth reinforcing: It’s a subsidy to earnings. So it’s also an incentive to work.
The earned income tax credit is not without problems of its own. Some workers who could use more income may be ineligible. There’s also an Oregon-specific problem. The state has had one of the lowest rates of participation for those individuals who are eligible. People don’t apply. Oregon was dead last among the 50 states, according to a 2015 paper from the Oregon Center for Public Policy that was based on the most recently available data from 2012.
The governor should be making proposals about Oregon’s earned income tax credit and not the minimum wage. Or here’s another idea: Try some policies that create jobs.