Friday, December 13, 2013

Alternative To Raising The Minimum Wage To Help The Poor Earn More

From The Wall Street Journal, "A Hype-Free Way to Help Low-Wage Workers: Minimum-wage hikes are job killers. Better to integrate earnings at the current rate with welfare payments." by Martin Feldstein:
There is a better way [than raising the minimum wage] to help those with low skills find employment and raise their incomes: Integrate the existing minimum wage with welfare payments. Consider a woman who receives $10,000 a year from various transfer programs but can only find occasional part-time work at the $7.25 minimum wage. Her $10,000 a year of transfer benefits is equivalent to $5 an hour based on 2,000 working hours per year. If she had the option of treating up to half of that $5 as an offset to the minimum wage—just as workers who receive tips can offset part of the minimum-wage floor because of their tip income—she could legally take any job that paid at least $4.75 an hour. If she finds a job paying $5 an hour, she might earn an extra $10,000 a year.

There may be better ways to integrate transfer payments and the minimum wage. But the goal should be to raise incomes while increasing job opportunities for those whose skills are too limited to find work at the minimum wage. Instead of raising the barrier for finding a job, as a minimum wage hike would do, integrating the minimum wage and welfare payments would allow some of today's poor and unskilled to get onto the job ladder. Then they would gain the skills and experience to rise above the minimum wage and their dependence on transfer payments.

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