A Tax Fix That Helps Single Adults More Than Raising the Minimum Wage

July 3, 2017

Last week, a study released by the University of Washington on the impact of Seattle’s decision to raise the minimum wage to $13 caused quite a stir. The study showed that the sudden increase in the minimum wage – from $11 to $13 – led to low-wage workers facing reduced hours, fewer jobs, and lower earnings. These effects were not seen after the first increase from $9.47 to $11 in 2015, but they did appear with the minimum wage increase in 2016.

When the city first decided to implement a $15 per hour minimum wage (the $15 hourly wage took effect Jan. 1 of this year), supporters of raising the minimum wage argued that it would allow lower-income employees to earn more money. Opponents warned that it would cause people to lose their jobs.

Some opponents of raising the minimum wage say other methods for helping low-income workers would be more effective while not harming employment rates. One such idea is a tax credit that would be given to low-income workers in direct proportion to how much they earn on their own.

The idea is that if you work, you can benefit up to a certain salary by getting supplemental income. The program is called the Earned Income Tax Credit (EITC).

How useful is the EITC? According to MDRC, a research group that studies the impact of social policy, the EITC has three major advantages:

The EITC encourages and rewards work. The EITC supplements each dollar that a low-wage worker earns up to a certain limit, providing incentives for the unemployed and welfare recipients to work and for low-wage workers to work more hours. A strong body of evidence demonstrates that work-based earnings supplements such as the EITC boost employment and earnings while increasing work effort.

The EITC reduces poverty. In 2015, the EITC lifted about 6.5 million people out of poverty, including about 3.3 million children. The number of poor children would have been more than one-quarter higher without the EITC. The credit reduced the severity of poverty for another 21.2 million people, including 7.7 million children. Workers in cities, small towns, and rural areas all benefit from the EITC.

EITC payments support important investments by families. Research indicates that families use the EITC to pay for necessities, repair homes, maintain vehicles that are needed to commute to work, and in some cases, obtain additional education or training to boost their employment prospects and earning power.

What the EITC doesn’t do is help people who don’t have kids or who have kids but don’t have custody of them. That’s why MDRC conducted a study in New York City and Atlanta to see the impact of extending the EITC to single adults.

Why is it important to help single or childless workers? Well, because when wages and employment rates fall, low-skilled, low-income workers get hurt the most, and that particular segment of the workforce includes a lot of single people! And there’s another tidbit to consider: Many of these adults in fact do have children but are not the custodial parent. So even when they don’t have kids in their households, they are responsible for children.

The three-year MDRC study in New York concluded that when people received the extra boost to their income (which maxed out at $2,000 per year for three years), they not only increased their pay, but the number of people employed also increased.

An added bonus to the uptick in incomes is that a significant segment of people in the pilot program ended up paying more of their court-ordered child support payments!

Paycheck Plus recipients paid an average of $54 per month more in child support than individuals in the control group — a 39 percent increase.

An additional benefit found in the study is that when people used the EITC, they actually filed their taxes. Now, that may seem like a negative to some — paying taxes isn’t exactly high on the list of stuff to be happy about — but paying taxes is a civic responsibility, even a legal requirement. And saying that you pay taxes is actually a common way of arguing that you have a say in how this country is run. So, hurray for the humblebrag. Now stand up and be counted.

EITC isn’t the be-all answer to ending poverty, and the tax credit does suffer from high error rates, but as a means of pulling people off the couch, it is a good way to encourage and reward work, and work is a formidable tool for helping people get more than just money. It is a means for providing dignity and learning skills that enable workers to aim higher for themselves. That path starts with the first dollar earned.

Filed Under: Front-Page Feature, Life Tagged With: , , , , ,

How the ‘Fight for $15’ Movement Can Undermine Those It Aims to Help

February 20, 2017

What’s a better solution — higher wages at the cost of jobs, or more jobs with lower wages? If you’re interested in seeing more people working, the latter is the better option. But it’s not just about the number of jobs. That’s why several economists question the logic of the “Fight for $15” movement or other minimum wage arguments.

“While boosting wages for workers is critical, helping workers retain their jobs and stay on the income ladder makes more sense for the economy.”

That’s what economist Aparna Mathur says in a recent article on wage hikes. Even the nonpartisan Congressional Budget Office found that raising the federal minimum wage to $10.10 per hour could result in the loss of 500,000 jobs.

Mathur notes that several localities aim to increase the minimum wage in the next few years, and warns that the people who are going to feel the impact are the very workers who would benefit from not being paid a mandated minimum wage.

Most policies of any kind involve trade-offs, and minimum wage hikes are no exception. When the government mandates that employers must pay minimum wage workers more — i.e., the hike is not because of any increases in productivity or skills — employers will strategize about how to recover the added costs. Can they pass them on to their customers? Should they invest more in automation? And of course: Should they decrease the size of the work force?

Mathur acknowledges disagreement in the economic models on the impact of minimum wages. It’s more than just the number of jobs available, the minimum wage is a variable with major reverberations to the overall economy and how work is conducted.

She points to the results of a major recent study by New York University. The study found that raising the minimum wage had a small impact on the overall drop in hiring, but a much greater impact on the amount of work each worker is doing.

Hours worked fell sharply, with reductions as large as 3% across all workers and 25% for the lowest-wage jobs. Presumably, the study’s authors wrote, some of the reduction was caused by employers economizing on labor. However, they also wrote, hours worked also likely fell because employers hired more productive workers.

And what’s the outcome for managing less productive employees? Automation, of course. The dreaded “robots.”

Many stores and fast-food restaurants are already planning this transformation. For example, McDonald’s plans to move away from cashiers to touch-screen kiosks nationwide and to allow mobile ordering rather than pay an employee $15 an hour to bag French fries. Wendy’s is considering a similar move. Walmart already is automating many positions that employ hourly workers.

Mathur says if government policy really wants to help low-wage workers, it could try more creative approaches, like the Earned Income Tax Credit program.

A targeted program with no risk of job loss, the EITC has been proven to lift people out of poverty, and it is the best way to boost incomes for poor households.”

At the same time, encouraging upgraded skills for workers through greater investments in on-the-job training and paid apprenticeship programs for younger workers would allow for greater upward mobility even for workers starting off in minimum wage jobs.

While boosting wages for workers is critical, helping workers retain their jobs and enabling them to move up the income ladder is even better. The risk of job loss that comes with a minimum wage hike threatens the ability of these workers to get on that ladder. States that are on track to approve such an increase should proceed with tremendous caution.

Wage Hikes: Proceed with Caution

Filed Under: Front-Page Feature, Happiness Tagged With: , , , , ,

How Trump Can Improve Antipoverty Programs

November 18, 2016

With the presidential election in the rear view mirror, Washington and the rest of the country are now turning attention to what President Trump will mean for public policy. What would Trump do for antipoverty programs? Given Trump’s early focus on relieving child care costs for working mothers, that could be an early achievement for his administration.

A Trump administration may also be willing to require more labor force participation among SNAP and disability program recipients and could expand work-based tax credits.

After an election that showed the country is unsatisfied with the status quo, if Congress and the next administration are willing to put in a little work of their own, reforms to antipoverty programs could help more Americans get back to work.

Poverty studies researcher Angela Rachidi sketches an outline of a potential Trump antipoverty agenda.

Included should be a top-to-bottom review of existing safety net and job training programs. Ripe for reform are food, disability, and housing assistance programs — all of which could do more to support work among recipients. Additionally, workforce development programs, many of which have limited evidence of success, expansions to work-support programs, such as the Earned Income Tax Credit and child care assistance, and efforts to improve the quality of education from birth to college, all deserve a serious look.

This is not a new concept for fans of TPOH. Indeed, apprentice training programs, gradual replacement of benefits as individuals climb the income ladder, and changes to disability programs have long been concepts discussed by TPOH to help the most vulnerable get on their own two feet.

For instance, the Earned Income Tax Credit (EITC) provides that if a household doesn’t bring in a lot of money, then the government can supplement its earnings to help people stay on their feet and in their homes. However, childless households receive only $500 for a credit, not much of an incentive to encourage people to aspire to greater levels of achievement. It may seem counter-intuitive, but if individuals don’t develop an aptitude toward work, they won’t work, and will become dependent on welfare, so it makes sense to encourage work until people can develop the skills and interest in participating in the job market. EITC has shown that it has a positive effect on workforce participation.

As for apprenticeship programs, the original job training, who better to encourage that then the host of the 14-yearlong show called, “The Apprentice”? If exempted from minimum wage requirements, apprenticeship programs could be an area where companies feel encouraged to pick up and train employees in the areas where they need help. While getting on-the-job training from real-life employers, the government could use existing job training and college aid budgets to subsidize salaries, making sure individuals in these programs have enough money to live on while they develop their skills.

Finally, as labor economist Michael Strain explains, Social Security Disability Insurance was originally designed to help people who could no longer work after spending years in physically demanding jobs. Automation has reduced the number of physically exhausting jobs, yet the number of working-age adults on SSDI doubled between 1989-2009. This program has effectively discouraged work when it need not do so.

In today’s services economy, disability is often more a continuum than a binary state — a person may be disabled in the sense that he can’t stock shelves, but not disabled in the sense that he can’t sit behind a desk for 25 hours per week. SSDI should be modified to reflect this, covering individuals who truly cannot work, as a just society should, while encouraging others to do what work they can.

In other words, the safety net is becoming a hammock, discouraging people from working when it would be better used and more economical to help those who truly need a lift. Individuals with limited mobility can work in jobs that require fewer physical demands. As Mike Zelley, founder and president of the Disability Network, states, a half-million people with disabilities, including the 43 percent of whom have a college degree, are disincentivized to work because of federal disability programs.

The reality is that, due to his lack of specific proposals or experience in government, it is unknown what President-elect Trump intends to do to fight poverty. Will he be a strong fiscal conservative who focuses on requiring work, reducing fraud, and holding the line on the size of government; a Rockefeller Republican content to increase spending; or something else entirely?

Hopefully, the “wait-and-see” mode will soon be over.

Filed Under: Front-Page Feature, Liberty Tagged With: , , , , , , ,

Getting Back to Work: Not Merely Happiness, But Human Fulfillment

July 25, 2016

Work is often unpleasant in our fallen world. But it contains within it the seeds of its own redemption, and ours. It often fails to make us happy, but happiness is a fleeting emotion. Work gives us something more lasting and sturdy than happiness: fulfillment.

Thus begins a manifesto called “Getting Back to Work” by economist Michael Strain on how the U.S. federal government can help workers succeed and achieve self-actualization. The essay is part of the “Room to Grow” series by the Conservative Reform Network, which began in 2014 with the goal of developing innovative solutions to challenges facing the U.S., challenges largely created by an overindulgence among politicians to engineer social outcomes.

Strain, who studies labor force participation rates and work incentives, argues that public policy does play a role in job creation by enabling a vibrant job market. He acknowledges that a safety net is critical to ensuring that those on the bottom rung of the economic ladder have a support system. But he also notes that the support system has made it harder for people to get off that first rung.

He starts with a somewhat poetic look at the roots of man’s love and need for work before discussing how public policy has gone down the path of diminishing the value of labor.

(M)illions of people doing their particular jobs a little bit better than anyone else can create enormous wealth and, more important, improve the opportunity for individuals to lead truly flourishing lives.  Work helps us to flourish by allowing us to provide for our children. (Not all of this work, of course, is paid.) And work is a cure for boredom, one of the worst parts of modern, comfortable life.

Work creates community, something all humans need for flourishing lives. Members of your work community often become lifelong friends. Work educates our passions, directing them to productive ends, emancipating us from them. Work allows us to express ourselves, and in its proper understanding is deeply spiritual: In the Abrahamic faiths, the Supreme Being works, creating the world out of nothing. Saint John Paul writes that we are ‘called to work,’ arguing that we find ‘in the very first pages of the Book of Genesis’ the ‘conviction that work is a fundamental dimension of human existence
on earth.'”

Strain also suggests multiple solutions:

  • Expand the Earned Income Tax Credit, a federal earnings subsidy for low-income households, to homes without children.
  • Expand Work-Based Learning Programs that include apprenticeships and retraining worker who have been displaced by technology or globalization.
  • Modify the safety net so that it better encourages work and doesn’t define disability as a a binary state rather than a continuum.

A person may be disabled in the sense that he can’t stock shelves, but not disabled in the sense that he can’t sit behind a desk for 25 hours per week.”

Other suggestions from Strain include cutting payroll taxes as well as commute times, making it easier for former prisoners to find jobs, and reducing occupational licensing rules. Strain also breaks through some myths about barriers to work, and points out polling that demonstrates the benefits of his positions.

In all, bringing back the sense of American pride is one key to getting people back into the labor force. Included in this, according to Strain, is the effort to recover “a culture wherein more Americans feel an obligation to build a career, even from a low starting point,” a position that has been hampered by politicians creating policies that are intended to ease the burden of job loss but have resulted in building barriers that make it harder for people to return to the workforce.

Read more from Michael Strain’s report on Getting Back to Work.

Filed Under: Front-Page Feature, Happiness Tagged With: , , , , ,