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.
