NOTE: Graph on the left originally appeared in a Center for American Progress publication.
MY FOLLOWING ESSAY BELOW WAS ORIGINALLY SUBMITTED FOR MY COURSE, POLITICS OF INEQUALITY IN THE U.S., TAUGHT BY PROF. ROBERT STOKER:
The United States is currently
experiencing what The New York Times recently
dubbed “the great wage slowdown of the 21st century.” [1]
It is critical to recount how the country got here and what policies can be
pursued to reverse this trend. In December 2007, the United States economy
officially entered a recession – one so severe that it would ultimately be
dubbed the Great Recession. On September 15, 2008, the recession was
significantly worsened by the collapse of Lehman Brothers. A historic financial
crisis was upon the country as markets tumbled, large financial institutions
like the American Insurance Group and auto companies like General Motors sought
government bailouts, and credit dried up, all in a period of just a few months.
In late 2008 and early 2009, the financial crisis had a massive impact that was
immediately felt across the country: large-scale job loss. In those months, the
U.S. lost several million jobs – at an average rate of 700,000 job losses per
month; the national unemployment rate ultimately peaked at 10 percent in
October 2009 before job losses finally were reversed in February 2010. [2]
Though
the recession officially ended shortly before the resumption of job growth – in
June 2009 – the recovery has been slow and not broadly shared. On the one hand,
over 10 million new jobs have been created and there has been the longest
stretch of uninterrupted job growth in history. The unemployment rate has
declined to 5.8 percent, there are more job openings than at any time since 2001,
and the economic recovery has outpaced the typical historical standard for
recoveries from financial crises. [3]
On the other hand, income inequality has continued to rise and wages and family
income have been remarkably stagnant during the recovery. Consequently, despite
seemingly strong economic indicators such as sizable GDP growth and over
200,000 jobs being created for several consecutive months in 2014, millions of
Americans continue to believe the country’s economy is still feeble. [4]
This view is shared on the part of the Economic Policy Institute (EPI). “An
economy that does not provide shared prosperity,” the EPI wrote in August 2013,
“is, by definition, a poorly performing one.” [5]
According to Census data, median household income in 2013 – $51,939 – was eight
percent lower than the median in 2007. This level was nearly nine percent lower
than the median household income in 1999.[6]
The lack of sizable income growth stands in stark contrast to the increasing
productivity of American workers.
The
slow income growth in the recovery from the Great Recession is also
particularly notable because in previous post-World War II recoveries from
recessions, the job growth the U.S. is currently seeing was often accompanied
by larger income and wage growth than the country is currently seeing. “Historically…low
unemployment led to faster wage growth,” The
New York Times asserted, “but
that relationship appears to have broken down since the Great Recession.” [7]
One especially noteworthy aspect of this development has been that, for the
wealthy, incomes have risen dramatically in the recovery but that has not been
the case for other income groups. Per Census data, income inequality
dramatically increased between 1999 and 2013. However, in the recovery from the
recession alone (2010-2013), households in the top five percent saw their
average income rise five percent while average income for the middle 60 percent
decreased.[8]
Further, the monthly BLS Current Population Survey has found that household income
has actually declined by 5.1 percent since the recession began.[9]
More broadly, median inflation-adjusted income is $3,600 lower today than it
was in January 2001, causing some economists to label the 2000s a “lost
decade.” [10]
As
such, this income stagnation has coincided with slow wage growth as low-wage
jobs comprise the bulk of the jobs regained since the recession. According to
the Bureau of Labor Statistics (BLS), wages increased for private-sector
workers by just 0.5 percent in the late 2012-early 2013 period in which the
unemployment rate finally fell below 8 percent after 40 months above that
level. In the last year, in which the unemployment rate fell below 6 percent, workers’
hourly earnings have increased by a mere 2 percent. [11]
Economists David Blanchflower and Adam Posen have documented the problem of low
wage growth and have concluded that it is a consequence, partly, of a large
number of “part-time workers…want[ing] full time jobs.”[12]
Indeed, though job growth has been unusually robust in recent months, the fact
of the matter is that there is what
FiveThirtyEight described last May as a “long-running shift toward
temporary employment during the recovery.”[13]
Bureau of Labor Statistics data reveal that more than seven million Americans
are still working in part-time jobs despite actively looking for full-time
jobs.[14]
A deeper analysis done by the American Enterprise Institute found that the jobs
created post-recession pay 23 percent less than the jobs that dominated the
economy pre-recession.[15]
As
such, this quandary has meant that while the unemployment rate has technically
decreased, there remains a stubbornly large number of Americans who are
underemployed. There are 7.2 million workers, for instance, who are identified
by the Bureau of Labor Statistics as “those working part-time who would prefer
full-time work.” These workers are part of a subset of “marginally attached
workers” and are thus not counted as part of the official U-3 unemployment
rate.[16]
Therefore, their plight is sometimes overlooked in the national press reports
on strong economic growth. This development of low wage growth is vital for a
key reason and that is that millions of Americans rely upon these jobs to
provide them with financial support to build a family. The pay that is offered,
especially in part-time work but also in full-time work, is rather paltry based
on findings that the pay is not sufficient to support a family struggling to
stay out of poverty, as will be demonstrated later.
When
Labor Secretary Thomas Perez candidly declared, “we suck” on the minimum wage,
he was correct when considering the value of the minimum wage and our
performance when compared to other industrialized advanced democracies. Perez’
Labor Department has published research that shows that a change in government
policy could improve the wage outlook for millions of workers.[17]
His assertion that government policy has an impact on improving the economic
conditions of Americans is one that is borne out in other realms as well. In
fact, as the Center on Budget and Policy Priorities noted, fiscal stimulus
policies undertaken during the recession, such as President Barack Obama’s $826
billion American Recovery and Reinvestment Act (ARRA), prevented the economy
from worsening, particularly with regards to unemployment and income thanks
partly to infrastructure spending.[18]
However,
the Recovery Act included not just infrastructure spending, which helped in
creating full-time jobs in the aftermath of the recession, but it also included
cash assistance and tax-and-transfer policies. Such policies are federal tools
intended to strengthen workers’ after-tax income – the actual money households
keep after paying taxes – as a means of mitigating income inequality. According
to the Congressional Budget Office, tax credits like these meant that the
“after-tax income distribution is a little more equal than the market income
distribution.” In fact, in 2010, for households in the lowest income quintile,
the effect of taxes and transfers like those in the stimulus package was a
massive difference of seven percent between their 2.3 percent share of market
income and their 9.3 percent share of after-tax income.[19]
Such ARRA tax credits included the Making Work Pay Credit, an expansion of the
Earned Income Tax Credit, and other tax credits for individuals and small
businesses that boosted Americans’ take-home pay.[20]
As the CBO documented, “the sum of market income and government transfers,
minus federal tax liabilities”—how they defined ‘after-tax income’—was one
percentage point larger, for the bottom four quintiles of income distribution
in 2010, than their pre-tax income. Therefore, the results of these tax credits
indicate that they can be effective at reducing income inequality.[21]
The results of these policies make clear that government policies aimed at
boosting income through minimum wage increases, stimulus jobs spending, and tax
credits are worth strongly considering if the United States seeks to resolve the
problem of slow income growth.
However,
current federal government policy currently is insufficient with regards to supporting
income growth and that ought to motivate reform. There are a number of
alternatives that can be pursued to potentially ameliorate this problem. These
alternatives include raising the national minimum wage to $10.10 and indexing
the minimum wage to inflation, passing federal legislation akin to the American
Jobs Act in order to increase direct infrastructure spending, and expanding the
Earned Income Tax Credit to provide stronger assistance to childless workers. In
exploring these alternatives though, it is crucial to determine who the
relevant stakeholders are with regards to the potential implementation of these
alternatives. When assessing the impact of these alternatives on the relevant
stakeholders, there ought to be consistently applied criteria for measuring the
effect of the alternatives. In terms of these policy alternatives, it is vital
to assess how these alternatives would affect the labor market and the broader
economy, what the cost to business would be, and whether they are politically
feasible.
For
one, it is critical to analyze the impact of these policy alternatives on
employment and economic growth.
Notwithstanding the slow recovery from the Great Recession, economic
studies consistently demonstrate that job growth and economic prosperity are
strongly correlated with income growth. Further, the more robust economic
growth is for the broad middle class of American families in terms of
employment, the stronger their income growth is – and vice versa.[22]
The cost to business is important as well because prosperous businesses that
create family-sustaining jobs help grow the economy and workers with solid
income, in turn, can support jobs at these businesses through their purchasing
power. The political feasibility is crucial to measure too because these
policies could not come to fruition without sufficient support from
legislators, either at the state or federal level. As such, there are vital
stakeholders invested in these alternatives. These stakeholders include workers
and their families, the business community, and political actors such as
interest groups, members of Congress, and state governments.
POLICY
ALTERNATIVES
The
first policy alternative to examine in combating wage stagnation is a proposal
to increase the national minimum wage to $10.10 per hour by the year 2016 and
indexing the minimum wage to inflation. In terms of the stakeholders, Senator
Tom Harkin (D-Iowa) and Congressman George Miller (D-California), both retiring
members of Congress, have introduced federal legislation to do this. President
Obama has publicly endorsed this initiative, utilizing several of his weekly
addresses and his 2014 State of the Union address to call for the wage hike. Political
interests like progressive advocacy groups across the country, including labor
groups such as the Service Employees International Union (SEIU) and Jobs with
Justice, are also stakeholders here; they have also backed this measure.[23]
For the President, congressional Democrats, and these political interest
groups, the effect of a minimum wage hike would be a significant political
victory for them. The workers that these political actors claim to represent
are individuals who may increase their loyalty and attachment to the Democratic
Party and these labor groups if a wage increase passed. On the other hand, a
wage increase is opposed in the ascendant GOP congressional majority, who are
friendlier to the interests of businesses, a stakeholder with key concerns, as
will be described later. The level of $10.10 is not incidental; according to
the Economic Policy Institute, such a minimum wage level would result in
“bring[ing] a minimum-wage income back above the poverty line for a family of three.”[24]
Indeed,
a December 2013 study conducted by University of Massachusetts-Amherst
economist Arindrajit Dube found that such an increase in the minimum wage would
cut poverty by 1.7 percent.[25]
In fact, an Economic Policy Institute analysis, of data from the U.S. Census
Bureau and the Congressional Budget Office (CBO), shows why a policy debate on
reducing poverty ought to include a discussion on the minimum wage. The
analysis found that “today, at the federal minimum wage of $7.25 per hour,
working 40 hours per week, 52 weeks per year yields an annual income of only
$15,080 – [which] is below the federal poverty line for families of two or
more.”[26]
Further, the facts that the minimum wage has not kept up with productivity and
has not kept up with inflation are key reasons why income growth has been
stagnant. This problem, with regards to the minimum wage, is inextricably
linked to the rise of income inequality in the last three decades in the United
States. Therefore, it is crucial to examine raising the minimum wage as a
policy solution precisely because, as the Center on Budget and Policy
Priorities notes, “the decline in the minimum wage’s relative value has
contributed to the increased dispersion in wages over the past few decades.” As
the CBPP argues, a wage hike would mean more “adequate earnings” for more than
eight million families, particularly low-income adults who are most affected by
income stagnation. These workers would have financial burdens lifted from them;
they would have an easier time affording basic needs and supporting their
families.[27]
In
fact, a 2010 Massachusetts Institute of Technology (MIT) study demonstrated
that the lack of minimum wage growth was the primary cause of rising income
inequality in the last three decades.[28]
As the minimum wage declined in real value over time, it failed to be
sufficient for workers seeking to make a living and it meant the value of
income for millions who rely upon the minimum wage declined. Indeed, Bureau of
Labor Statistics data shows why this is vital: the purchasing power of the
minimum wage has declined by 23 percent in inflation-adjusted dollars in 1968.
In very real terms, the decline in value of the minimum wage has dragged down
income for low-income and middle-income Americans.[29]
If the minimum wage were increased and indexed to inflation, for workers, its
purchasing power would significantly increase and these workers could
effectively utilize the pay to spend on goods and services thus supporting jobs
at other businesses too. Therefore, businesses, a key stakeholder in this
alternative, could potentially benefit from a minimum wage increase in this
way.
Increasing
the minimum wage to $10.10 per hour, and indexing the minimum wage to inflation
as Harkin and Miller propose, could provide substantial benefits to millions
thus strengthening wage growth. Economist David Card has found that the effect
of minimum wage increases in the early 1990’s was that they ultimately
“raised…average wages.”[30]
According to the U.S. Department of Labor, if the Harkin-Miller bill were to
pass Congress, as many as 28 million low-wage workers would see their income
boosted.[31]
Research from the Brookings Institution in January 2014 similarly found that “a
minimum wage increase could provide a much-needed boost to the earnings of
low-wage workers.” Brookings research explains that 24.9 percent of the
workforce, a critical stakeholder here, would see their wages increase.
Consequently, these workers would be more financially stable, as many of them
are not teenagers but instead are grown adults with families. The workers’
families would thus also benefit as a higher wage would mean more room in
families’ budgets for necessities like food, education, clothing, and other
items.[32]
Economist David Cooper concluded in research for the EPI that raising the
minimum wage to $10.10 would, in fact, “lift wages for millions.”[33]
Indeed, the reason why this proposal is so significant for alleviating poverty
and increasing Americans’ income is because a sizable 52 percent of the workers
who will benefit from the proposal live in a family making below $40,000 a
year. That level is, according to the Washington Center for Equitable Growth,
considered a “basic standard of living for a family of four.”[34]
Therefore, the effect of a minimum wage increase would mean millions of
workers, a key stakeholder here, and their families would have more money in
their hands. They would thus be able to support the economy with their new
consumer spending from their greater income. However, a February 2014 report of
the Congressional Budget Office had mixed conclusions in its analysis of the
effect of a minimum wage hike.
On
the one hand, the CBO determined that an increase to $10.10 per hour would
increase earnings for 16.5 million Americans, that 900,000 workers would be
lifted out of poverty, and that, “on net…national income would rise.” On the
other hand, the CBO also concluded that such a wage hike could reduce
employment by 500,000 workers as employers cope with the added costs of raising
workers’ wages.[35]
Further, analyses from the Cato Institute, the Office of Economic Analysis, and
the Manhattan Institute all determine that job losses from minimum wage
increases have the potential to be sizable.[36]
Indeed, a 2005 Journal of Human Resources economic study found that the
so-called “losers” of a minimum wage increase – those who would lose their jobs
due to employers deciding to cut jobs to counter the effect of higher wages –
outnumbered the number of so-called “winners.”[37]
Economist Richard Burkhauser reaffirmed this finding in his research for the
Southern Economic Association as he wrote that, because of this dynamic, “no
net reduction in poverty” resulted from a minimum wage increase.[38]
This
problem, one of at least modest job losses that could be caused by a minimum
wage hike, is important because a key stakeholder, businesses, is involved and
it directly affects the growth of the labor market and the economy. The core
issue at hand is that when the minimum wage is increased, the result is that
businesses would have to undertake an added cost to support their employees.
Consequently, as the CBO explained, businesses could pass on the costs to
customers, in the form of higher prices, thus maxing out potential consumers.
Another option for businesses is they would let some workers go to afford
paying higher wages to those remaining. The accumulation of studies described
above, most notably that of the CBO’s, find that the impact of this potential
development, in the scenario of a wage hike, is uncertain. However, it could
have a notable effect on “reducing income” for some, as the CBO described it.[39]
Nevertheless, after state legislators, a key stakeholder, acted, the impact on
business in some states has been positive with regards to jobs. States that increased
their minimum wages in 2013 saw faster job and income growth than those that
did not. [40]
The higher minimum wages in these states meant that businesses’ workers could
become part of the customer base to afford their goods and services, there was
less worker turnover as these workers felt less of a need to seek other
employment, and workers utilized their higher wages to support other businesses
through their new pay. Thus, as these states showed, the impact to business and
the broader economy could indeed be a strong, positive influence. However,
though many states have increased their minimum wages recently, the likelihood
of raising the wage nationally is low given the opposition in the incoming
Republican-controlled Congress.
A
second policy alternative to examine in combating income stagnation is direct
spending on infrastructure and job creation through federal economic fiscal
stimulus. As aforementioned, the federal government already undertook such
spending in a significant manner as a consequence of the American Recovery and
Reinvestment Act. The results of the ARRA, with regards to improving economic
growth and the labor market, are clear. According to the nonpartisan
Congressional Budget Office, the Recovery Act resulted in 3.5 million jobs being
either saved or created. The workers who benefited from this job creation took
home money that they may not have had in absence of the stimulus. As a
consequence of the stimulus package, the CBO concluded that there was a
noticeable, sizable increase in national income as well because of these jobs
programs. In deep analyses of the law, The
New New Deal author Michael Grunwald and economist Jared Bernstein, the
former chief economic adviser to Vice President Joe Biden, have also concluded
that the stimulus’ impact in bolstering incomes is significant and
indisputable.[41]
A
significant aspect of the job and wage improvements seen from the Recovery Act
was due to the $105.3 billion in infrastructure spending in the stimulus law.
Such spending included investments in rail improvement, strengthening roads and
bridges, airport enhancements, and expansions of broadband. The Center on
Budget and Policy Priorities made clear that such spending was crucial for
income growth in that “without the Recovery Act, millions would be…struggling
to get by on less income.”[42]
That is because the stimulus package created jobs that provided robust wages in
the infrastructure industry. Without this federal assistance, given the lack of
much private capital or private sector job openings in the wake of the
financial crisis, the workers who benefited would have likely not seen such
opportunities.
Therefore,
infrastructure spending could have a positive impact on income growth,
something further evidenced by the studies done by various think tanks and
institutions. For instance, the American Jobs Act, legislation President Obama
proposed in September 2011, would have created 1.9 million jobs, many of which
would have been full-time infrastructure jobs with good pay, according to the
CBO.[43]
According to the Center for American Progress, spending on infrastructure has a
strong impact on directly improving wages for working people by hiring
Americans to work in strong-paying, high-skilled jobs related to roads,
bridges, and other projects for which demand is high. Further, as CAP notes,
“well-maintained roads allow goods and people to move quickly between
locations, increasing productivity…[and] increased productivity results
in…rising wages for workers.”[44]
Therefore, such studies demonstrate that the impact of infrastructure spending
for businesses, mainly the construction industry but also corporations that
rely upon roads to ship and send goods, is significant. Businesses, a vital
stakeholder, would benefit significantly from having the ability to more
quickly move items from place to place. Political interest groups that
represent these interests have rallied to support infrastructure spending as a
result.[45]
However,
on another note, the impact that the American Jobs Act would have includes jobs
programs targeted specifically for low-income individuals, who have suffered
more than most Americans in income stagnation.[46]
Some of these programs – which include subsidized employment measures in
infrastructure as part of a public works-focused spending approach – offered in
the legislation were akin to those included in the TANF Emergency Fund in the
Recovery Act. According to the Center on Budget and Policy Priorities, the
effect of those programs, as they were designed in the stimulus package, was
that they created wage-paying jobs “quickly and efficiently.” The same analysis
from the CBPP finds that if those programs are extended, as the American Jobs
Act would do, there would be a suppression of income stagnation that was
similar to what was seen in the stimulus’ TANF spending.[47]
In
fact, investments in infrastructure, such as those featured in the 2009
stimulus package and in Obama’s 2011 proposal, are particularly effective at
tackling lagging income. “Infrastructure occupations,” the Brookings
Institution’s Joseph Kane and Robert Puentes analyzed in May 2014, “tend to
offer more equitable wages.” This reality is crucial and it exists because the
infrastructure industry is more unionized than other industries, its jobs are
in high demand, and it is considered a “growing” field.[48]
Jobs
with such wages were a core part of the American Jobs Act and the evidence of
that is further reflected in the professional economic analyses of the
legislation. Among other aspects of the proposal, the legislation sought to
create a multi-billion dollar National Infrastructure Bank, put thousands to
work modernizing schools, and improve railroads, waterways, and broadband
access. The accumulative effect of such policies would be the creation of at
least two million jobs, according to Moody’s Analytics and the Economic Policy
Institute, which found that “workers in nearly every state would benefit” from
such jobs programs. As such, the broader economy, the labor market, and
workers’ income would stand to benefit. Consequently, the success of such
programs would represent a sizable dent in income stagnation given the amount
of good-paying jobs that would be generated for millions of workers, important
stakeholders.[49]
Ultimately though, further stimulus spending, which can be done most
effectively at the federal level, is also likely doomed in Congress. Despite
significant public support for infrastructure spending, President Obama’s
high-profile campaign-style push for the American Jobs Act was ultimately
unsuccessful. At the state level, legislators are required legally to balance
their budgets thus making the task of stimulus-type spending even more
difficult in the states.[50]
A
third policy alternative to examine is a proposal to expand the Earned Income
Tax Credit (EITC) to be more generous to childless workers. As currently
designed, the EITC is both extremely politically popular and incredibly
effective in alleviating poverty. President Ronald Reagan’s 1986 tax reform
law, President Bill Clinton’s 1993 budget law, President George W. Bush’s 2001
tax cut, and President Barack Obama’s 2009 stimulus package all expanded the
tax credit.[51]
For nearly 30 million working families, the EITC, which helps relieve the
burdensome payroll tax, has had a significant impact on wage growth. According
to the Center on Budget and Policy Priorities, families with children have seen
their income increased by “about $240 a month.”[52]
A refundable tax credit, the EITC is a powerful work incentive for low-income
and middle-income workers as the credit increases as a worker’s income
increases – until it is phased out when a maximum level is reached. Therefore,
the influence the credit could have on job growth is significant; in fact, in
the 1990s, the EITC was credited with supporting strong job growth. It also
works to refund workers if the credit exceeds a worker’s tax liability. The
effect the tax credit has on after-tax income, as aforementioned in this paper,
is significant in alleviating inequality.[53]
Consequently,
the effect of the tax credit has been to cut poverty, encourage work and thus dramatically
increase employment, especially after its broad 1993 expansion, which covered
an additional 15 million Americans.[54]
The results of the continual expansions of the EITC have included lifting
millions out of poverty – 6.5 million in 2012 – and “a significant investment
in low-wage workers,” according to the Brookings Institution.[55]
Nevertheless, the benefits for childless workers are meager compared to the
benefits that are provided to families with children. “Low-income childless
workers,” anti-poverty policy experts Chuck Marr and Chye-Ching Huang note,
“receive little to nothing from the EITC.”[56]
In fact, the Tax Policy Center found that while “families with three or more
children may receive…up to $6,143,” childless workers can only receive $496.[57]
Beyond that, the childless worker
benefit only even exists for those between the ages of 25 and 64. The
consequence of this bias against childless workers is such that, as the CBPP
assessed, “low-wage workers not raising…children are the only Americans whom
the federal income tax taxes into poverty.”[58]
However,
given the policy success of the EITC in improving Americans’ income, economists
and policy experts have concluded that expanding the EITC to assist childless
workers would further strengthen income. Indeed, the Georgetown Center on
Poverty, Inequality, and Public Policy asserted in 2009, based on a wealth of
research, that “expanding the EITC for workers without…children…[would] address
the problem of low wages.”[59]
The precise benefit an Obama-proposed expansion for childless workers would
have on wages includes a substantial hike for currently impoverished
individuals – such as raising the credit for a childless worker “with wages at
the poverty line” from $171 to $841.[60]
The result would be several million more lifted out of poverty. State governments,
a stakeholder here, that acted on EITC expansions saw economic success in their
states. Research conducted by economist Joseph Sabia at San Diego State
University in 2007 concluded that state increases of EITC programs were
strongly correlated with state reductions in poverty and increases in family
incomes. Sabia wrote that a national EITC expansion would “boost the wages” of
millions of Americans.[61]
The
broader impact though is that, as affirmed by economist Arindrajit Dube, such
an expansion would represent the most effective anti-poverty tool of the
federal government. In fact, part of why Dube is able to make such an assertion
is because of the EITC’s ability to specifically boost the income of Americans
most affected by income stagnation: low-income and middle-income Americans.[62]
“The benefits of the EITC,” the Employment Policies Institute’s research
director Michael Saltsman explains, “generally accrue to those in poverty,”
thus leading to a direct boost in their incomes.[63]
Considering that extensive research of the Economic Policy Institute concluded
that the EITC “is extraordinary valuable to the living standards of the bottom
half of the income distribution,” and given that it is this group of Americans
who have suffered tremendously from income stagnation, an expansion of this
program would clearly be enormously beneficial for income growth.[64]
Expanding
the EITC to be more generous for childless workers is not only a strong policy
for income growth but it is also enormously popular politically. In fact, it is
a proposal backed by a wide array of political actors across party lines,
including President Obama, leading House Republican Paul Ryan, GOP Senator
Marco Rubio, and leading Senate Democrat Richard Durbin. Both conservative and
liberal think tanks, like the American Enterprise Institute and the Center for
American Progress, favor an expansion. The fact that the credit rewards and
encourages work makes it particularly politically appealing. In fact,
expansions of the EITC, when incorporated into broader bills, have usually
passed with broad, bipartisan support, as evidenced in the overwhelming
congressional support for the American Taxpayer Relief Act of 2013 – which
extended Recovery Act expansions of EITC.[65]
Policymakers would likely battle to take credit if an EITC expansion passed,
given how popular it is, so it is in their own political interests to see it
happen. Further, it should be noted there is virtually no cost to businesses
considering that the tax credit has literally no impact on employers, in their
capacity as businesspeople, and is only aimed at workers. On the other hand, as
demonstrated above, the influences on the labor market and employment – given
that the credit encourages work – and on workers, who would benefit
significantly, are positive and strong.
Given
the fact that expanding the Earned Income Tax Credit is proven to be politically
popular, it is apparent that this policy alternative is the most likely to
become law. More importantly, given that the EITC is economically effective in
boosting income for financially struggling individuals, it is apparent that expanding
the credit is also the most likely policy alternative to be effective in
addressing income stagnation. As noted in researched done by the American
Enterprise Institute (AEI), the EITC, in fact, “does a better job of lifting
workers from poverty” than the minimum wage does as a consequence of how the
tax credit is specifically targeted at low-income and middle-income households.[66]
This fact is critically important because, after all, it is these households
that have suffered the most from income stagnation. Therefore, a policy that is
most directly aimed at assisting them is one that ought to merit attention.
Harvard economics professor N. Gregory Mankiw further argued in January 2014
that evidence demonstrates that expanding the EITC would “do more to supplement
the incomes of low-wage workers” than any other short-term policy. Mankiw
argued such because of the same reasons AEI described in terms of how the
credit targets low-income Americans.[67]
On
the whole, expanding the EITC is also the best policy because of the fact that
it would provide more net benefit to a greater number of American workers than
policies like raising the minimum wage, which could cost jobs, and increasing
infrastructure spending. Given that workers are important stakeholders here, it
is vital to pursue a policy that is best suited for their needs. Professor
David Newmark, of the Center for Economics and Public Policy at the University
of California, Irvine agrees with the above conclusion. “Research supports the
notion,” Newmark contends, “that the EITC provides greater support to
low-income families than does the minimum wage.” Newmark makes this point precisely
because of both the risk of a minimum wage hike resulting in corporations
cutting jobs and the fact that the EITC is solely aimed at helping the needy.[68]
These
realities compel us to recommend to federal policymakers that Congress and the
President should cooperate to pass an expansion of the Earned Income Tax Credit
to be more generous to childless workers, akin to existing proposals from
President Obama and Congressman Ryan. If such an expansion were passed, it
would be enormously beneficial for lifting income in the United States and,
more broadly, for strengthening the U.S. economy. At a time when the economic
recovery is sorely in need of such rejuvenation, it is appropriate and vital
that policymakers act swiftly to expand the Earned Income Tax Credit.
[1] Leonhardt, David. "The
Great Wage Slowdown of the 21st Century." The New York Times. October 7,
2014. Accessed November 15, 2014.
http://www.nytimes.com/2014/10/07/upshot/the-great-wage-slowdown-of-the-21st-century.html?_r=0.
[2]
Ibid.
[3] Ibid.
[4]
Ibid.
[5] "A Decade of Flat Wages: The Key Barrier to Shared
Prosperity and a Rising Middle Class." Economic Policy Institute. August
21, 2013. Accessed November 14, 2014. http://www.epi.org/publication/a-decade-of-flat-wages-the-key-barrier-to-shared-prosperity-and-a-rising-middle-class/.
[6] United States Census Bureau, Income and Poverty in
the United States: Current Population Reports, September 2014; http://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf.
[7] "Wage Growth Is No Longer as Sensitive to Labor Market
Conditions." The New York Times. October 4, 2014. Accessed November 15,
2014.
http://www.nytimes.com/interactive/2014/10/04/upshot/100000003156300.embedded.html.
[8] U.S. Census Bureau.; Center for American Progress,
‘What the New Census Data Show About the Continuing Struggles of the Middle
Class.’ September 16, 2014. https://www.americanprogress.org/issues/economy/news/2014/09/16/97203/what-the-new-census-data-show-about-the-continuing-struggles-of-the-middle-class/.
[9] Ibid.
[10] Ibid.
[11] Economic Policy
Institute; Bureau of Labor Statistics: Employment Cost Index, www.bls.gov.
[12] “Unemployment Is Finally Under 6 Percent, But Don’t
Expect a Raise Anytime Soon.” The Washington Post. October 3, 2014. Accessed
November 15, 2014. http://www.washingtonpost.com/blogs/wonkblog/wp/2014/10/03/unemployment-is-finally-under-6-percent-but-dont-expect-a-raise-anytime-soon/.
[13] Casselman, Ben. “We’ve Regained the Jobs Lost in the
Recession But the Recovery Isn’t Complete.” FiveThirtyEight. June 4, 2014.
Accessed November 15, 2014. http://fivethirtyeight.com/datalab/weve-regained-the-jobs-lost-in-the-recession-but-the-recovery-isnt-complete/.
[14] Ibid.
[15] “New jobs pay 23% less than those lost during the
Great Recession,” American Enterprise Institute. August 11, 2014. http://www.aei.org/publication/study-new-jobs-pay-23-less-than-those-lost-during-the-great-recession/.
[16] Bureau of Labor Statistics; www.bls.gov.
[17] Reilly, Mollie. “Labor Secretary: We suck on the
minimum wage,” The Huffington Post. October 23, 2014. http://www.huffingtonpost.com/2014/10/23/tom-perez-minimum-wage_n_6036238.html.
[18] “Stimulus keeping 6 million out of poverty in 2009,
estimates show,” Center on Budget and Policy Priorities, November 24, 2014. http://www.cbpp.org/cms/index.cfm?fa=view&id=2910.
[19] Congressional Budget Office, ‘The Distribution of
Household Income and Federal Taxes, 2010: Share of Before-Tax Income and
Federal Taxes, by Income Group, 2010,’. December 2013. http://www.cbo.gov/sites/default/files/44604-AverageTaxRates.pdf.
[20] Ibid.
[21]
Ibid.
[22] Center for American Progress, “Middle Class Series:
The American Middle Class, Income Inequality, and the Strength of Our Economy:
New Evidence in Economics,” May 17, 2012. https://www.americanprogress.org/issues/economy/report/2012/05/17/11628/the-american-middle-class-income-inequality-and-the-strength-of-our-economy/.
[23] Fair Minimum Wage Act of 2013. Congress.Gov, Proposed
March 5, 2013. https://www.congress.gov/bill/113th-congress/senate-bill/460.
[24] Cooper, David. “Raising the Federal Minimum Wage to
$10.10 Would Lift Wages for Millions and Provide a Modest Economic Boost.”
Economic Policy Institute. December 19, 2013. http://www.epi.org/publication/raising-federal-minimum-wage-to-1010/.
[25] “Minimum Wage and Poverty,” Center for Economic and
Policy Research. January 13, 2014. http://www.cepr.net/index.php/blogs/cepr-blog/minimum-wage-and-poverty.
[26] Cooper, David. “The minimum wage used to be enough to
keep workers out of poverty – it’s not anymore,” Economic Policy Institute,
December 4, 2013. http://www.epi.org/publication/minimum-wage-workers-poverty-anymore-raising/.
[27]Bernstein, Jared. “Proposal to Strengthen Minimum Wage
Would Help Low-Wage Workers, With Little Impact on Employment,” Center on
Budget and Policy Priorities. January 7, 2014. http://www.cbpp.org/cms/?fa=view&id=4075.
[28]National Bureau of Economic Research. Massachusetts
Institute of Technology: Study on Minimum Wage and Income Inequality. 2010. http://www.nber.org/papers/w16533.
[29]Washington Center for Equitable Growth. “Understanding
the Minimum Wage and Income Inequality and Economic Growth.” March 2014. http://equitablegrowth.org/research/understanding-the-minimum-wage-and-income-inequality-and-economic-growth/.
[30] Card, David & Krueger, Alan. “Myth and
Measurement: The New Economics of the Minimum Wage,” 1997.
[32] “The Ripple Effect of the Minimum Wage on American
Worker,” The Hamilton Project of the Brookings Institution. January 30, 2014. http://www.hamiltonproject.org/papers/the_ripple_effect_of_the_minimum_wage_on_american_workers/.
[33] Cooper, David, EPI.
[34]
Washington Center for Equitable Growth.
[35] Congressional Budget Office, “The Effects of a
Minimum-Wage Increase on Employment and Family Income.” February 2014. http://www.cbo.gov/sites/default/files/44995-MinimumWage.pdf.
[36] “The Minimum Wage Debate,” The Cato Institute.
January 2014. http://www.cato.org/joining-the-minimum-wage-debate.
[37] Saltsman, Michael. “The $9 Minimum Wage That Already
Exists.” The Wall Street Journal. February 13, 2013. http://online.wsj.com/articles/SB10001424127887324616604578302153328738108.
[38] Sabia, J.J. “Minimum Wages: A Poor Way to Reduce
Poverty,” The Cato Institute. March 2014. http://object.cato.org/sites/cato.org/files/pubs/pdf/tbb_70.pdf.
[39]
Congressional Budget Office.
[40] Ibid.
[41] “5 Years After Stimulus, Obama Says It Worked,” Time
Magazine. February 17, 2014. http://time.com/8362/economic-stimulus-recovery-act-anniversary-obama/.
[42] “Despite Deep Recession, Recovery Act Prevented
Poverty,” CBPP. January 5, 2011. http://www.cbpp.org/cms/?fa=view&id=3361.
[43] Congressional Budget Office, “Estimate: American Jobs
Act of 2011,” October 7, 2011. http://www.cbo.gov/publication/42609.
[44] “Rebuilding America’s crumbling infrastructure,”
Center for American Progress. March 3, 2013. http://cdn.americanprogress.org/wp-content/uploads/2013/03/StateMiddleClassPolicies-Ch7.pdf.
[45] Ibid.
[46] Ibid.
[47] Schott, Liz. “Extending the TANF Emergency Fund Would
Create and Preserve Jobs Quickly and Efficiently.” Center on Budget and Policy
Priorities. April 6, 2010. http://www.cbpp.org/cms/?fa=view&id=3061.
[48] “The Extent and Impact of US Infrastructure Jobs,”
The Brookings Institution. May 9, 2014. http://www.brookings.edu/research/interactives/2014/infrastructure-jobs.
[49] Zandi, Mark, “An Analysis of the Obama Jobs Plan.”
Moody’s Analytics. September 9, 2011. https://www.economy.com/dismal/article_free.asp?cid=224641.
[50] “Obama’s jobs plan blocked in Senate.” The Hill.
October 11, 2011. http://thehill.com/homenews/senate/186877-senate-blocks-obamas-447-billion-jobs-plan.
[51] “Policy Basics: The EITC,” www.cbpp.org.
[52] Ibid.
[53] Ibid.
[54] Ibid.
[55] Kneebone and Williams, “EITC Expansion Would
Strengthen Credit for Childless Workers.” The Brookings Institution. March 18,
2014. http://www.brookings.edu/research/papers/2014/03/eitc-expansion-workers-kneebone-williams.
[56] Marr, Huang, and Ruffini, “How Expanding the EITC
Could Improve Labor and Cut Poverty,” RealClearPolicy. July 16, 2013. http://www.realclearpolicy.com/2013/07/16/how_expanding_the_eitc_could_improve_labor_and_cut_poverty_13059.html.
[57]Maag and Carasso, “What is the Earned Income Tax
Credit?” The Tax Policy Center. February 12, 2014. http://www.taxpolicycenter.org/briefing-book/key-elements/family/eitc.cfm.
[58] CBPP.
[59] Edelman, Greenberg, Holt, and Holzer. “Expanding the EITC
to Help More Low-Wage Workers.” Georgetown Center on Poverty, Inequality, and
Public Policy. September 2009. www.georgetown.edu. Accessed on November 21, 2014.
[60] CBPP; Ibid.
[61] Saltsman, Michael, The Wall Street Journal. http://online.wsj.com/articles/SB10001424127887324616604578302153328738108.
[63] Saltsman.
[64] EPI.
[65] The New
Republic.
[66] Strain, Michael. “EITC does a better job of lifting
workers out of poverty than the minimum wage.” American Enterprise Institute.
May 5, 2014. http://www.aei.org/publication/earned-income-tax-credit-does-better-job-of-lifting-workers-from-poverty/.
[67] Mankiw, N. Gregory. “Help the Working Poor But Share
the Burden.” The New York Times. January 4, 2014. http://www.nytimes.com/2014/01/05/business/help-the-working-poor-but-share-the-burden.html.
[68] Newmark, David. “The Minimum Wage Ain’t What It Used
to Be.” The New York Times: Economix Debate. December 9, 2013. http://economix.blogs.nytimes.com/2013/12/09/the-minimum-wage-aint-what-it-used-to-be/.
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