Conservatives and Minimum Wage Hike: Wage Subsidies vs. EITC Increase

The debate over whether to increase the minimum wage or implement other solutions such as wage subsidies or raising the Earned Income Tax Credit (EITC) revolves around how to best support struggling workers. Many conservatives may dismiss the idea of a minimum wage hike, arguing for more practical and long-term solutions that address the root causes of income struggles. This article explores these alternative solutions and their potential impact.

Understanding Worker Struggles

The traditional argument that struggling workers need a higher minimum wage to alleviate their financial hardships is flawed. Workers struggle not because low-wage jobs don't pay enough at the bottom rungs, but because they are unable to match the rising demands of their lifestyle and responsibilities with their earnings. For instance, a worker at ladder rung 2, the stage immediately after high school, may earn a living wage if they have fewer responsibilities. However, as workers progress to higher rungs with more commitments and expectations, their wage fails to keep pace.

Education and continuous skill development are key to addressing this issue. Conditional secondary education, such as college, vocational training, apprenticeships, and management programs offered by big corporations like Walmart and McDonald's, provide a better framework for workers to advance their careers and income levels. Simply increasing the minimum wage without addressing these underlying issues can lead to economic inefficiencies and perpetuate the status quo for the poorest workers.

Proposed Solutions

To address the issue of low-wage work, conservative thinkers like me propose implementing wage subsidies or raising the EITC to a de facto 15 or 20-hourly wage. This approach is designed to support workers without the inefficiencies and distortions that come with a minimum wage hike.

Wage Subsidies

The argument for wage subsidies is straightforward. By providing direct financial assistance to employers to increase wages, the government can support the earning power of low-wage workers without the economic distortions associated with a minimum wage hike. This method allows businesses to retain their workforce and provides a financial buffer for employees.

Raising the EITC

An alternative is raising the EITC to a level that effectively provides workers with a de facto 15 or 20-hourly wage. The EITC is a refundable tax credit for low- to moderate-income working individuals and couples. Increasing it would provide a substantial financial boost to workers, particularly those at the lower end of the income scale. This approach is more targeted and can address the economic challenges faced by specific groups of workers more effectively than a blanket minimum wage increase.

A Conservative Proposal

A more conservative approach would be to eliminate income taxes for workers under the poverty threshold. By setting the standard deduction to the poverty threshold, the government ensures that no one in poverty pays federal income taxes. This policy also provides a tax credit for earned income with each paycheck, rather than a one-time credit at the end of the year, making the system more immediate and beneficial.

To further address the issue, this proposal could be extended to a negative income tax, where the standard deduction is set to twice the poverty threshold. Earners would then receive a credit of fifty percent of the difference between their income and the deduction amount. All other federal welfare programs could be eliminated to help fund this proposal. For example, a single worker earning $10 per hour (approximately $18,200 per year) would receive approximately $4,200 in assistance from the state treasury.

Conclusion

While no solution is perfect, wage subsidies and raising the EITC offer more targeted and efficient ways to support struggling workers compared to a minimum wage hike. This approach acknowledges the importance of education and skill development in the long-term success of workers. By focusing on these issues, we can create a more economically adaptable and equitable society.

Further Reading and Viewing

If you're interested in learning more about these topics, you might want to explore:

Negative Income Tax Explained - MIT Sloan