There's a Better Way to Reduce Poverty

Raising the minimum wage won't reduce poverty, but other ideas might.

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The white, teenage girl who works part-time at McDonald's after school was thrilled to hear last week that President Barack Obama wants to increase her wage from $7.25 an hour to $10.10. That boost will put her coveted iPad tablet almost within reach.

Let's not be fooled by who actually gets paid minimum wage. The majority are not the hardworking fathers looking to make ends-meat by putting in a 60-hour work week, or the single mom trying to provide for her family on less than $15,000 a year – the bulk of recipients are white youths, between the ages of 16 to 24 who work part-time, according to the Pew Research Center. Only one in four recipients are families making less than 20,000 a year.

The number of people who earn minimum wage has actually decreased. Last year, 2.8 percent of all workers earned at or below the federal level, whereas in 1979, when the Bureau of Labor Statistics started computing the figure, it was 7.9 percent, according to Pew statistics.

[See a collection of political cartoons on the economy.]

At $7.25, the federal minimum is higher in real terms than during most of the last three decades. Between 2007 and 2009 alone, the federal wage was raised by 35 percent after inflation. Measured by what it can buy, the U.S. minimum is on par internationally, sitting between Canada and Austria.

Let's be clear: The main cause of poverty in the U.S. is not that the minimum wage is set too low, it's unemployment. Economists all agree: Increasing the federal minimum wage will force businesses to react by either charging higher prices to consumers, lowering returns to investors, paying less to suppliers or by reducing their workforce. Now is not the time to threaten our nation's employment numbers.

The U.S. is desperately trying to dig out of its worst recession since the Great Depression. The unemployment rate for unskilled workers and youths remains bleak. More than 14 percent of workers aged 16 to 24 are unemployed, compared to the national average of 7 percent, and the unemployment rate for high school dropouts over the age of 24 is at a two decade high of 10.8 percent.

Unequivocally, raising the minimum wage would have the greatest negative impact on these two groups. Most jobs that pay minimum wage are low skill and entry-level, such as flipping burgers or taking pizza orders. Most times, business owners, operating on razor thin margins, pay employees what they're worth to the business. A living wage fee of $15 an hour, as demanded by some fast-food workers in protests this month, is simply more than their job is worth.

[See a collection of political cartoons on the budget and deficit.]

You see, if a low skilled worker can only contribute $7 an hour in sales to a business, then that business can't afford to hire him for $15 an hour – it would be losing $8 for every hour that employee was on the job. For low-skilled work, you're finding businesses like Applebee's turning to electronic tablets to take food orders and process your bill, and in fast food restaurants like McDonald's, you're forced to fill your own soda cup, because human labor is becoming too expensive.

I fundamentally believe if individuals are willing to work full time and give their best effort, regardless of their skill set, they should be able to get and hold a job. A quarter of minimum wage earners are trying to support their families and are still living below the poverty line. Instead of a sweeping policy like a federal minimum wage hike that punishes business owners – the people in the economy who create jobs – the government should do something more targeted to help out these hardworking, yet impoverished individuals.

Economist Michael Strain, with the American Enterprise Institute, recommends expanding the earned-income tax credit, known as the EITC. The EITC is a refundable tax credit issued by the federal government for working-class families. It rewards full-time employment by supplementing earned income. For example, if you were a single worker with two children this year, the EITC would pay you 40 cents for every dollar of earned income up to $13,430, providing a maximum subsidy of $5,372, Strain estimates.

[Read Pat Garofalo: Why Fast Food Workers Are Right to Go on Strike]

In 2009 about 7 million people — including more than 3 million children — were lifted out of poverty by the EITC, according to Internal Revenue Service estimates.

Is this solution perfect? Probably not. Some argue if the EITC were expanded, businesses would use it as an excuse to pay their employees less. Maybe they would, but a targeted program that identifies families in need and helps out individuals trying to achieve the American dream is significantly better than a blanket proposal that's punitive to business.

The president is betting his plan to raise the minimum wage will sound like a good idea to many Americans – especially after learning their health care policies were canceled and premiums increased due to his disastrous health care overhaul. On further inspection, however, Obama's minimum wage proposal would disproportionately discriminate against unskilled workers and youth looking for first-time employment, and may kill the only thing fueling the U.S.'s economic recovery so far: Jobs.

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