Minimum Wage And Poverty
An argument against this is that 57 percent of poor families don’t work and 46 percent have hourly wages over $10.10 but are poor because of low hours based on 2014 data from the Current Population Survey. If such is the case then in theory only 15 percent of the benefits of an increase in minimum wage to $12 would go to poor families and 35 percent would to go families living over three times the poverty line. An alternative proposed is the earned income tax credit (EITC) that subsidizes income through a tax return, decreasing as income rises. Since the EITC takes income into consideration it can affect poor families more effectively. Another argument is that since you have to work in order to receive EITC it offers pro-work incentives and more poor families, especially mothers will enter the labor market so poor families will actually “earn their way out of poverty even before receiving their EITC check.” However, this way of thinking has roots since the 1976 myth of the racial idea of the “welfare queen”, a black woman who frauds the government and taxpayers by living off welfare from producing more children. The condescending undertone implies that poor families, disproportionately Hispanics, blacks, and women, choose not to work and instead live off welfare from taxpayer dollars, just like the welfare queen. Simple labor economic theory disputes this racial under toned way of thinking. The assumption that poor families do not work because they want to live off welfare is wrong. The way welfare is structured leads to poor families working fewer hours or not at all. A poor family’s budget constraint and labor supply curve shows that because they have nonworking income through welfare their reservation wage, wage that would incentivize them to work, is higher than those without nonworking income. Such is also the case also with those who have nonworking income through trusts.