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Latest News - October 2014

October 18, 2014
Minimum wage raise costly for workers
Source: Sfgate.com
By: Joe Mathews

Will you actually be richer when your pay is raised to $15 per hour?

Perhaps the question seems ludicrous. Of course you’re better off making $15 an hour than you were at $9 per hour, right? But the answer is, unfortunately, not that obvious. And the question itself — will workers getting a raise be better off? — has been missing from this fall’s white-hot debate over efforts in San Francisco and Los Angeles to establish $15 per hour minimum wages.

Instead, in California we’ve seen the same-old tired arguments over whether a higher minimum wage hurts business and reduces jobs — or whether it boosts the economy by giving workers more money to spend. For the record, I think a higher minimum wage makes sense; $15 per hour isn’t much in our coastal cities. But I’m troubled by the failure to consider the thorny question of the real-world impact of minimum-wage hikes on the workers getting them.

It’s a hard question because of a hard fact. Many workers who get a boost in pay will see their gains offset by a reduction in the government assistance they are currently receiving.

Why? Eligibility for many public programs — and the amount of support received — is need-based. Whether we’re talking about the earned income tax credit, healthcare subsidies, Section 8 housing vouchers, or food stamps, those with lower incomes tend to get more in benefits. So a boost in income means a corresponding reduction in benefits.

It is hard to generalize about the “cost” of someone’s raise to $15 per hour (each individual is different and program eligibility is based on variable factors like number of children and household size). But for the most part, the working poor face what can be thought of as high marginal taxes (north of 60 percent, in many cases) on every additional dollar they earn. TheCongressional Budget Office found that a single parent with one child who makes between $5,000 and $20,000 a year gets only $15 of every additional $100 he makes.

The Affordable Care Act contributes to the phenomenon. This landmark piece of social legislation extended free or highly subsidized health insurance to millions of additional Americans. But it also, therefore, increases the loss of benefits to low-income workers after a raise. Take a single person making $10 per hour (or $20,000 a year) who gets a raise to $15 ($30,000 a year). According to Micah Weinberg, a healthcare policy adviser with the Bay Area Council, that person’s health insurance premium under Obamacare would be capped at 5.1 percent of her income at $20,000 — $1,021. But at her new income of $30,000 a year, the premium would be capped at 8.4 percent — or $2,511. So a higher minimum wage buys her a premium hike of nearly $1,500 a year. And that doesn’t account for cost-sharing subsidies that are also tied to income, financial assistance that is lost entirely at $15 per hour.

Given this context, you might ask: What are leaders who campaign for higher minimum wages — from San Francisco MayorEd Lee to President Obama — doing to make sure that low-income workers don’t pay all these new costs of a higher minimum wage? Not much.

There are even advocates of a higher minimum wage, like the conservative Ron Unz, who argue that by forcing businesses to pay people more, the government will save money on public assistance. Is this why plutocrats like Eli Broad have embraced a higher minimum wage? Raising wages by fiat may cost them less than raising taxes on the wealthy to improve social welfare.

In this light, $15 per hour looks more like a way to shrink the government than an effective strategy to improve the financial position of low-income workers.

The better path would for our political leaders to go beyond popular public appeals for a higher minimum wage — and instead recalibrate and expand social programs so that low-wage workers get the full benefit of their raises. Of course, doing this would require two things that are in short supply: thoughtful political action and money.

But if Californians are going to raise the minimum wage, our goal should be to put more money in people’s pockets — and not just enact a policy that makes us feel good about ourselves.

 

 


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