July 29, 2006
By Michael Franc
Thanks to a determined coalition of liberal Democrats and
moderate Republicans, it is all but guaranteed that, shortly after
its August recess, Congress will vote on Sen. Ted Kennedy's
(D.-Mass.) proposal to boost the minimum wage to $7.25 per hour, an
increase of 40%.
An enduring urban legend about minimum-wage workers is that they
are married adults struggling to raise children in Dickensian-style
poverty. As Kennedy said in a recent Senate floor speech,
"Minimum-wage workers are forced to make impossible choices between
paying the rent and buying groceries, paying the heating bills or
buying clothes." Their families, he said, lack health care and
adequate housing. Their "daily fear" is "poverty, hunger and
The data, however, tell a very different story. While some
minimum-wage workers are primary breadwinners raising young
children, the overwhelming majority are either younger workers
honing their skills in entry-level positions or part-time, mostly
female workers from middle-class homes supplementing their spouse's
But what about those families that do fit Kennedy's description?
Shouldn't Congress do something to help them? The short answer: It
already is. Our welfare state provides the working poor generous
subsidies to pay rent, buy groceries, pay heating bills, obtain
health care and babysit children. All that assistance, however,
brings with it a truly terrible Hobson's choice.
Studies have looked at the interaction between low-wage workers
and welfare programs. Researchers have sketched out different
income levels at which a hypothetical family of four qualifies for
widely used welfare programs that offer cash subsidies, nutrition
assistance, housing vouchers, childcare and health coverage. What
happens, they wondered, when that family's income rises?
The researchers uncovered the dirty little secret of the welfare
state. For example, a family of four in Kennedy's Massachusetts
earning $13,000 is eligible for a theoretical maximum package of
benefits totaling an additional-hold on to your hats-$31,500,
bringing its total income to $44,500.
Specifically, that Massachusetts family could receive $6,500 in
cash assistance from TANF, an earned income tax credit worth
$4,400, $2,172 in Food Stamps, $275 worth of school lunches, $5,700
in housing vouchers, $6,000 in child-care subsidies and $6,460 in
Medicaid. The unintended consequence: As a family increases its
earned income, it actually falls further because of the way welfare
benefits decline as incomes rise. For example, for each additional
$1,000 it earns, the family could lose up to 30% of its Food Stamps
and housing voucher.
So what about that minimum-wage earner that Kennedy and his allies
want to elevate above poverty?
A family of four with an annual household income of $11,000
(equivalent to what a full-time minimum-wage job yields) could
qualify for $33,000 in supplemental welfare benefits. Kennedy's
plan would, assuming no loss of employment, boost that family's
yearly paycheck to $15,000. But, due to the way benefits phase out
as incomes rise, that family's benefit package would
decline by $7,000. Thus, total annual income-earned income
plus welfare benefits-would actually fall by $3,000. Surely, reducing welfare
assistance to half a million working poor families isn't what the
senator from Massachusetts had in mind.
The real problem, of course, resides in the destructive incentives
that, a decade after the historic welfare reform of 1996, remain in
place. "Indeed, in some cases," concludes Prof. Dan Shaviro of New
York Law School, "the effective marginal tax rate exceeds 100%, and
the price of earning extra income may be to leave one's family
worse off ... The effects on work incentives and the ability to
escape poverty are potentially devastating."
We shouldn't be surprised that well-intentioned schemes to improve
the quality of life of low-wage workers such as raising the minimum
wage run aground on the shoals of our unforgiving welfare
Mike Franc, who
has held a number of positions on Capitol Hill, is vice president
of Government Relations at The Heritage Foundation.
First appeared in Human Events Online
Thanks to a determined coalition of liberal Democrats and moderate Republicans, it is all but guaranteed that, shortly after its August recess, Congress will vote on Sen. Ted Kennedy's (D.-Mass.) proposal to boost the minimum wage to $7.25 per hour, an increase of 40%.
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