Raising the Minimum Wage and Alternative Options

By Jason Zhao

16 February 2016 — With election season in full swing, debate over raising the minimum wage continues to rage on across the country in town halls and on stage. This past Tuesday, the Roosevelt Institute at Columbia University discussed both policy solutions and possible alternatives for minimum wages.

Perhaps the most well known policy is current presidential candidate Bernie Sanders’ plan to increase the federal minimum wage to $15. This more than doubles the current $7.25 rate, leaving some members concerned that this increase would cause significant job loss especially among small business owners who employ two-thirds of all Americans.

Additionally, this policy brought up the question of whether minimum wage should be determined at a federal, state, or local level. Establishing minimum wage at a local level would certainly be the most robust by allowing large metropolitan areas like New York City to set a rate independent of rural upstate regions; however, the issue of practicality arose which pushed the solution towards the state level.

Two of the most popular alternatives to a minimum wage that were discussed are the Earned Income Tax Credit (EITC) and a universal basic income (UBI). The former functions as a subsidy for low-to-moderate income individuals, particularly workers with children, by boosting income as much as $3000 per year. Proponents of EITCs argue that it provides an important incentive to work and that it has the capacity to keep an additional estimated 11 million people out of poverty. More specifically, the economic impact of EITCs are twofold: direct subsidization and indirect wage increases from a greater number of people in the workforce. A UBI, on the other hand, is a system that provides an unconditional income to every citizen, indiscriminately. This has the added potential of drastically reducing administrative welfare spending and by some estimates, could provide every citizen in the US with $8000 per year of income if all other welfare spending stopped. Supporters of UBI argue that it provides low-income individuals with much more freedom in both spending and saving their money. The “Alaska Permanent Fund,” for example, pays every resident of Alaska $2000 a year and has made Alaska’s poverty rate one of the lowest in the country. In fact, Alaska is the only state to become more economically equal in the past 30 years.

Opponents of the EITC saw it simply as a band-aid to the United States’s already badly bleeding welfare system. They argued that a UBI would be a much more efficient way of helping low-income individuals, not only giving them more bargaining power against employers, but also as a means of providing financial compensation for familial caretaking. Others maintained that a UBI provides no incentive to work and is much more easily manipulated. Rather, we should focus on improving our current welfare system.

Bridging the gap, one solution released by the Brookings Institute in 2014 garnered wide support from the group for its relatively moderate measures. These included increasing the minimum wage to $10.10, indexing for inflation, and providing more generous EITC stipends for families with young children. Most economists agree that this approximately 39% increase in minimum wage would have little effect on job loss, and many members praised inflation indexing. While the merits of the ETIC and UBI were hotly contested, one thing was apparent at this weeks meeting: we need new policy to address the insufficiencies of the minimum wage now.