News

Econ prof Hanson researches minimum wage policy for Wisconsin

 

November 25, 2014

In a Nov. 20, 2014, opinion piece in the Milwaukee Journal Sentinel, Associate Professor of Economics Dr. Andrew Hanson laid out his latest research project for the Wisconsin Policy Research Institute, which tackled a divisive topic in the state: whether to raise the minimum wage. In the paper, Hanson and collaborator Dr. Ike Brannon, president of Capital Policy Analytics in Washington, D.C., suggest that raising the minimum wage is not the most effective way to help Wisconsin’s working poor. Instead, their research favors improving the Earned Income Tax Credit.

Hanson and Brannon write:

The problem is that the minimum wage is a blunt instrument for helping the working poor. The United States does not have just one labor market; it has, essentially, thousands of different labor markets that vary wildly across the country. The average hourly wage in Milwaukee or Wausau is on an altogether different plane than in New York City. What might produce a modest boost in pay for low-income workers in Manhattan would create not a little unemployment in Wausau.

A better way to help low-income workers, we suggest in our report, is via the Earned Income Tax Credit (EITC), which lessens the tax burden for working Americans. The EITC kicks in a percentage of low-wage worker earnings in the form of a tax reduction or, if tax liability is zero, a subsidy. This policy, unlike the minimum wage, actually works toward creating employment opportunities for low-income individuals as the government shares the cost of their employment with companies.

Raising the state's minimum wage may be politically expedient, but it's no panacea: Many low-wage workers in Wisconsin are young and just starting to find their way in the workforce. Making it more difficult for these people to get and keep jobs invariably will hurt them later in their careers, when they are trying to establish a career that pays enough to support a family.

There is no free lunch: A minimum wage will increase the wages of low-income workers but at the cost of higher unemployment among other low-income workers. An enhanced EITC boosts low-income wages as well and, though it would come at a cost, actually expands job opportunities.

Read the full op-ed
Read the full research paper