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August 08, 2007

Helping the poor

Finding ways to help those with less income and fewer economic opportunities is always an important issue. N.C. State University economist Mike Walden discusses the fundamental differences in two potential approaches: increasing the minimum wage versus raising the earned income tax credit.

"Well, of course, increasing the minimum wage would help those low-income workers who are, indeed, earning not much income. It's a way that obviously forces the employer to pay those low-income workers more," says Dr. Walden, a North Carolina Cooperative Extension economist. "Now a big potential downside is, What if the employer says, 'Alright,' to that worker, 'You are now not worth the higher wage I'm forced to pay you, and I'm going to lay you off.'? And in fact studies show this can happen in a significant percentage of the cases. So that's one issue with raising the minimum wage.

"Now the other approach, or one of the other competing approaches, is something ... called the earned income tax credit. This is a government program that doesn't require employers to pay low-income workers more. They continue to receive whatever wage they are receiving, but the government, in essence, supplements the earnings of those workers," he adds. "So the costs are now put in the hands of the government -- that is, the taxpayer.

"But this program avoids the potential problems with the minimum wage that if, again, the worker is judged not to be worth that higher wage, the employer will let them go.

"So these are really two competing approaches," he concludes. "Both have advantages and disadvantages, but I think they are worthy of discussion in this issue of how to help the working poor."

Posted by deeshore at August 8, 2007 08:00 AM