Helping the Low Wage Worker

There are lots of sources for this help; I’m only going to talk about how government can help (yes, we can and should help the least among us, and yes, Conservatives, government does have a role, if limited: there are things government can do, even here, better than the private sector).  The trick here is to prevent government mission creep and an ever-increasing government role—a difficulty that in itself makes a powerful, and not entirely illegitimate, argument against any government role at all.

Who are the low-wage workers in America?  They’re our younger teenagers, just starting out; our college students looking for part-time work while trying to remain full-time students for their longer term benefit; the parent looking for part-time work to flesh out the family income, while also needing to take care of children still at home; the high school graduate, or drop-out, trapped by that level of education in a dead-end job.  In short, they’re far and away low-skilled workers, and they’re workers with jobs whose output has very little value to the employer, even if the employer needs that work done to some degree.

So how do we—how does government—help these folks?  One solution proffered lately is the Earned Income Tax Credit as a supplement to those low wages.  The EITC even is “enjoying” a push to expand its reach.  Glenn Hubbard, writing in The Wall Street Journal, is one of those pushing this idea:

The Earned Income Tax Credit, which supplements the income of low-wage workers as they earn more, is supported by many conservatives and liberals alike.  Expanding this program’s payments for single workers (that is, beyond workers with families)—or using an alternative low-wage subsidy—would create more powerful work incentives.

He also favors means testing this aid, but on a shallower slope in order to “reduc[e] the marginal tax rate on work as the support phases out.”  The problem with this last—means testing—is that it still leaves in place that added tax on work.  I’ve written elsewhere of the doom that means testing spells for any welfare program.

Means testing welfare generally actively discourages, if not work itself, then looking for higher-paying jobs, even when the individual is qualified for that better job and it’s available—that’s the outcome of the welfare cliffs that the Pennsylvania Secretary of Public Welfare was describing in my earlier post.  We can’t means test.  Either the individual is eligible for welfare, or he is not.  Full stop.

The larger problem, though, with an EITC form of aid is that, while it might indeed encourage more folks to look for work rather than welfare, it won’t encourage employers to offer that work, and a wage subsidy actively encourages employers to suppress the wages offered for the work they do have—after all, government will make up the difference with its EITC.  Thus, there’s no help for getting out of the bottom levels.

Rather than means testing or open-endedly subsidizing, we should be applying an upper bound on the amount of subsidy offered.  A couple of examples will illustrate.

During the Clinton years, Temporary Assistance to Needy Families was enacted, replacing Aid to Families with Dependent Children, and this program had both a work requirement for aid eligibility and a maximum lifetime duration of that eligibility.  Under that program, folks went back to work, child poverty rates fell sharply, and income sources for the affected families shifted from a 33% from earned income/40% from AFDC split in 1991 to a split of roughly 60% from earned income/9% from TANF by 2000.

The GI Bill, used to educate our veterans—whether the very generous program under which I got two advanced degrees, or the current still-generous program that provides funding for four years of college at sound (if not very expensive) schools—and which benefit was earned by our military service, offers another example of a limited, finite training subsidy.  It’s overkill for initial training, but it demonstrates in a different venue the efficacy of limiting handouts and providing a hand up instead.

The subsidy also needs to be aimed at helping the low-wage worker—or the wholly unemployed—improve his situation so he can get a better job, or a job at all; it should not be just an unfocused handout of money.

Given the reason for those low wages—low value work and lack of training—the better way to help our low-wage workers (we’re not going to increase the value of work that is inherently low-value) is to facilitate their ability to get initial training either for an entry-level job (so as to potentiate getting that first job) or for moving up from a low value job to higher value one.  This can be done by any combination of subsidizing the worker as he seeks that initial training, or by paying the employer (prospective or current) that subsidy.  Subsequent training then can and should be provided by the employer (consistent with business needs) as he recognizes the value of that now known worker or sought by the worker as he looks to change directions in his working career.

In either event, a training subsidy can’t be open-ended, nor can it be means tested to be effective.  The subsidy must have an upper bound either on the total amount paid out—use it wisely—or on the time available for its use—don’t dither—or it must have both limits, and the clock must start on first use (rather than first eligibility).

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