Smart Solutions Needed to Help Boost Earnings
Americans want people to have jobs that pay well and provide good benefits. When we hear of people working hard and barely scraping by, we۪re frustrated: People doing the right thing showing up to work every day and fulfilling their jobs should be rewarded with more than just a paycheck. They should also be on the road to financial success and have a sense of basic financial security.
Unfortunately, in crafting public policies intended to facilitate that outcome, policymakers can inadvertently make economic success more difficult for those trying to move out of poverty and up the economic ladder. Imposing paid leave requirements and raising the minimum wage are two well-meaning but ultimately harmful policy proposals that would hurt, rather than help, many lower-income Americans.
Requiring that all jobs provide paid leave benefits sounds like a compassionate policy. After all, workers are people too. Sometimes we get sick and cannot show up for work, or need to be able to take time off to care for a loved one. That۪s why most businesses offer some form of paid leave benefits even though they aren۪t legally required to.
Not surprisingly, however, workers with lower incomes are also less likely to have paid time off. In fact, the top 25 percent of earners are more than twice as likely to have paid leave benefits as those in the bottom 25 percent. This makes lower-wage earners particularly vulnerable: Not only do they miss their pay when they have to take time off, but also, because they have lower incomes in the first place, they are less likely to have savings available to make up for that lost income.
Yet this doesn۪t mean that these workers would be better off under a system that requires that businesses must offer all workers paid leave. When businesses hire workers, they consider the total cost associated with paying for that worker. This includes not only the actual salary, but also the taxes they must pay, the costs of all benefits, and the other overhead that they must provide.
As the costs of benefits for a worker go up, business must make new determinations about the value of continuing to engage that employee. They may decide that the employee doesn۪t provide enough value to justify higher costs, which means that they may reduce take-home pay or other benefits, or they may cut jobs altogether. Rather than having the same job and the same pay with better benefits, lower-income workers may find that they have less take-home pay, or worse, no job at all, if costly mandates are put in place.
A similar dynamic occurs with the minimum wage. It sounds like a boon to minimum wage workers to increase their base pay from $7.25 to $10.10 per hour. And certainly some minimum wage workers would receive a significant pay raise as a result of a higher minimum wage threshold. But others will find that employers can۪t pay for as many hours or as many workers at the higher minimum wage. Those minimum wage jobs will become scarcer as employers consolidate those jobs into fewer, more highly paid positions, or move to automate jobs previously held by lower-wage workers.
Supporters of minimum-wage increases argue and may sincerely hope that the policy would at least do no harm in terms of job creation. Yet common sense and sound economic analysis warn otherwise. The nonpartisan Congressional Budget Office estimated that a proposed federal rate hike to $10.10 per hour would result in 500,000 fewer jobs nationwide.
These losses would be particularly problematic because minimum wage positions tend to be crucial first jobs for Americans living in poverty who have few skills. An entry-level job is more than a paycheck; it۪s an opportunity to gain valuable work experience, learn on-the-job skills, and demonstrate a track record of showing up on time and fulfilling duties.
Recognizing the unintended consequences of employment mandates, such as paid leave requirements and a higher minimum wage, doesn۪t mean that we can۪t help those who are working for low wages. The key is to identify policies that provide these workers with greater economic support without changing the incentives of their potential employers.
For example, the Earned Income Tax Credit (EITC) helps boost the effective take-home pay of lower-income workers, but without impacting calculations made by employers or discouraging work. The EITC could be expanded in order to further help those with lower incomes earn more. In particular, aid for those facing periods of leave such as women who need maternity leave or those who face a serious illness or who are caring for someone else could be targeted to low-income workers, using the EITC as a model.
Everyone wants to see those struggling with low incomes succeeding and earning more. Yet we must focus not just on enacting seemingly compassionate policies, but on implementing smart reforms that provide assistance without destroying the economic opportunities that are the most critical foundation for long-term success.
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Carrie Lukas is the managing director of the Independent Women۪s Forum. She authored a chapter on reforms to help parents balance work and family in Room to Grow. You can follow Carrie on Twitter at @carrielukas.
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