(snip)"As earnings increase, recipients can see the benefits from these programs decrease dramatically. For example, the marginal tax rate in the “phase-out range” for the EITC can reach as high as 21.06 percent and the tax rates for food stamps are generally 30 percent. Failing to include the loss of these benefits when evaluating the benefit of living wage ordinances can dramatically inflate the perceived effectiveness.
Examining the effect of living wage ordinances, the authors found that the ordinances decreased cash transfer assistance. Specifically, the authors found that the enactment of a living wage ordinance decreased assistance by $34 per month. In addition, the authors found that the increase in earnings resulting from the ordinance was only $16 per month. This means that for every dollar in increased earnings from a living wage ordinance, families can expect to lose up to $2.12 in cash assistance—greatly limiting the ability of the policy to help low-income families. Controlling for factors such as the business cycle, state minimum wage levels, and welfare reform, the authors found that the enactment of a living wage increased total family income by only $55 per month. Due to lost benefits, 38 percent of this increase in income is crowded out. If the effect of important programs like food stamps is factored in, this tax rate would likely be higher.
Overall, the authors have found that living wage ordinances do little to actually increase the standard of living for low-income families. The $55-a-month increase in total family earnings represents a less than 2 percent increase for the average family. In terms of an increase in earnings, the $16-per-month increase represents an increase of approximately one-half of one percent. The authors state, “a reasonable reading of our results is that the living wage has a limited capability in improving the economic status of the poor.” This limited capability is important because decades of studies clearly show that mandated wage floors create disemployment effects—particularly for the low-skilled employees these laws are intended to help. Pushing the intended beneficiaries out of a job while providing minimal benefits to remaining employees makes living wage ordinances an ineffective anti-poverty policy. "




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