In my last post I endorsed raising Nebraska’s minimum wage from $7.25/hour to $9.00/hour because Nebraska’s unemployment rate is only 3.6% and so a minimum wage boost is unlikely to put very many people out of work.  I also stated opposition to President Obama’s proposal for a raise in the national minimum wage to $10.10/hour because it would likely put at least 500,000 people out of work.
A recent article in National Affairs by Charles Lane, “A Grand Bargain on the Minimum Wage,”suggests an approach to end a perennial controversy over how to set a minimum wage at the national level.  It is based on the following observations:

• Increasing the minimum wage has broad public support. A recent Gallop poll found that 76% of Americans support an increase to $9.00/hour.
• However, just 4% of minimum-wage workers are single parents. Only 11.3% of workers who would benefit from an increase in the minimum wage come from poor households. The majority of minimum-wage workers do not live in poverty.
• A more efficient, better targeted support program for the working poor is the Earned Income Tax Credit which provides a refundable tax credit as high as $6,143 for an adult worker with three children.
• Since 1959 the average income for a full time worker earning the minimum wage has equaled two-thirds of the poverty line for a family of four. The current poverty line for such a family is $23,850. This equates to a minimum wage set at $8.00/hour.
• Another option would be to set the minimum wage at 45% of today’s average private sector wage of $20/hour. This would make it $9.00/hour. The CBO has estimated that a $9.00/hour minimum wage would put “only” 100,000 people out of work.
• Once a new minimum wage level is determined, it should be automatically adjusted for inflation using the Consumer Price Index.
• The EITC is not cheap; it currently gives $63 billion in benefits to 27 million workers. However the EITC’s improper-payments rate regularly exceeds 20% per year.
• An expansion of the EITC to single, childless workers could be paid for by tightening up EITC’s payment methods.

All of these considerations suggest a way forward to end a long-standing political controversy in a productive manner. The national minimum wage should be raised to somewhere between $8.00 and $9.00/hour and then indexed to the CPI.  At the same time the EITC should be tightened up and expanded to single, childless adults.  Such a program combines fairness with a strong work incentive and should have broad appeal.