Category Archives: Robert Doar

Poverty and the Minimum Wage

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Americans are a generous and kind-hearted people. We are more than willing to go to bat for the less fortunate among us.  The question is how to do it effectively.  A post six months ago, “A balanced and Sensible Anti-Poverty Program,” laid out four principles for an effective anti-poverty program from Robert Doar of the American Enterprise Institute.  They are:

  • work requirements for welfare recipients
  • work incentives such as the Earned Income Tax Credit
  • fostering married, two-parent families
  • business growth and investment to create more jobs

There is currently much interest in , and public support for, raising the minimum wage at both the state and national levels.  This is viewed by the general public as an effective way of addressing poverty.
CaptureHowever a new report from Mr. Doar makes clear that simply holding a real job, even with low pay, is what makes the biggest difference as to whether or not someone is able to rise above poverty.  Even though the overall poverty rate in the U.S. is about 14%, the poverty rate for fulltime workers is only 3% and even for part-time workers it is just 7% (see the above chart).
Capture1Furthermore, as detailed in the second above chart, the total income (including selected benefits) of a low-income earner, at $8/hour, with two dependent children, and working fulltime, is $30,204, well above the poverty line.
Conclusion: yes, poor people need public assistance but it is equally important to work with them to find and hold a job, regardless of hourly wage.  Not only will this meet their basic material needs, it will also put them on track to become self-supporting, productive citizens.

A Balanced and Sensible Anti-Poverty Program

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The American Enterprise Institute’s Robert Doar recently testified before the U.S. Senate Committee on the Budget with ”Back to Work: How to improve the prospects of low-income Americans”.  His recommendations are based on the four principles:

  • Work requirements as a condition of public assistance.  The work first approach has been shown to have better outcomes with regard to attachment to the labor force than even approaches which focus on training and education.
  • Robust work supports for those who are working at low wages.  The Earned Income Tax Credit accomplishes this and should be extended to childless adults.
  • Business growth and investment.  Policies that raise the cost of doing business and deter growth do little to create what the poor need most: jobs.
  • Foster married, two-parent families.  We need to mitigate marriage penalties in public assistance programs and we need to be honest about the consequences for children of single parenthood.

Mr. Doar points out that 10.2 million American’s are unemployed at the present time, 3.6 million have been jobless for more than 27 weeks, 7.3 million are involuntarily working part-time and 837,000 workers are so discouraged that they have stopped looking for work.  Labor force participation has dropped from over 66% in 2007 to 63% today while the poverty rate has risen from 12.5% to 15%.
CaptureRaising the minimum wage will not help the job prospects of most poor Americans.  Only 11.3% of individuals who would benefit from raising the minimum wage are living below the poverty line.  The Congressional Budget Office estimates that raising the minimum wage to $10.10 per hour would lead to 500,000 people losing their jobs.  CBO also estimates that the Affordable Care Act will reduce full-time employment by 2.3 million by 2021.  Given the strong anti-correlation (see the above chart) between labor participation and poverty, this means that the poverty rate may go higher yet.
The conclusion to draw from this excellent poverty synopsis (with lots of references) is that there are intelligent and effective ways to fight poverty and also much poorer ways to try to do it.  Good intentions are not enough!