On the income-inequality front, the big news is protests, at McDonald’s and other fast-food restaurants, demanding a $15 hourly wage. President Barack Obama tipped his hat to the movement on Labor Day, noting, “There is no denying a simple truth. America deserves a raise.” The president and his fellow Democrats are pushing a bill that would raise the federal minimum wage from $7.25 to $10.10 per hour.
Amid the drama, it’s important to separate what the protesters get right from what they do not. People who work in low-wage service industries do an often thankless job for modest pay. Legally employed by individual franchisees rather than the large, name-brand corporations, they are difficult to organize into unions, making protest and political action more likely avenues for achieving collective demands. As we have noted previously, the national minimum wage needs a boost, and a subsequent indexing for inflation, both to make up for the lack of any increase since 2009 and to depoliticize the issue thereafter.
What the movement gets wrong, however, is the idea that there would be no downside to jacking up wages to $15 an hour in an industry where the top wage at present rarely exceeds $12. Obviously, there’s a risk that a $15 hourly wage would force employers to hire fewer workers, or lay off some, or even to close marginally profitable stores. Mom-and-pop sandwich counters would find it hard to compete for labor. It’s not necessarily the case, as the president implied, that most fast-food workers work to “provide for their families.” In fact, 73.4 percent of them are childless, according to government data compiled by the Center for Economic and Policy Research. This stands to reason, since 60.7 percent of them are 24 years old or younger; people often use fast-food employment as an entry point to the labor market, from which they gradually advance.
Poverty reduction and reduced income inequality are worthy goals of public policy; to the degree that they improve the political and social climate, they can even be thought of as “public goods.” As such, government is better positioned to provide them than profit-making corporations. The focus on forcing “irresponsible” corporations to pay more ironically diverts attention and energy from what government could be doing, through its tax and other policies, to boost the fortunes of the working poor.
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The earned income tax credit, a wage supplement delivered via the Internal Revenue Service, is better targeted to low-wage workers than is the minimum wage. It needs to be expanded, and doing so could provide much of the relief the protesters are demanding, without the attendant negative side effects. As it happens there is also bipartisan support for increasing the tax credit for single childless workers younger than 25 — the very demographic cohort that predominates among the fast-food workforce. No less a Republican leader than the House Budget Committee chairman, Paul Ryan, agrees with Obama on that point; maybe after the election they can get together and make it happen.