A Better Lifeline

As the cost of gasoline, medical care, meat, vegetables, heating fuel and education are all soaring, real wages for the working poor across the country aren’t keeping up.

That’s especially true in Connecticut, where income inequality has increased more than in any other state over the past two decades. According to The New York Times, income in bottom fifth of Connecticut families fell by 17.4 percent between 1987 and 2006, while the top fifth saw their incomes rise by 44.8 percent.

Federal and state minimum wage laws are designed to help prevent families from slipping into poverty. But they haven’t kept up with general inflation, let alone today’s extraordinary spike in gas prices.

In fact, since the federal government established a poverty line income figure for a family of four in 1959, the ratio of the national minimum wage (assuming a 40-hour week, 50-week year) to that poverty line hit an all-time low in 2007. Before the minimum wage was raised to $5.85 last year, the rate was $5.15, or 52 percent of the poverty line. The poor had it a whole lot better in 1968, when the national minimum wage stood at $9.47 in today’s dollars, 90 percent of that year’s poverty line.

In that broad context, it’s difficult to object to the General Assembly’s move last week to override Gov. M. Jodi Rell’s veto of a bill to raise Connecticut’s minimum wage from $7.65 to $8.00 on Jan. 1 and $8.25 a year later.

The working poor clearly need a lifeline or two.

Unfortunately, raising the state minimum wage isn’t guaranteed to do them much good, and there’s a good chance it will also do them some harm.

According to a study based on U.S. Census Bureau data by Dave Macpherson, an economist for Florida State University, the increase in Connecticut’s minimum wage will cost the state nearly 500 jobs. Many of those positions are now filled by low-skilled workers.

Rell’s objection to this year’s minimum wage increase — she signed last year’s increase — was based on concerns about employer recruitment and retention, and ultimately on the cost in lost jobs. The Connecticut Business & Industry Association opposed the increase on similar grounds. Democrats mounted a spirited campaign to override Rell, fueled by their eagerness to address the plight of frustrated workers.

But who really benefits from minimum wage increases?

About 65,000 Connecticut workers, or less than 4 percent of the state’s 1.7 million employees, earn minimum wage. Nearly half of them live with their parents. About one in five are from dual-income families. Less than one quarter are either single workers or single, head-of-household workers.

In fact, about 45 percent of Connecticut’s minimum wage workers live in families with an annual income of at least $75,000, the data show.

These figures suggest that raising the minimum wage is a blunt instrument when it comes to helping the working poor — a symbolic but misdirected gesture.

There is a better way. An earned income tax credit(EITC) can be directly targeted at the working poor. Connecticut workers are already eligible for federal EITCs, but they could use a state EITC as well. Twenty-two other states have them, but Connecticut doesn’t.

The main obstacle to a Connecticut EITC is funding. While the minimum wage hike is shouldered by business owners, an EITC would be funded by the state’s taxpayers. In tough economic times, it’s difficult to find money in the state budget to help the poor, but that’s exactly when it’s needed most. The state that reigns as the inequality champion should find the way.