Teresa Ghilarducci

Teresa Ghilarducci (born July 22, 1957) is an American scholar on labor and retirement issues. She has advocated for government to extend occupational retirement plan coverage to all workers. One of her most recent books - When I’m Sixty Four: The Plot Against Pensions and the Plan to Save Them – investigates the loss of pensions on older Americans and proposes a comprehensive system of reform. She previously taught economics for 25 years at the University of Notre Dame.

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American Capitalism's Fault Line: Poverty Wages And Policy Bloopers (29 June 2019) edit

American Capitalism's Fault Line: Poverty Wages And Policy Bloopers (29 June 2019), Forbes.

Democratic Socialist Bernie Sanders and billionaire Ray Dalio are on the same page. They both point to the stark reality that American workers have experienced sluggish to nonexistent wage growth for years as a crisis for American capitalism. The great American wage repression is so bad that the United States leads rich nations in allowing 25% of our jobs to pay close to poverty wages. In most major developed countries that share is in the single digits.

Standing against the chronic American problem of low-wage employers are three forces: embattled trade unions, too-slow minimum wage hikes, and elements of the tax code, principally the Earned Income Tax Credit (EITC). One reason these policies don't help raise wages more is that each policy, acting alone, undermines the other. People can't live on the minimum wage and the EITC suppresses wage growth. Weak trade unions means weak political mobilization for both policies. But to be effective, EITC and minimum wage have to be included in the same legislation, in the same sentence, and even in the same breath. Some activists and politicians—mostly Democrats I am afraid—are working very hard to help poor and low-income people. They have advocated an increase in the minimum wage and expansion of the EITC. But no bill has them linked together. Why do they need to be linked?

It is common sense once you think about it. The widely-praised Earned Income Tax Credit, which is a subsidy paid by taxpayers, encourages more low-wage employers (a problem that minimum wages and unions can fix). Don't get me wrong, the EITC has great effects. It expands labor force participation and increases income to families. [...] The EITC helps working-poor mothers become economically engaged, and improves the life chances of their children by keeping them in school, enabling their families to access better food, and even increasing their vocabulary. But the crucial negative economic effects of the EITC are often overlooked. The EITC subsidizes low-wage employers, who are able to attract EITC-eligible workers at lower wages than they otherwise would have to pay. Some workers get a raise from the government via the EITC. But the workers who don’t qualify for the EITC end up with reduced wages. It is more and more likely that those workers are older workers (who mostly don’t have dependent children).

Merely expanding the EITC will continue to subsidize low-wage employers and drive down market wages. Indeed, there is no bigger supporter of the EITC than low-wage employers. For instance, the Walmart Foundation funds nonprofit organizations such as the United Way and the One Economy Corporation to expand EITC outreach. The economic dynamic makes it no question that an EITC should be paired with higher minimum wages and increased bargaining power for workers so that employers can't lower wages when their workers get a low-wage subsidy.

It bears repeating: since the EITC lowers wages and the current minimum wage is still a poverty wage for many families, it is a missed opportunity for the federal government and the more than 40 cities and seven states phasing in $15 minimum wages to not include a EITC and vice versa. Like lightbulbs and lamps, the policies are complements.

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Teresa Ghilarducci