Report: Only 1.6% of American Workers Make the Minimum Wage

Earned Income Tax Credit more effective at alleviating poverty

Protesters outside a McDonald's / AP
February 5, 2014

A new study by the American Action Forum found that just 1.6 percent of American workers make at or below the federal minimum wage and argues raising the rate would do little to help the working poor.

President Barack Obama is pushing for an increase in the federal minimum wage to $10.10 an hour. However, AAF insists that the Earned Income Tax Credit (EITC) does far more to alleviate poverty.

AAF found that raising the minimum wage would fail to directly assist over 98 percent of all Americans in poverty, according to an analysis released Wednesday.

The EITC, which provides income subsidies through the tax code for low-income working families, is "much more effective at assisting the working poor than the minimum wage," according to the report.

Those in poverty who actually make the minimum wage are a small minority. In 2012, 58.1 percent of all workers in poverty received the EITC, while only 5.3 percent earned at or below the minimum wage. Of the hourly workers who live in poverty, just 0.2 percent earn the minimum wage.

Overall, only 1.6 percent of American workers earn the federal minimum wage of $7.25 per hour.

"Even among those who work and are in poverty, the minimum wage stacks up poorly against the EITC," the report said. "In 2012, 24.4 percent of the working poor earned $9 per hour or less, 31.7 percent earned $10.10 per hour or less, and 43.5 percent earned $15 per hour or less."

"While these increases in the minimum wage would affect good chunks of the working poor population, none would help nearly as many people in poverty as the EITC, which already helped 58.1 percent of the working poor in 2012," it said.

"Moreover, when looking specifically at the population of people who earn the minimum wage, it is clear that the vast majority are not in poverty," the report added.

AAF previously found that raising the minimum wage would do little to alleviate poverty, with the greatest beneficiary being affluent teenagers who live with their parents.

AAF argues that boosting the EITC is much more effective and offers better results. Those receiving the EITC work an average of 10 more hours per week than minimum wage earners.

"While the EITC helps far more workers than the minimum wage, it also more effectively targets those who are most in need," the report said. "Average family earnings (income before taxes and social assistance transfers) for those who received the EITC were $24,017.04 in 2012.

"The minimum wage workers were in families with average earnings of $48,860.86, double that of EITC recipients," it said.

Furthermore, the paper contends that the minimum wage was never meant to address income inequality. When the Fair Labor Standards Act introduced the minimum wage in 1938, it was only available to manufacturing workers and designed to curb child labor.

"In the end, the EITC helps far more people and better targets those in poverty than does the minimum wage," the report concluded.

Published under: Minimum Wage