Question

What would be the most effective way of raising people out of poverty? (LO9) a) Cut off welfare payments to every family with at least one adult member between the ages of 18 and 64 . b) Raise the minimum hourly wage. c) Eliminate the Earned Income Tax Credit. d) Have the government put welfare recipients to work at minimum wage jobs.

Short answer

The most effective way of raising people out of poverty is option (b), raising the minimum hourly wage, as it directly increases the income of low-wage workers and has the potential to lift them out of poverty. However, potential negative consequences, such as job losses, should be addressed with complementary measures.

Step-by-step solution

Understanding the four options

First, let's understand the implications of each choice: a) Cutting off welfare payments to families with at least one adult member between 18 and 64 may push them to find work, but it could also lead to more financial instability and deeper poverty for those who are unable to secure employment. b) Raising the minimum hourly wage would increase the income of low-wage workers, which could help lift some people out of poverty. However, it might also lead to layoffs or reduced hours if employers cannot afford the increased labor costs. c) Eliminating the Earned Income Tax Credit (EITC) would result in lower incomes for low-wage workers, which could push more people into poverty. d) Having the government put welfare recipients to work at minimum wage jobs serves as a safety net and may increase their chances of escaping poverty. However, this might not be feasible for everyone, especially those with physical or other limitations.

Compare and weigh the impacts

To find the most effective way, let's analyze the impact of each option on poverty alleviation: a) Cutting welfare payments could lead to more poverty if people are unable to find jobs or face other barriers. b) Raising the minimum wage has the potential to lift people out of poverty by providing them with higher incomes, but it could also have negative consequences, such as job losses. c) Eliminating the EITC would likely result in increased poverty, as it is specifically designed to support low-wage workers. d) Putting welfare recipients to work at minimum wage jobs might help some escape poverty, but it might not be the best long-term solution for everyone.

Determine the most effective way

We can conclude that (b) raising the minimum hourly wage would be the most effective way of raising people out of poverty, as it directly increases the income of low-wage workers and has the potential to lift them out of poverty. However, it is important to keep in mind the potential negative consequences of this policy and consider complementary measures that address potential job losses and possible inflationary effects.

Key concepts

Minimum Wage

Raising the minimum wage is often considered a straightforward approach to help reduce poverty. By increasing the minimum amount that workers can be paid per hour, the idea is to boost the income of low-wage workers. This can directly lift some individuals out of poverty, as they earn more money for the same amount or even fewer hours of work. However, this approach does have some potential pitfalls.

• If employers struggle to afford the higher wages, they might reduce staff hours or lay off workers, which could lead to higher unemployment rates or underemployment.
• This wage increase might also lead to higher prices for goods and services if businesses pass on the extra costs to consumers.

Despite these concerns, raising the minimum wage can be advantageous if implemented alongside other supportive measures to minimize any negative impacts.

Welfare Policy

Welfare policies are government programs designed to support individuals or families in financial need. These include various forms of assistance like food stamps, housing aid, and direct cash payments. The main goals of welfare policies are to provide a safety net for those who are struggling and to ensure a basic standard of living.

Eliminating or cutting back on welfare benefits could force individuals to seek employment, potentially reducing reliance on government support. However, this could also deepen poverty, especially for those who face barriers to employment like health issues or lack of skills.

• Without these supports, vulnerable populations might struggle even more.
• Welfare policies often need to be tailored to meet the specific needs of the community they serve to be most effective.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a tax benefit for working individuals and families with low to moderate income, especially those with children. It reduces the amount of tax owed and may provide a refund, which can significantly boost a family's income.

The EITC is designed specifically to incentivize work while reducing poverty. It has been successful in providing financial relief to many by directly increasing take-home pay.

• By supporting low-wage workers, it can help lift people out of poverty without causing job losses.
• The EITC encourages increased work participation and helps to alleviate child poverty as well.

Removing this credit could result in many low-income families falling deeper into poverty due to a substantial decrease in financial support.

Labor Market

The labor market is the arena in which workers and employers interact. It's crucial for determining wages, employment opportunities, and the distribution of jobs across different industries. Policies that impact the labor market, like minimum wage laws or employment benefits, play a significant role in poverty alleviation.

Understanding the labor market is important when discussing ways to reduce poverty because:

• It affects how policies like the minimum wage and welfare can influence employment and job creation.
• An efficient labor market will offer variety in job opportunities that can match the skills and needs of the workforce.

A well-functioning labor market can help ensure that increases in wages don't lead to higher unemployment and that workers who face potential job losses are transitioned into new positions as smoothly as possible.