He is the Oracle of Omaha, one of the richest persons in the world and a Democrat, but Warren Buffett doesn’t think the current crusade to raise the minimum wage to $15 an hour is a good idea.
In fact, lifting the wage floor from $7.25 to $15 nationally would “crush” the very same basic-skills workers that such a change is intended to help, Buffett said.
“I may wish to have all jobs pay at least $15 an hour,” Buffett writes in an article published widely over the weekend. “But that minimum would almost certainly reduce employment in a major way, crushing many workers possessing only basic skills. Smaller increases, though obviously welcome, will still leave many hardworking Americans mired in poverty.”
Advocates for workers rights across the nation are likely surprised by the billionaire investor’s sentiments that he voiced an op-ed in The Wall Street Journal Friday. Raising the minimum wage is supported by most Democrats and decried by most Republicans. Nonetheless, raising wages is gaining steam as a widespread movement. Many U.S. cities have acted on their own to raise the minimum wage to as much as $15 per hour. In Congress, Democrats as well are pushing for a national, incremental lifting toward $15 an hour.
Buffett’s Solution: Raise the EITC
What does Buffett think is a better solution than raising the minimum wage? The better fix, he writes, is to increase the EITC, Earned Income Tax Credit, a benefit for working people who have low to moderate income. An increase in the EITC means more money in their pocket. It reduces the amount of tax they owe, and an increase would likely mean an actual refund to many workers currently earning the minimum wage.
Buffett: “In essence, the EITC rewards work and provides an incentive for workers to improve their skills. Equally important, it does not distort market forces, thereby maximizing employment.”
But even Buffett admits the current EITC needs fixing.
Buffett: “Fraud is a big problem; penalties for it should be stiffened. There should be widespread publicity that workers can receive free and convenient filing help. An annual payment is now the rule; monthly installments would make more sense, since they would discourage people from taking out loans while waiting for their refunds to come through. Dollar amounts should be increased, particularly for those earning the least.”
Buffett explains his reasoning behind the widening income gap among Americans.
Buffett: “The poor are most definitely not poor because the rich are rich. Nor are the rich undeserving. Most of them have contributed brilliant innovations or managerial expertise to America’s well-being. We all live far better because of Henry Ford, Steve Jobs, Sam Walton and the like. Instead, this widening gap is an inevitable consequence of an advanced market-based economy… The economic rewards flowing to people with specialized talents have grown dramatically faster than those going to equally decent men and women possessing more commonplace skills.”
The billionaire offers an historic perspective.
Buffett: “Think back to the agrarian America of only 200 years ago … Visualize an overlay graphic that positioned the job requirements of that day atop the skills of the early American labor force. Those two elements of employment would have lined up reasonably well. Not today. A comparable overlay would leave much of the labor force unmatched to the universe of attractive jobs. That mismatch is neither the fault of the market system nor the fault of the disadvantaged individuals. It is simply a consequence of an economic engine that constantly requires more high-order talents while reducing the need for commodity-like tasks.”