In an annual letter sent to investors, JPMorgan Chase chief executive Jamie Dimon wrote America needs to start “investing in our people” by enabling low-income, low-skilled employees have a living wage.
Dimon thinks the Earned Income Tax Credit (EITC) is the best solution to supplement the income of those workers. For example, a single mother of two whose hourly wage stands at $9 and makes around $20,000 per year could earn an extra $5,000 through the program.
The Program Needs Improvement
The EITC needs further polishing but the idea behind it helped around 9 million people live above the poverty line. According to the federal standards, a four-person household is living on the poverty line at an income of $24,600 per year or $11 per hour.
Lower-income and lower-skilled workers are the most vulnerable group in the U.S. labor market. This group is badly hit by low job prospects and stagnating income, which leads to higher inequality.
According to Dimon, the hourly wage of more than 20 million American employees ranges from $7.25, which is the federal minimum, to $10.10 per hour. What’s more, more than 40% of the U.S. workforce earns less than $15 an hour.
Dimon thinks that expanding the EITC could help even more low-earning Americans have a living wage. And this could encourage more people join the workforce.
Jobs bring dignity,
the banker wrote in the letter.
He cited studies that showed people who got a job and gained momentum continued to work into old age. Moreover, living wages means better communities, as crime rates are lower and household formation rates tend to be higher when people have a place to work.
Buffet Joins the Chorus
Billionaire investor Warren Buffett is also backing the EITC, which could be a helpful addition to raising the minimum wage. More and more municipalities and states are now pushing for a boost of minimum wage levels.
Buffett wrote for The Wall Street Journal in 2015 about the benefits of an earned income tax credit. The billionaire thinks the concept is even more productive than raising the minimum wage, as the latter solution could disrupt the labor market as a whole.
Buffett argues that a nationwide minimum wage of $15 per hour would reduce employment and “crush” low-income, low-skilled workers. He agrees with Dimon that the program needs improvement. The revamp efforts could include monthly payments instead of annual, plans to reduce fraud, and increasing the revenues for those earning the least.
Buffet told the WSJ that the EITC represents a way to encourage low-skilled workers acquire new skills. It also rewards work, but most importantly encourages people to join the workforce.
According to a recent report, the number of American men who are not working has more than tripled over the last 50 years. Around 16% of men aged 25 to 54 are currently out of work. Plus, since 2000, more and more American women lack a paying job. Currently, 30 million of Americans in their prime age don’t have a job, as many of them think low wage work is not going to improve their lives.
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