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Major International Finance Organization Criticizes U.S. Minimum Wage

By Annie-Rose Strasser  

"Major International Finance Organization Criticizes U.S. Minimum Wage"

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IMF Managing Director Christine Lagarde participating in a seminar: The Economic Case for Climate Action, Tuesday, Oct. 8, 2013, at the World Bank in Washington.

IMF Managing Director Christine Lagarde participating in a seminar: The Economic Case for Climate Action, Tuesday, Oct. 8, 2013, at the World Bank in Washington.

CREDIT: (AP Photo/Stephen Jaffe, IMF)

The United States is facing new international pressure to raise its minimum wage. In its annual review of the U.S. economy released on Monday, the International Monetary Fund criticized America for wages that are both historically low and lower than other countries, and it called on the U.S. to raise its wages accordingly.

Addressing the U.S.’s persistently high poverty rates, the report lauds the U.S.’s expansion of health care coverage thanks to the Affordable Care Act, then argues for two separate policy fixes to further aid in the reduction of poverty: expanding the Earned Income Tax Credit (EITC) to cover more low-income people and raising the minimum wage.

“An expansion of the Earned Income Tax Credit—to apply to households without children, to older workers, and to low income youth—would be [an] effective tool to raise living standards for the very poor,” the report states. “Similarly, the government should make permanent the various extensions of the EITC and the improvements in the Child Tax Credit that are due to expire in 2017.

“[G]iven its current low level (compared both to U.S. history and international standards), the minimum wage should be increased,” it goes on. “This would help raise incomes for millions of working poor and would have strong complementarities with the suggested improvements in the EITC, working in tandem to ensure a meaningful increase in after-tax earnings for the nation’s poorest households.”

The U.S. ranks 11th of OECD countries in minimum wage, when measured as a percentage of median income.

The EITC and Child Tax Credits currently have the highest impact on working-aged people with children and successfully keep millions out of poverty. But many have proposed exactly what the IMF suggested in its latest report: expanding the EITC to reach more people, including low-income elderly and young people, to alleviate some of the pockets of poverty not currently covered by the credit. Advocates have also pushed to keep expansions of the Child Tax Credit, first instituted as stimulus, that have since financially assisted millions of poor people with kids.

The United States’ financial assistance to its poor lacks in comparison to other developed nations, so it’s no surprise that the IMF is pinpointing the country’s poverty policies as an important factor in its financial outlook.

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