US must raise wages for the poor: IMF

The International Monetary Fund says that the United States must increase the country’s minimum wage and extend tax benefits for the poor if it wants to reduce poverty and sustain the economic recovery.

“Unless the economic benefits of an improving economy are felt more widely, this recovery may well prove neither economically nor socially sustainable,” senior IMF economist Deniz Igan argued in a report posted on the IMF website on Thursday.

“The United States needs more jobs that pay decent wages,” Igan stated.

“Also worrisome is that the poverty rate increased sharply during the recession and has not come down. The rate still hovers above 15 percent despite the ongoing recovery,” she wrote.

The IMF said raising wages in the US would have a relatively small effect on reducing employment figures, while the benefits, in a country with almost 50 million poor, could go far in reversing the “vicious cycle” of poverty.

A single parent earning the federal minimum wage of $7.25 an hour is well below the official poverty line of $16,057 a year. Studies show that poverty has a self-sustaining nature. People who have been sucked into poverty in the past are more likely to fall back below the poverty line in the future.

The IMF also said a raise in wages coupled with an increase in the earned income credit– a special tax credit for low earners– would also have a significant impact in helping poor families while creating very little drag on the economy.

According to a recent wage study, jobs created in the US after the Great Recession tend to pay significantly less than the ones that were lost during the steep economic downturn.

Although the country has regained the 8.7 million jobs lost in the 2008-9 financial crisis, the average wage has dropped 23 percent, according to a study released earlier this month by the US Conference of Mayors.

Separately, the nonpartisan Congressional Budget Office (CBO) this week slashed its projection of gross domestic product (GDP) growth for this year to 1.5 percent from 3.1 percent, “reflecting the surprising economic weakness in the first half of the year.”

AHT/HRJ