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  • Want to Help the Poor? Repeal Ethanol Mandate, Don’t Raise Minimum Wage

    Ethanol plant in Turner County, South Dakota

    Many Senators propose raising the minimum wage to reduce poverty.

    However, minimum-wage increases have no statistically significant effect on poverty rates. Few of the workers who would get raises come from poor families. Worse, higher minimum wages discourage hiring and reduce access to entry-level jobs.

    Congress should look to effective policies to reduce poverty. Repealing the ethanol mandate, for example, would boost the disposable income of all low-income families by hundreds of dollars per year.

    The ethanol mandate requires refiners to mix billions of barrels of ethanol into their gasoline, and much of that mandate is met with corn-based ethanol. Currently, about two-fifths of America’s corn crop is turned into fuel—with the residual dried distiller’s grains with solubles sold back to the animal feed market. Research recently published in the American Economic Review finds that the mandate raises the cost of food staples (corn, rice, soybeans, and wheat) by 14–35 percent globally. Higher feed costs also raise meat prices.

    This policy choice hurts all Americans but especially the poor. Families receiving means-tested federal benefits spend an average of 21 percent of their budgets on food.

    Reducing food costs by eliminating the ethanol mandate would do far more to raise their living standards than another minimum-wage increase. While most poor households have no minimum-wage workers, everyone below (and above) the poverty line must eat. Less expensive food reduces living expenses for every struggling family.

    Further, repealing the ethanol mandate would have no harmful unintended consequences for unemployed workers. Congress making food more affordable would not cause companies to hire fewer workers.

    If Congress actually wants to help the poor, it should repeal the ethanol mandate. Raising the minimum wage is ineffective and helps only a tiny fraction of the poor—while leaving others with worse chances of getting hired.

    Posted in Capitol Hill, Front Page [slideshow_deploy]

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