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Twin boosts for low-income workers on Jan. 1

The state will raise its minimum wage to $10 an hour and expand a tax credit on earned income on Jan. 1, two moves that are intended to provide help to hundreds of thousands of workers on the lower rungs of the economic ladder.

Given the state's high cost of living, though, the extra money going to such workers likely won't be enough to significantly change their economic standing, economists and public policy analysts say.

"It's not a game-changer," said Mark Zandi, chief economist at Moody's Analytics. But "the annual income of many of these workers is very, very low, so even a few hundred dollars is real money."


The minimum wage boost will give an estimated 450,000 full-time workers at the bottom of the pay scale, and those just above it, an average raise of about $2,000 a year. The increase is part of a three-tiered state increase that will top out at $11 an hour in 2017 — expected to be the highest state minimum wage in the country.

Also, the amplified Earned Income Tax Credit will provide as much as $500 of extra income annually to low-income Massachusetts families with at least three children. More than 400,000 workers file for the benefit each year.

The tax credit is widely viewed as one of the most effective ways to help the working poor. Governor Charlie Baker joined lawmakers in pushing for the increase earlier this year, initially calling for an end to the state's controversial film tax credit to help pay for it.

Lawmakers opted to keep the film industry tax credit and decided to offset the extra cost of the tax credit, in part, by modifying an unrelated corporate tax break.

The state's personal income tax rate will also decline slightly in the new year, from 5.15 to 5.10 percent, putting a few extra dollars in workers' pockets every year.


Every extra dollar may be important to workers in Massachusetts, where housing costs can be prohibitively expensive. That's due, in part, to Greater Boston's distinction as having one of the tightest rental markets in the country, with less than 3 percent of apartments unoccupied, according to Commerce Department data.

"We still have a long way to go to make sure that everyone who works for a living can earn a living, but [an 11 percent] pay raise is pretty significant," said Noah Berger, president of the left-leaning Massachusetts Budget and Policy Center.

Overall, the minimum wage increase will reduce the number of Massachusetts residents living under the federal poverty line by about 3 percent, or 25,000 people, according to Arindrajit Dube, an economics professor at the University of Massachusetts Amherst. Offering a higher minimum wage at the same time as an increased tax credit is good for workers, Dube noted, because on its own, an increased tax credit tends to inadvertently push down wages as more people enter the labor market to qualify for the credit.

Raising the minimum wage can also be positive for businesses because workers who make more money are more likely to stay on the job, said Zandi of Moody's.

But higher wages can also lead to job losses and greater reliance on public assistance, according to a 2014 report by the Congressional Budget Office.


In Massachusetts, some believe that employers in certain areas of the state, such as Boston, are better able to absorb a $10 or $11 minimum wage than a place such as New Bedford, for example.

Bumping up the tax credit is a better way to support working families, said Michael Saltsman, research director of the right-leaning Employment Policies Institute.

"We can either provide partial government support to an employee via a targeted policy like the Earned Income Tax Credit or we can leave them 100 percent dependent on government when we raise the minimum wage to an extreme level and their job disappears," Saltsman wrote in an e-mail.

Even with the rise to $10 an hour, the state's starting wage is still well below the $15 an hour "living wage" that workers and advocates say is necessary for employees to pay expenses and support a family. The union-backed "Fight for $15" movement, started by fast food workers in 2012, has raised awareness of the difficulty of living on minimum wage, which is $7.25 at the federal level.

But critics say raising minimum wages can put unfair pressure on businesses, particularly smaller ones, making it harder to hire more workers and stay profitable.

Even as Massachusetts heads toward $11 an hour, several cities and industries have already hit the $15 mark. Los Angeles, Seattle, and San Francisco have enacted ordinances raising the citywide baseline to $15 an hour, and proposals are pending in Washington, D.C., and Sacramento. Fast food workers in New York state will also soon be earning $15.


In Massachusetts, personal care attendants won a $15-per-hour contract from the state earlier this year, and two hospitals — Boston Medical Center and Tufts Medical Center — said last week that they are raising their starting wage to $15.

Coupled with a strong economy and a low unemployment rate, the state's upcoming minimum wage and earned income tax credit hikes will help Massachusetts send a message to other states, said Keith Bentele, a sociology professor who studies poverty at the University of Massachusetts Boston.

"Pulling ahead as a national leader is a very significant milestone," he said. "We are demonstrating that you can have a minimum wage raise without many of the disruptions that people raise as scare tactics."

Katie Johnston can be reached at katie.johnston@globe.com. Follow her on Twitter @ktkjohnston.