It raises all boats, including, and especially, the poorest. (Via Captain Ed, because I don’t have a WSJ subscription.)

It’s been a rough week for John Edwards, and now comes more bad news for his “two Americas” campaign theme. A new study by the Congressional Budget Office says the poor have been getting less poor. On average, CBO found that low-wage households with children had incomes after inflation that were more than one-third higher in 2005 than in 1991.

The CBO results don’t fit the prevailing media stereotype of the U.S. economy as a richer take all affair — which may explain why you haven’t read about them. Among all families with children, the poorest fifth had the fastest overall earnings growth over the 15 years measured. (See the nearby chart.) The poorest even had higher earnings growth than the richest 20%. The earnings of these poor households are about 80% higher today than in the early 1990s.

A vibrant economy for all is a better long-term solution. Government taking a smaller percentage of peoples’ earnings give the poor more to spend and encourages investment by the rich which creates jobs. When government doesn’t encourage welfare, the poor, indeed, work, which is inherently better.

What happened? CBO says the main causes of this low-income earnings surge have been a combination of welfare reform, expansion of the earned income tax credit and wage gains from a tight labor market, especially in the late stages of the 1990s expansion. Though cash welfare fell as a share of overall income (which includes government benefits), earnings from work climbed sharply as the 1996 welfare reform pushed at least one family breadwinner into the job market.

Earnings growth tapered off as the economy slowed in the early part of this decade, but earnings for low-income families have still nearly doubled in the years since welfare reform became law. Some two million welfare mothers have left the dole for jobs since the mid-1990s. Far from being a disaster for the poor, as most on the left claimed when it was debated, welfare reform has proven to be a boon.

Far from throwing families out on the streets, welfare reform encouraged work. The work was there because the richer folks had money to start businesses or invest in them. The moral advantage of work over hand-outs should be self-evident. That doesn’t mean there should be no hand-outs, but policies that give families little incentive to work do not help them in the long run, no matter how it makes the policy makers feel in the short run.

More stats are discussed by the Captain.

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