Politics & Policies

Minimum Wage in US / Much of the empirical evidence suggests that it fails to alleviate net poverty says CATO

Numerous empirical studies have examined the effect of past minimum wage increases on poverty. In a 2007 peer-reviewed study, Richard Burkhauser of Cornell University and I examined Census data from 1979 to 2003 to estimate the effects of minimum wage increases on state poverty rates. We found no evidence that minimum wage increases were effective at reducing overall poverty rates or poverty rates among workers.

In two subsequent studies, we extended the analysis to include more recent Census data . The results showed no evidence that minimum wage increases reduce poverty. Even among a population that has been targeted by policymakers for minimum wage protection—less-educated single mothers—my research has found no evidence that minimum wage increases reduce poverty.

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David Neumark of the University of California-Irvine and William Wascher of the Federal Reserve Board examined family-specific flows into and out of poverty as a result of minimum wage increases, using matched Current Population Survey data. They found that while some poor workers who kept their jobs after minimum wage increases were lifted out of poverty, others lost their jobs and fell into poverty. Their findings suggest that minimum wage increases redistribute income among poor and near-poor households. Only for younger junior high school dropouts is there some peer-reviewed evidence of net poverty-alleviating effects of the minimum wage.

One concern raised by skeptics of the poor poverty- alleviation record of minimum wages is that the official poverty threshold may be an imperfect “measuring stick” for the economic well-being of low-income households. Therefore, Robert Nielsen of the University of Georgia and I used data from the Survey of Income and Program Participation to examine whether minimum wages were effective in reducing alternate measures of economic well- being, namely material hardship.7 We found no evidence that higher minimum wages helped people make ends meet, pay their rent, pay their utility bills on time, or avoid financial or health insecurity.

In sum, much of the empirical evidence published in peer-reviewed journals suggests that minimum wage increases fail to alleviate net poverty even among vulnerable populations that minimum wage advocates wish to help. Why is this? The research has identified two key reasons: (1) adverse employment and hours effects, and (2) the fact that few beneficiaries of minimum wage increases live in poor households (poor “target efficiency”).

Chosen excerpts by Job Market Monitor. Read the whole story at Minimum Wages: A Poor Way to Reduce Poverty

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