Minimum Wage Not Well Targeted at Reducing Poverty
By David Henderson
Economists Joseph J. Sabia and Richard V. Burkhauser examined the effects of state minimum wage increases between 2003 and 2007 and reported that they found no evidence the increases lowered state poverty rates.
Further, they calculated the effects of a proposed increase in the federal minimum wage to $9.50 on workers then earning $5.70 (or 15 cents less than the minimum in March 2008) to $9.49. They found that if the federal minimum wage were increased to $9.50 per hour:
. Only 11.3 percent of workers who would gain from the increase live in households officially defined as poor.
. A whopping 63.2 percent of workers who would gain were second or even third earners living in households with incomes equal to twice the poverty line or more.
. Some 42.3 percent of workers who would gain were second or even third earners who live in households that have incomes equal to three times the poverty line or more.
This is from my short piece, “Most of the Benefits of a Minimum Wage Increase Would Not Go to Poor Households,” National Center for Policy Analysis, January 13, 2014.
Later in the piece, I report Sabia and Burkhauser’s finding that if one takes account of even small disemployment effects of the minimum wage, one finds, of course, an even smaller effect on reducing poverty.
Finally, I point out something that Professor Burkhauser agreed with in correspondence:
This estimate overstates the gains to households from increasing the minimum wage. Why? Because, to the extent they are able, employers will offset the higher minimum wage by reducing non-money components of worker compensation. Burkhauser notes that such an effect will not show up in the government data because the data do not measure these non-money parts of the compensation package. But that is small comfort to those who would find themselves with higher-paying but reduced-benefit jobs.