Daily Catch

Don’t expect higher minimum wages to reduce poverty

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The standard objection to increasing the minimum wage is that it will result in more unemployment for low-skilled workers. But for many voters, that’s beside the point. The real question most people have is, will a higher minimum wage reduce poverty?

And while controversy persists in the professional literature about minimum wages’ effects on employment, there is little dispute among labor economists that minimum wage hikes are a poor anti-poverty strategy.

Why? For two reasons: First, higher minimum wages make it harder for low-skilled workers to find and keep jobs. Second, few of the beneficiaries of higher minimum wages are poor.

The second reason is worth exploring further since it contradicts popular misconceptions about the low-wage labor force.

Only 8 percent of adult, non-elderly Mainers living in poverty work full-time year-round, and 71 percent did not work at all. With so many of Maine’s poor residents not working, higher minimum wages do little to shift aggregate poverty.

Advocates of higher minimum wages may paint the typical beneficiary as a poor single mother, but the reality is quite different. Poor households headed by a single mother make up less than 5 percent of affected workers.

So who does benefit? Teenagers living in middle-class households make up a sizable proportion of beneficiaries, as do adult second or third earners supplementing a family’s income.

Research by economist Joesph Sabia shows that just 11 percent of workers who would be affected by a $15 minimum wage are poor. On the other hand, almost two-thirds of those affected live in households with incomes over twice the federal poverty line and 42 percent live in households with incomes over three times the poverty line (about $73,000 for a family of four).

More evidence that higher minimum wages are poorly targeted to the poor comes from Census Bureau surveys that show that only 19.0 percent of minimum wage workers reported difficulty making ends meet, 10.5 percent reported difficulty paying utility bills on time, 7.6 percent reported difficulty paying rent, and 9.6 percent reported difficulty seeing a doctor when needed.

As with so many policy debates these days, the facts have gotten lost. For example, a report by the progressive Maine Center for Economic Policy falsely attributes recent declines in child poverty to the minimum wage referendum approved in 2016, largely based on an unquestioned assumption that higher minimum wages drive reductions in poverty.

Whatever the merits of increasing the minimum wage, reducing poverty is not one of them.

About Liam Sigaud

Liam Sigaud is a former policy analyst at The Maine Heritage Policy Center. A native of Rockland, Maine, he holds a B.A. in Biology from the University of Maine at Augusta and has studied policy analysis and economics at the Muskie School of Public Service at the University of Southern Maine. He can be reached by email at liam.sigaud@maine.edu.

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