Monday, January 4, 2016

Raising the Minimum Wage Doesn't Help the Poor

We've often wondered here at VP how increasing the minimum wage would actually help anyone beyond just making politicians and other proponents feel good about themselves. A research paper by David Neumark, visiting scholar at the San Francisco Fed, answers the question of what good raising the minimum wage accomplishes by finding that it doesn't accomplish much good at all. The reason is that, aside from the negative effect raising costs has on job creation and availability, relatively few of those falling below the poverty line actually receive the minimum wage in the first place.

Here are some excerpts from an NBC News report on Neumark's findings:
Demographically, about half of the 3 million or so workers receiving the minimum are 16 to 24 years old, with the highest concentration in the leisure and hospitality industry, according to the Bureau of Labor Statistics. Moreover, the percentage of workers at or below the minimum is on the decline, falling to 3.9 percent in 2014 from the most recent high of 6 percent in 2010.

Neumark also points out that many of those receiving the wage aren't poor — there are no workers in 57 percent of families below the poverty line, while 46 percent of poor workers are getting paid more than $10.10 an hour, and 36 percent are making more than $12 an hour, he said.

"Mandating higher wages for low-wage workers does not necessarily do a good job of delivering benefits to poor families," Neumark wrote. "Simple calculations suggest that a sizable share of the benefits from raising the minimum wage would not go to poor families."
It is hard to see how raising the wages of people who aren't poor does much to help people who are poor. Neumark argues that a much better way to help poor families is to raise the Earned Income Tax Credit:
Increasing the earned income tax credit is a more effective way to fight poverty, he said. A family of four can get a credit of up to $5,548, which Neumark said is more tailored toward low-income families than hikes in the minimum wage.

"The earned income tax credit targets low-income families much better, increases employment and reduces poverty, and for all these reasons seems far more effective," he wrote.
Unless Neumark's data can be shown to be misleading or incorrect it seems irresponsible or even disingenuous for political figures and others to keep insisting that they want to help the poor by raising the minimum wage.