Wednesday, December 24, 2014

Minimum Wage Hurts Poor People?

How Effective Is the Minimum Wage at Supporting the Poor? 

 Thomas MaCurdy
Journal of Political Economy, forthcoming

Abstract: The efficacy of minimum wage policies as an antipoverty initiative depends on which families benefit from the increased earnings attributable to minimum wages and which families pay for these higher earnings. Proponents of these policies contend that employment impacts experienced by low-wage workers are negligible and, therefore, these workers do not pay. Instead proponents typically suggest that consumers pay for the higher labor costs through imperceptible increases in the prices of goods and services produced by low-wage labor. Adopting this "best-case" scenario from minimum-wage advocates, this study projects the consequences of the increase in the national minimum wage instituted in 1996 on the redistribution of resources among rich and poor families. Under this scenario, the minimum wage increase acts like a value-added or sales tax in its effect on consumer prices, a tax that is even more regressive than a typical state sales tax. With the proceeds of this national value-added tax collected to fund benefits, the 1996 increase in the minimum wage distributed the bulk of these benefits to one in four families nearly evenly across the income distribution. Far more poor families suffered reductions in resources than those who gained. As many rich families gained as poor families. These income transfer properties of the minimum wage document its considerable inefficiency as an antipoverty policy.


Tom said...

Mostly, this study will be simply ignored. The minimum-wage advocates have Good Intentions, ergo any opposition is motivated by simple selfishness.

To the extent that they recognize these facts, liberals will want to compensate by even more wealth redistribution. No Good Intentions Policy (GIP) can ever suffer any retreat!

Anonymous said...

Jumping the gun. Wait for the peer-reviewed article to come out with full analyses and methodologies. Can't judge research by an abstract!

Anonymous said...

We aren't judging the research by the abstract. Click on the blue link and you will see the full paper. The paper has been peer-reviewed and is will be published in a future issue but the full text is available now.

James said...

The findings here comport with my instincts, so I like them. But the minimum wage is hardly a new policy and it has been the subject of countless peer reviewed studies, right? Many of them find the opposite, right? So what makes this one special? Does it take some new approach that no previous economist ever considered? Incorporate some fresh new dataset?

ConnGator said...


My understanding is the vast majority do not "find the opposite", but rather a small percentage (~5-10%).

Minimum wage proponents seize on these few studies to show that their policies help the poor.

I believe there was a meta-analysis showing this but I cannot find the link at the moment.

Walter Clark said...

Most debates (such as the minimum wage debate) attack the most visible arguments on the other side. Usually it is in the form of a chip on the shoulder which focuses the other guy to just what is mentioned. I like to dig deeper; to find out the dark side of their own personal Baptist and Bootlegger effect. I think the left’s most important unsaid argument is this: those at the minimum wage level are far less ambitious and far less intelligent than they are and thus need to be taken care of; like pets. Their worth is merely cuteness or preservation of a culture, or some such bullshit. Part of that unadmitted-to opinion is the view that government welfare is fundamental to society; even more fundamental than defense of property rights. Since they don't really entertain such thoughts let alone use them in debate, some of our challenges go un-responded to. The most important is, "what happens to those that are denied work because it is illegal to be employed when your only advantage is the ability to work for less than some dollar amount?" They consider that a nonsense question. How can they reply to nonsense? It is nonsense because when you are unemployed, the welfare check may not be as much as a paycheck, but at least you don't have to do that slave kind of work. Oh, that's another un-admitted to view: the closer to zero pay, the more slave like the work. So being unemployed is at least release from the back breaking slave like conditions they would be working in.