Archive for the ‘Poverty – Income Distribution’ Category

Who really benefits from increases in the minimum wage ?

July 9, 2014

An article in the WSJ this week is causing a bit of a stir.

Titled “Who Really Gets the Minimum Wage”, the report concluded that Minimum wages are ineffective at helping poor families because such a small share of the benefits flow to them.

Specifically, “Obama’s $10.10 target would steer only 18% of the benefits to poor families; 29% would go to families with incomes three times the poverty level.”

Hmmm.

How does that happen?

 

image

 

The essence of the dynamic: counter-intuitively, low-wage workers and low-income (i.e. “poor”) families are not the same folks.

According to the article, data from the U.S. Census Bureau show that there is only a weak relationship between being a low-wage worker and being poor.

Three reasons for that:.

  1. Many low-wage workers are in higher-income families—workers who are not the primary breadwinners and often contribute a small share of their family’s income.
  2. Some workers in poor families earn higher wages but don’t work enough hours (and have hours cut when the minimum wage goes up)
  3. About half of poor families have no workers, in which case a higher minimum wage does no good. This is simple descriptive evidence and is not disputed by economists.

Bottom line: Not much help to the well-intended anti-poverty movement.

There’s another “non-poor” group that benefits when the minimum wage is raised..

Glance at the picture above and see if you can guess who that is.

(more…)