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?
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:.
- 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.
- Some workers in poor families earn higher wages but don’t work enough hours (and have hours cut when the minimum wage goes up)
- 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.
The Homa Files 