How well does a minimum wage boost target the poor?

There has been a recent kerfluffle over the Sabia and Burkhauser paper (ungated here) suggesting that minimum wage increases do not very much help the American poor.  Sabia and Burkhauser report facts such as this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

That’s what I call not very well targeted toward helping the poor.  To the best of my knowledge, these numbers have not been refuted or even questioned.

There has been a significant campaign lately to elevate this Arindrajit Dube piece (pdf) into a rebuttal of Sabia and Burkhauser.  I’ve now read through it, and while it is pretty dense, I don’t see that it supplies any such effective rebuttal (it is however a valuable paper, and survey paper, in its own right).

Here is an excerpt from the Dube paper:

An additional contribution of the paper is to apply the recentered influence function (RIF) regression approach of Firpo, Fortin and Lemieux (2009) to estimate unconditional quantile partial effects (UQPEs) of minimum wages on the equivalized family income distribution.

Dube also writes:

The elasticity of the poverty rate with respect to the minimum wage ranges between -0.12 and -0.37 across specifications with alternative forms of time-varying controls and lagged effects; most of these estimates are statistically significant at conventional levels.

Dube in fact counts up twelve papers on the side of “minimum wage hikes can make a reasonably-sized dent in poverty.”

Now, I don’t intend this as any kind of snide, anti-theory, or anti-technique comment, but when there is a clash between simple, validated observations and complicated regressions, no matter how state of the art the latter may be, I don’t always side with the regressions.

One interpretation of the Dube results is:

a) although a minimum wage hike applies only to some members of a community, its morale or network effects spread its benefits much more widely, or,

b) through some kind of chain link effect, a minimum wage hike pushes up the entire distribution of wages for lower-income workers

Alternatively, I would try

c) the public choice critique of econometrics is correct, these minimum wage hikes are all endogenous to complex factors, and no one has a properly specified model.  We are seeing correlations rather than causation, despite all attempts to adjust for confounding variables.

So far I am voting for c).  And there is a very simple story to tell here, namely that states which are good at fighting poverty, through whatever means, also tend to have higher minimum wages for political economy reasons.  It seems unlikely that controls are going to pick up that effect fully.

Or try another model, more tongue in cheek but instructive nonetheless.  If government is quite benevolent and omniscient, and has always done exactly the right thing in the past, we will see in the data that the minimum hikes of the past are at least somewhat effective in fighting poverty.  At the same time, the remaining options on possible minimum wage hikes will not help at all.

Dube’s paper, econometrically speaking, is a clear advance over Sabia and Burkhauser.  But Dube pays little heed to integrating econometric results with common sense facts and observations about the economy.  As Bryan Caplan has stated, the knowledge and judicious invocation of simple facts about the economy is one of the most underrated skills in professional economics.

I also get a bit nervous when the number of studies on one side of a question is counted and weighed up against common facts.  Some of these pieces are simply measuring the same correlation in (somewhat) differing ways, and the number of them says more about the publication process than anything else.  These pieces also are not all in what I would call great journals.  Maybe that is an unfair metric of judgment — I am writing this on a blog, after all.   Nonetheless I looked at the list of cited sources and pulled out the two clumps with what appeared to be the highest academic pedigree, in terms of both economist and outlet.

The first clump is a group of papers by David Neumark, with co-authors.  I find that Neumark does not himself think that minimum wage hikes do much if anything to help poverty, and he has a good claim at being the world’s number one expert on the economics of minimum wages.  In fairness to Dube, he does have some good (although I would not say decisive) criticisms of one of Neumark’s papers pushing this line.

The second source is a paper by Autor, Manning, and Smith, an NBER working paper.  They write “…the implied effect of the minimum wage on the actual wage distribution is smaller than the effect of the minimum wage on the measured wage distribution.”

Of course that hardly settles it.

You might call this one a draw, but then we return to the question of where the burden of proof lies.  I’m still stuck on, to repeat the above quotation, this:

Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007.

From where I stand, that hasn’t yet been knocked down.


Do the studies that compare states account for cost of living differences? States with higher minimum wage likely have higher costs of living, yet poverty is being measured with the federal poverty line, which does not account for such differences.

The link to the Dube paper is broken (for me, at least). Here is the link if anyone else wants it:

Cochrane had a very good post on minimum wage

Two points on inequality

It's a pretty bad post really, just a rehash of old canards from the Reagan years and various other strawmen

From Cochrane

"Inequality comes from lack of marriage and education. It is not obviously a problem per se, but it is a symptom of social and economic dysfunction. Single-parenthood rates over 50% are a sign of a society in deep trouble.

Raising the minimum wage is then less than a band-aid for the symptoms of a heart-attack sized problem. But why then is the minimum wage so high on the chattering-class agenda?"

Will higher minimum wages reduce poverty? Very little
Will higher minimum wages reduce employment? Yes, on the margins for low skilled marginally productive workers.
Will higher minimum wages spur a change in the poor? i.e. will it encourage greater effort etc. Employers can already offer raises to workers who demonstrate such traits.
Can higher minimum wages overcome the high marginal tax rates for welfare recipients? Doubt it.
Advocates of higher minimum wages seem to want to feel good about giving some people higher wages while ignoring the opportunities they will remove for others.

But the rampant inequality does not come from lack of marriage and education this is just an old canard. Even educated people who have done "the right things" have seen their opportunities significantly diminish. A huge number of educated young people have absolutely abysmal prospects. The only real high fliers have been a relatively tiny clique of corporate executives and the like. Education and marriage simply doesn't account for this.

All this stuff about it being the fault of dysfunctional families is out of date.

some evidence please

Evidence of what?

Cochrane also needs to provide evidence for his family claim.

While the 11% statistic is interesting and important, I don't think you need to look further than Cowen's other work to know that the average is over, and returns increasingly come to outliers.

Dan C, let me correct your final sentence: Advocates of higher minimum wages seem to want to feel good about forcing some people to pay other some other people higher wages while ignoring the opportunities they will remove for others.

"Consider, for instance, the problem of mass unemployment prolonged year after year. The “progressive” interprets it as an evil inherent in capitalism. The naive public is ready to swallow this explanation. People do not realize that in an unhampered labor market, manipulated neither by labor-union pressure nor by government-fixed minimum wage rates, unemployment affects only small groups for a short time. Under free capitalism unemployment is a comparatively unimportant temporary phenomenon; there prevails a permanent tendency for unemployment to disappear. Economic changes may bring about new unemployment. But at the wage rates established in a free labor market everyone eager to earn wages finally gets a job. Unemployment as a mass phenomenon is the outcome of allegedly “pro-labor” policies of the governments and of labor union pressure and compulsion."
"Bureaucracy", Ludwig von Mises


Good points, but will never sell those believing the minimum wage is the cure all. That creating more good jobs and providing better education for those wishing to improve themselves should be the real agenda.

I wouldn't even consider this a concern. Inequality has become so rampart, and the middle class so decimated the fact that a policy may end up helping out mostly people earning high 50s, 60s, or even 70s doesn't seem like much of a strike against it.

If that's the case, name the things properly: "Federal Aid to people earning high 50s, 60s and even 70s". Not a bad program per se, but it may divert attention from helping the poor.

I wouldn't be against something like that at all since programs that are explicity for the poor tend to not end up with strong political backing

'Federal Aid to people earning high 50s, 60s and even 70s'

No, the actual number would be something along the lines of people living in households with two or three earners having a combined income in the 50s, 60s and even 70s. Meaning that one needs to divide the income among those earning it. Leading to a highly simplistic, but at least illustrative quote of 'Federal Aid to people earning in the high 10s, 20s, and even 30s.'

Don't worry - it isn't as if anyone is actually all that interested in talking about households. Or how many children might be in those households, or where those households are located, or whether one of those earners is a 17 or 63 years old.

Oh, I see what you did there. You argued as if increasing the minimum wage was just supposed to help the poor.

And then approvingly cite this (twice!):

"Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households…Of those who will gain, 63.2% are second or third earners living in households with incomes three times the poverty line, well above 50,233, the income of the median household in 2007."

I think quite this quite clearly demonstrates that some poor people... and a lot of not poor people....will see wage gains. This is bad how?

Of course it can't be long as there is no negative effect of minimum wage hikes. In which case, let's raise the minimum wage to a billion dollars an hour, and we can all work for one hour and then retire filthy rich.

What a lazy logical fallacy, dan. Avoid the argument by extremes and tell us explicitly why you think a minimum wage hike will have a negative effect. I see it constraining retail margins for large and small companies. I'm fine with that, so tell me why I shouldn't be instead of resorting to a lazy absurd suggestion that no one has made.

The negative effect of the minimum wage is that it's an abridgement of the freedom to make voluntary contracts. Whatever economic sense it might make, if it even does make any economic sense, is negated by the restriction the government makes on willing agreements beneficial to both parties. It's none of the government's business how much someone gets paid.

Abridgments of the freedom to make voluntary contracts are not by definition economically destructive. They might offend your radical libertarian world view, but that doesn't matter to anyone but you.

Freedom, a portion of which is voluntary exchange, has been a goal of mankind for thousands of years, so that makes it a "radical libertarian world view"? What's radical is for the nation/state to determine the parameters of voluntary relationships. Of course it's OK for socialists to plan the lives of others, since they know better.

That's a complete crock. Then we could just reintroduce ("voluntary") slavery. Of course I'm sure you actually ARE for this.

It's a typical "progressive" slant to the argument to bring in slavery when all other ideas have been exhausted.

It’s a typical “libertarian” slant to the argument to bring in freedom when all other ideas have been exhausted.

It's only the logical conclusion of your argument

I know you are but what am I?

"What a lazy logical fallacy, dan. Avoid the argument by extremes and tell us explicitly why you think a minimum wage hike will have a negative effect."

Ok Michael, what's your argument against a minimum wage of $25 per hour?

No reason to argue against something no one is proposing. So what are your arguments against a minimum wage of $15 per hour?

"So what are your arguments against a minimum wage of $15 per hour?"

It's much higher than the effective minimum wage in large chunks of the country. A $15 per hour minimum wage would lead to substantial unemployment in Mississippi, for example. Almost all of the remaining textile industry would disappear overnight.

Currently textiles are approximately 2% of the US work force. 25% of that work force makes under $10 per hour and the median wages are under $14. A $15 per hour minimum wage would push half that employment to Mexico or China.

Furthermore, a good chunk of agricultural work would be priced above the prevailing world rate. Farmers might be able to respond with much higher levels of automation, but it's clear that a large portion of the lower wage class pickers would be priced out of the market.

Square bale hay for example is a marginal product already, It's a more convenient form factor than a much large rolled bale, but it's clearly more labor intensive and an effective doubling of labor costs would certainly swiftly end it's marketability.

JWatts, that's a lot of affirmations with little proof. Perhaps you should read this:

"JWatts, that’s a lot of affirmations with little proof. "

I'm sorry but I have to laugh at a comment like that from someone who hasn't even attempted to back up his assertions.

Reductio ad absurdum is not a fallacy. My point being, if you only look at the benefits, who can object, even if the policy is ineffective or inefficient?

Anyway, surely the burden is not on me to prove that a policy defined as paying people more money has a cost! Of course it has a cost; the question is who does it cost, and how much? And to make an argument for the policy you have to do a serious cost-benefit analysis, rather than say "it helps some people, so it must be good."

Tyler is very clearly being very ideological in bringing this quote out twice--twice!--in a few weeks. He didn't get a good response (nor did the cited paper), so he's doubling down.

Right--the rise in the minimum wage will help some houses living three times above the poverty line. Why is this a problem? The minimum wage boost is not designed to target the poor--it's designed as a rising tide to lift all boats. Most Americans aren't paid minimum wage--they're paid minimum wage plus X. Raising minimum wage will impact them too.

It's a problem because 1) it is a distraction from policies that are better at targeting the needy, and 2) there are possible further innovation and efficiency losses when you distort labour markets in such blunt ways.

How do you know there's innovation and efficiency losses? If anything you would think more expensive labour would speed up investment in labour saving capital.

CBBB provides the framework for minimum wage -> unemployment.

...which is inefficient if in the absence of the price floor people would do the work.

You clearly know nwither business nor labor economics. There is no reqson to think raising the minimum wage raises higher incomes. In 09, the min wage was raised 40%. Yet the median income remained flat. The only reason an employer has to raise higher salaries is to induce the recipient not to leave or to perform better.

Doesn't it also seem plausible that long-term minimum wage (and near minimum wage) workers in poor households would be the one who are least able to raise their productivity and, therefore, most at risk of losing their jobs after wage hikes? After all, low-wage earners in poor households already have strong incentives to find higher-paying jobs -- for those who have not, isn't it at least a suggestion that they are unable to do so? The low wage earners in non-poor households, on the other hand, are often quite different -- students working part time. They may have little work experience or job-specific skills but already have reading/writing/cognitive skills far above those of long-term low-wage workers, are quicker learners, and could be expected to have less trouble with jobs that are reconfigured to be more cognitively demanding.

Seems like a good candidate for an ideological Turing test. Do liberals believe opposition to minimum wage increases is due to meanness or stinginess? I think many of them do.

And reading many of the commentors on this blog would easily confirm their views.

You know, it's not like there's a federal maximum wage. You are free to pay your employees as much as you like.

OK, I reread the comments here. Which ones do you have in mind as supporting the 'opposition to minimum wage increase is due to meanness/stinginess' view?

Just spend enough time (not too much time) reading the comments on various posts. It's not hard to find the general attitude of hatred for the poor.

I object to such generalization. Many of us care very much about poverty, but oppose minimum wage (and other liberal policies) because we believe them to be ineffective, coercive, and/or have negative unintended side effects.

On any blog about any topic, you will find some very unpleasant comments, and this is no exception. But I see nothing that indicates most (or even many) people in this debate hate the poor.

Well then it should be just a couple of minutes work for you to find many, many instances that support your contention -- not just an isolated one or two, but instances numerous enough to support the idea that there's a 'general attitude of hatred for the poor' prevailing. That's unless this is the advanced sort of confirmation bias in action that skips even the cherry-picking of examples and process directly to the bias.

Oh, ooooh, CBBB cares, CARES about the poor.

Now you are done your moral preening, how about looking at how the real world looks.

As the study quoted says, the large majority of people who get minimum wage are middle class kids with an after school job.

Why so few poor people? I'd suggest a few reasons. First is they may very well be in a situation where they aren't even worth that wage for what they are able to do. Second they make more than minimum wage and are still poor. Third they don't make income by wages.

So I ask you. Why are you so intent on making the things that low wage folks need to buy to survive more expensive? Why do you hate poor people?

As I said above, if the policy ends up benfitting middle class people I don't think that's a knock against it. As Tyler Cowen believes your average middle class kid today is simply tommorrow's underclass dreg.

In addition a raise in the minimum wage might end up leading to stronger demands for raises from people earning a little bit above minimum wage.
As for making things more expensive, I'm not sure it's been proven that companies will or will be able to simply pass the costs of these increases onto comsumers.

Actually, one of the few commenters here who explicitly doesn't care about poor people but instead wants min wage for the middle class is CBBB

"I see nothing that indicates most (or even many) people in this debate hate the poor."

Oh we liberals don't think you hate the poor. Well some of us do.

We just think you care more about "coercion" and "unintended side effects" more.

I Simply consider the poor to be a broader category than just those under the federal poverty line. A Minimum wage raise might be a way to help start boosting overall wages which have not been growing for the vast majority of workers.
I suppose support has been growing for a minimum wage increase because, contrary to what clueless people like Cochrane believe, the educated, sober, clean, young of today see the writing on the wall and know that the minimum wage is what they have to look forward to.

@Herb, in this case the "unintended side effects" fall squarely on the poor, as a minimum wage hike will make it harder to get entry-level jobs and raise the cost of goods.

As for "coercion", I believe that the system that most effectively offers a way out of poverty is the free market.

Alright, Dan. So the intended side effects of a minimum wage hike would be to give more money to the poor (and the non-poor who will also benefit), juicing demand and expanding the economy.

The "unintended" side effects would be "make it harder to get entry-level jobs and raise the cost of goods."

And yet, you're just regurgitating the dogma. It will make it harder to get entry-level jobs because employers will eliminate positions, lowering the pool of available jobs for available workers. And yet the positions they eliminate will not be the important, or even necessary, ones. Indeed, shedding those positions may make the company more efficient, and with juiced demand from the people who just got a "raise," efficient companies will find it easier to grow. As they grow, they can hire more workers. And so on.

Not such a bad thing after all.

As for raising the cost of goods, yes. That will probably happen too. Some goods. I'm sure the dollar menu at McDonald's would go away. It's not good for their business anyway, so goodbye McDouble and hello Big Mac. Walmart may not be able to maintain their "Low Price Guarantee," but they will probably see a surge in sales. Those of us who are doing pretty well, we might find prices rise a bit, but we can also probably still afford it. We might have to ditch the K-cups for the old drip machine, but we'll still be okay.

Again, that's not such a bad thing.

CBBB you seem to care for the poor, how often do hire low skill high school dropouts (maybe with criminal records) to do work for you? You can pay them as much as want as long as it is minimum wage plus matching FICA or more.

CBBB when I read your argument in favor of a minimum wage:

"I Simply consider the poor to be a broader category than just those under the federal poverty line. A Minimum wage raise might be a way to help start boosting overall wages which have not been growing for the vast majority of workers.
I suppose support has been growing for a minimum wage increase because, contrary to what clueless people like Cochrane believe, the educated, sober, clean, young of today see the writing on the wall and know that the minimum wage is what they have to look forward to."

What I infer is that you believe that labor has no power to bargain for wages("educated, sober, clean, you of today...minimum wage is what they have to look forward to.") and that you support broad controls on wages through government ("I simply consider the poor to be a broader category... "). This is the belief that labor will be paid subsistence wages if left to the free market; this is the labor theory of value. Given that you challenge your opponents to provide evidence of their claims of the negative effects of price floors (minimum wage), while saying: "a minimum wage raise might..." without any proof, I come to the conclusion that you are an ideologue who is arguing from prior beliefs without any concern for evidence.

Tell us, in your utopia, how do you propose that the proletariat deal with political opponents and class traitors?

Tell us, in your utopia, how do you propose that the proletariat deal with political opponents and class traitors?

Well forcible re-education of course. Did you even have to ask?

Seriously, you seem to be suggesting that wages should be set for a majority of people in the United States. How do you propose to enact such price controls without heading down Hayek's Road to Serfdom? If you don't get the price right you will have black markets. How will your system handle these people?

I am only in favour of raising the minimum wage. The minimum wage has been around for a long time - and although I think we are on the Road to Serfdom it isn't Hayak's.

There really aren't any, which only proves your original point. Most of the comments in opposition to minimum wage hikes seem to be of the "this wouldn't really help poor people and there are some bad effects that may cancel out whatever help exists" variety.

Again, you're misunderstanding the reason why liberals support the minimum wage increase. Like Obamacare, it's an imperfect solution but the best that can be done when facing an ideologically rabid opposition that trots out fascist insults and threats of death panels whenever you make a reasonable policy suggestion. I'd rather have a basic income guarantee, work guarantee programs, and the Fed's QE program channelled direct to a small business loan program. Sadly, suggesting any of these in the House or anywhere else in DC will get you labeled a freedom-hating commie bastard.

For now. As Krugman pointed out, the inequality in America is reaching a boiling point.

1) You are a freedom-hating commie bastard.

2) Your 'druthers' are all bad ideas; only in today's civilizational twilight could a sane and intelligent person see them as 'reasonable policy suggestions'.

3) We are all so concerned about the American middle class and the American "poor"? Here is what the middle class needs: Hard currency. Hard borders. Hard college degrees. Here is what the poor need: a reason to respect their benefactors. Yeah, it's that simple, and yeah, it'll never happen.

A new anonymous moby? Or just CBBB creating evidence?

Nope - classic Marginal Revolution comments.

Ah yes, good old STEM worship. Lloyd Blankfein was an English major, you know. Plenty of Ivy grads with soft degrees are making six figures in the city, thanks to the old boy network. And there are plenty of unemployed engineers. We don't need "hard degrees", whatever that means. We need less corruption and greater real opportunities for the disconnected.

"Hard degrees" as in college degrees that aren't devalued by institutions handing out millions of college degrees in the name of "greater real opportunities for the disconnected."

The "hard borders" part is good too. We'd help out our fellow citizens on the left of the bell curve a lot more if we weren't continually devaluing their labor and upping the ante for decent housing and medical care by importing the ever more numerous and needy of everybody else's excess peasantry. Then we wouldn't be fretting over why their wages never seem to keep pace even though people in your class are doing better than ever.

That's what I'm getting at with you: you have a false sense of noblesse oblige because you have enough disposable income to pay your housecleaner $20/hr and tip well at restaurants.

If you're truly interested in helping the poor, and/or the unemployed, the best thing that you can do is to hire some poor people and pay them significantly more than the minimum wage. I'm not working right now (unlike most of the commenters on this blog, who are expostulating on company time) so when can I expect a job interview?

chuck, funny you mention that because I actually do pay my maid above market rate and usually tip over 20% when going to restaurants.

If you'd like to come clean my house for $20/hr., let me know your email address.

IOW, you're a limousine liberal.

Sure, Anti-Gnostic, why not? Although I've never ridden in a limo. How does name-calling disprove my point and support yours? Oh it doesn't, just makes you feel better? Carry on, then.

That's good. We need more people to do that. I have taken to tipping fast food. I also sometimes hire low income people to work for me though I must admit not regularly.

I love how in one comment AG says "you're free to pay your employees whatever you want" and then in response to someone who does pay their employee above the minimum wage, the commenter is called a "limousine liberal" I guess you just can't win.

I think that a big rise in the minimum wage would improve the service at restaurants, retailers and some other services that I use, by causing the worst workers to be competed out jobs and I think that would be good for me but I think that it would be bad for the the worst workers.

most restaurant workers.-- those who get tips --except fast food workers, are exempt from the minimum wage.

I'd like to know more about the statistic that only 11.3% of workers who gain from an increase in the federal minimum wage live in poor households. Precisely I'd like to know what percentage of poor households would benefit from a minimum wage increase. Given the way the first sentence is structured, and a poverty rate in the mid teens, it is still possible to have ~80% of poor households benefit even if they only account for 11.3% of all households who benefit.

The % of households below the poverty line has ranged from 13-16% in recent years. So their finding is that it is actually helping the poor at a lower rate than the general population.

The only way this could add up to helping 80% of the poor was if basically the entire population above the poverty line was working at minimum wage.

My thought exactly. The percent of minimum wage who are in poor households tells me nothing about the percent of those (potential) earners in poor households who are minimum wage workers.

No, but it does show how inefficient of a solution it is.

Is "It would benefit too many people" a sufficient argument against raising the minimum wage?

Yes, it's all benefits and no costs.
Costs I see are:
1. Fewer jobs available
2. Higher prices, especially hitting the industries that serve the poor disproportionately.

No we have the middle class gaining off the backs of the poor.

Has anyone looked at the trade-off between jobs lost vs. the additional wages for those that keep their jobs?

Also, the poor spend most of their money on housing, transportation and utilities ( It seems like those costs would be less affected by a higher minimum wage compared to fast-food, retail, etc.

even if the percentages in Sabia and Burkhauser statement you cite are correct, they relate to pre-Great Recession times. My guess is that the situation has changed considerably since then, and a minimum wage hike would be much better targeted now. I also note that while their conclusions are pretty clear (unlike those in other papers), their method is not entirely straightforward (at least at I could tell from looking at it for about 5 minutes) and involves simulations that are not necessarily valid.

Maybe the answer is to hire on an army of people at $12/hour and have them smash windows. That will result in a boom to the window makers and ba-ding-ba-da, the multiplier effect drags the whole economy upward.

See: Iraq, Afghanistan, Fortress Korea, Fortress Europe ... And these programs remove workers from supply, thereby putting upward pressure on labor prices. We already DID/DO that.

Then let's do it! Hire all of the unemployed at $12/hour and have them knock down buildings, smash windows and set cars on fire. The demand for repairmen will drive up wages thus draining the pool of workers in this new minimum wage program.

I would pay >$12/hour to have them smash all the windows in Krugman's house.

That upward pressure might be counteracted by the downward pressure of fewer people going into ovens and wood chippers.

Perhaps poverty is more correlated to unemployment than minimum wage income.

From table 4 People and Families in Poverty by Selected Characteristics: 2009 and 2010, all numbers in 1E6

Total population below poverty threshold: 46.18, but this include children. They generate no income, so only 16 years and older are taken into account (31.382). "Did not work at least 1 week" in the last year population is 20.717, discounting People over 65 (3.52) gives 17.197. So, the "did not work at least 1 week" subset is 55% of the older than 16 and younger than 65 population below the poverty line subset.

Why 55% of the 18-64 below the poverty does not have a job? It may be disabilities,15% of them has a disability.

So, could the unemployment be the reason of poverty and not low minimum wages?

I think poverty is more correlated to things like intelligence, time preference and impulse control.

And what is that correlated with?

Steve Sailer, please pick up the white courtesy phone.

If intelligence, time preference and impulse control are the real causes of poverty, I see no reason for the US Army to recruit young ones from poor backgrounds. They'd be useless, incapable of following simple instructions.

A lot of them aren't. The Army has lots of screening in place to weed out people who are too dim to learn how to change the oil in an APC or too impulsive to trust with a loaded weapon. The ones that make the cut live in a highly regimented environment. Probably not a bad idea, but I don't see it getting very far in a liberal democracy.

The myth of the military preying on the poor for recruits is exactly that, a myth. The need for cannon fodder is at historic lows as military tactics and technology have evolved. There's no room for the Jerry Springer crowd.

The median household in the bottom quintile of the income distribution has NO earned income earners. Zero. Nada. Zilch.

That's a huge number of households to have no earned income. Quite obviously, wages are not the issue with poverty. Dependency on welfare and other government programs is.

My issue with these papers is the small sample size. There is no reason to suppose that the impact of the minimum was is magically different in other countries and other times. I suspect that 30 years of OECD data shows ambiguous results.

It is possible that (1) only 11.3 percent of minimum wage recipients are poor and (2) raising the minimum wage will reduce poverty. It is, however, difficult to get the 10-15% poverty reduction in Dube's paper, consistent with that small a fraction of the minimum wage recipients being poor.


"Only 11.3% of workers who will gain from an increase in the federal minimum wage to $9.50 per hour live in poor households"

In 2011, 46.2 million people were poor. According to data from the Bureau of Labor Statistics, only 10.4 million or 22.5% of the poor were “working poor.” The working poor are defined as people who spend 27 weeks or more in a year “in the labor force” either working or looking for work but whose incomes fall below the poverty level.

So the population of "working and poor" is ~10 million. The minimum wage hike will, according to Sabia and Burkhauser, "will affect over 21 million workers (final row, column 2), including 2.41 million workers living in poor households and 2.56 million living in near-poor households."

So already that's nearly a quarter of the working poor. Now, also keep in mind that 36% of the poor are children; how many poor children live with one of the ~25% of working poor adults who would benefit from the minimum wage hike? If we assume 25%, well, we've helped several million poor children right there.

Also, keep in mind that ~10% of the poor are senior citizens, who probably cannot or should not be expected to work. They also likely do not have dependent children. So it is likely that more than 1/4 of poor children live in households with at least one of the working poor individuals who would benefit from a minimum wage hike.

Of course. It's "for the children."

There is a curious one-sidedness to your argument, or rather, a strange incuriousness about the extant conditions which you think add moral weight to your arguments.

Here's the part you're missing: minimum wage jobs are not "for the children." They are for highly fungible skill sets (the kind which are being automated right and left). These are jobs for young people just entering the workforce, or senior citizens working for grocery money, or frankly, just people with no more talent than the ability to perform repetitive tasks day in and day out, earning their keep and having enough left for beer and cigarettes.

I'll cut to the chase: if the minimum wage is purportedly too low because people can't support families on them, then we have a much bigger problem than where to peg a nominal wage.

You're a hypocrite. You're a lawyer which means your compensation is tied to a rent-seeking license provided by government intervention into the market. Without this government intervention, there are millions around the world that could flood the market for your job and drive your compensation below the level at which you could support your family.

Me and everybody else behind national borders. And you're waving the bloody shirt. Assuming you're correct, you prove the fundamental point: we're subsidizing family formation, and I'm going to bet it's not the folks you want your kids sharing their school with.

Does it occur to you that we have this bizarre feedback loop going? We adopt globalism and mass immigration to capture profits from employing "millions around the world that could flood the market for your job and drive your compensation below the level at which you could support your family," and then everybody wrings their hands and says we have to increase transfer payments and the minimum wage.

It's more than borders that protects the lawyer guild. You're still being hypocritical. Be consistent. If you support national socialism, support it for everyone, not just lawyers. If you oppose it, oppose it for everyone, including for lawyers.

Seems like it's mostly people like Tyler Cowen (against the minimum wage increase and transfer payments) who want to flood the market with millions from around the world.

I think you're arguing from the wrong side. The claim isn't that enough poor people aren't helped, it's that for every 1 poor person helped, 9 people in households well above the poverty line are getting benefits as well. This is for an action that has a set of very serious negative economic consequences.

With that poor targeting, it's almost guaranteed that there's a dollar for dollar better way to aid the poor than a minimum wage. (EIC for instance).

One can't ask how well targeted without also asking how comprehensive.

It's worth mentioning that a single full-time worker working full time at the CURRENT minimum wage isn't poor. The poverty line is so low ithat hardly anyone who works is poor.

The other important thing to keep in mind is that being poor has nothing to do with consumption so obviously no one in the pro-hike camp cares about how it affects the poverty rate. (This is pretty general: when was the last time you heard someone say the EITC or Medicaid would reduce the official poverty rate?)

Search Google for "public choice critique of econometrics" and the only result is this post.

That suggests a future post.

(BTW, this was a truly excellent post IMO.)

and of course we should continue to ignore the evidence, the empirical data--the best nations on this planet have the highest minimum wage: those small nations of western europe. Switz, denmark, luxembourg, sweden, norway, et al. They all have very high minimum wages. And they are the best nations on this planet--for the average citizen. Those nations are however not all that great for the corporations and the rich investors that own the majority of corporate shares. Seems like american academia takes the perspective of Capital.

But neoliberal academia does not want to examine that evidence from our cultural cousins in the rest of the western world. Oh, no, better to hide the truth in a welter of bogus studies.

Besides, the vast majority of academic studies are bogus--misleading, massaged data, or just outright faked and fraudulent, subject to strict political correctness guidelines or just hewing as close as possible to whatever the consensus establishment wisdom happens to be. Worthless.

1) Sweden has very high youth unemployment due to its high minimum wages (Actually Sweden doesn't officially have min wages but allows the unions to do "collective bargaining" which de facto sets min wages)

2) Switzerland and Luxembourg are not great countries for corporates and investors? Really?!?!? I hadn't heard that one before

3) the US tax system (>35% CIT) is more punitive towards corporates than the Swedish (22% CIT), Swiss (11.5-24.2%), Danish (25%) and Luxemburghish (21%) - hence Apple, Google etc don't repatriate loads of their profits.

Yes, it is a horror show over there in sweden. That is why the devastated youth of sweden are putting out in rafts headed for america, desperate to work for 7 dollars an hour in mcdonalds.


Yes, Sweden is still the idyllic paradise that you imagine:

sweden is a bad bad place compared to neoliberal paradises like zaire and malawi. Africa has no minimum wage, and it is a paradise!

"sweden is a bad bad place compared to neoliberal paradises like zaire and malawi. Africa has no minimum wage, and it is a paradise!"

So many fails wrapped up all together. First, Africa is a continent not a country. Secondly, Malawi has a minimum wage. Thirdly, Zaire hasn't been a country in decades, it's called the Democratic Republic of the Congo. Oh, and it has a minimum wage, also.

What a sad attempt at correlating minimum wage and national outcomes. Perhaps you could attempt to begin from basic economic principles as to why such a thing would occur?

you mean delve into the "how many neoliberal angels can dance on the head of a pin" "science" called 'economic theory'?

Don't make me laugh.

The nations with highest minimum wage are the best nations on earth and make the USA look bad in comparison.

The nations with no min wage are hellholes where the people will do almost anything to get to nations where they have a min wage.

Res ipsa loquitir.

Do their price controls create wealth or are their price controls something they can afford because they have wealth?

If only humans had discovered price controls as a means to generate wealth thousands of years ago. We could all have private islands and the requisite helicopters or yachts by now.

too many confounding variables.

Also, we have conformist, careerist "academics" seeking to pump out whatever neoliberal propaganda and bogus studies the foundations are paying for, and that renders academic study and papers worthless, or worse.

Just look at the results.

In this post, I show total employment for teens, with the trends from the 2 years leading up to minimum wage hikes and the trends for the 30 months following minimum wage hikes (beginning 3 months before the hikes take effect.

The regularity of the disemployment is stark. And the average employment loss for teens compared to the pre-MW trends is 15% of employment over 30 months.

The trends are the same in total employment, but since so few non-teens work at minimum wage, the effect is smaller with more relative variance, as you would expect. It would take a lot to explain this away.

Could you tell me how much of the unemployment for teens was from the minimum wage and how much was due to the second most severe recession in US history.

I bet you cann't -- meaning you just assumed the recession had no impact on teen employment.

The employment loss is averaged over the 7 different episodes since 1954.

The average loss of teen employment, including the 2007-2009 episode is 15.5%, with a standard deviation of 10.9%
The average loss of teen employment, if we only include the 6 episodes before 2007 is 13.6%, with a standard deviation of 10.8%.

Just using this for the estimation for 2007 - 2010 is a little broad, because it would treat each MW increase equally without accounting for the scale of the increase. But, using the 13.6% average from before 2007, about 800,000 teens would have lost employment due to MW and 1,200,000 would have lost employment due to other issues, compared to the trend from 2005 - 2007.

I am going to be more than a little bit off topic but I would like to see if someone would respond to this:

It seems to me that people especially young people often get sucked into working for below minimum wage.
One example that I am familiar with because they have an office near mine is Vetor Marketing they have a continual stream of young people coming dressed for a job interview looking for work. Many realize that the likelihood of making any money with Vector is very small are just out the cost of dressing up and going in to Vector but many, 2 children of friends of mine, actually do some work. Most make well below the minimum (maybe $2/hour) some make nothing at all for their effort.

Another example: My son worked delivering phone books but they required that he drive his own car and his net pay came out to about $3.00/hour.

He and many of these young people would prefer to work hard for a solid $4 or $5/hour rather than try Vector or delivering phone books.

So my question to Minimum wage advocates is:
Do you think that the existence of the minimum wage contributes to young people working at these very bad jobs?

They're not required to take those jobs. If no one does, the wages would go up or the companies would go out of business.

@chuck martel, in my son's case for sure he would have preferred to work for $4.00 and hours in a more normal business but that is illegal. BTW I do not think that very few work more than a week for the 2 businesses that I mentioned because they soon figure out how little they are making.

"but that is illegal."

The government, in its nanny-state capacity, makes arbitrary distinctions between humans on the basis of their date of birth, not their physical or mental maturity or ability, that determines their opportunity to engage in voluntary relationships. These are based on horror stories dating back to Dickens. Get government out of the business of deciding who can work where and when.

Well those horror stories were real

When I was sixteen (1963) I got my first job. I was a car-hop, at a fast food place(Steak 'n' Shake). The minimum wage was I think $1.25, not that it mattered to me. There was at that time an exemption for part-time employees who got tips. Those bastards paId me a dollar a night(4;30 to 2:00am), oh and a dollar of food. I guess that exemption was eventually done away with. Are there car-hops anymore?

Sonic here in NJ has carhops.

Restaurant workers that get tips are still exempt for the normal minimum wage.

Minimum Wage goes up, all the part time teenagers get fired, the lifers making more than minimum wage get additional hours, and the poor get more money?

I.E. The effect on the poor isn't getting more money because of the minimum wage, it's facing less competition for low skilled labor from teenagers who are less productive (even if only because they are inexperienced, young, and part-time) that raises their wages/hours.

Just a thought.

Minimum Wage goes up, all the part time teenagers get fired

HUH? I thought the problem was that the minimum wage was going to mostly benefit teenagers (which I don't even see a real problem with). That's what Tyler Cowen says. So which is it now?

The explicit trade off with the minimum wage is that anyone whose marginal product is between the old wage and the new wage will lose their jobs, or not be hired.

The question is, how many workers at minimum wage fall into this category, versus the number of workers who are being shortchanged the value of their labor because of the large amount of unskilled labor.

We're looking for a plausible way where the explicit effects of the wage increase effect one group, while a different group sees a large share of the benefits after all the effects play out. As I see it, that's the dichotomy. Looking at it from the front, we see a bunch of teenagers being affected by the new minimum wage. On the back end, we see the poor as much better off. How does that work?

Other theories: The kids funnel the money into shadow economies that benefit the poor. The kids spend the money on activities/goods that require far more low skilled labor than other groups (i.e. they keep the money circulating in malls and fast food joints, etc).

But this is just a micro way of thinking of it. All businesses will have to pay the higher minimum wage which means that it could lead to more money being spent, and I think at the type of establishments which employ low wage workers. More demand at these type of establishments would raise the marginal product of workers there.

I don't even think I just automatically buy into the assertion that a higher minimum wage will mean more unemployment - certainly not at the level of $9 or $10. There are macro effects not just micro ones, and it seems as though from my reading on the blogs the economists cannot even agree on how much the minimum wage affects employment.

And yes, I do think teenagers will end up spending their increased wages at fast food places and malls.

"the economists cannot even agree on how much the minimum wage affects employment."

How's it go, if you laid all the economists end to end they couldn't reach a conclusion?

Yes, but where does that money to pay the higher wages/fuel the additional demand come from? How, in other words, does your equation balance?

Frankly, I'm not opposed to just mailing everybody a check for $25,000 a year (heck, while we're at it, $50,000), but I think the results will disappoint.

I hardly think we're living in an age of weak corporate profits. But overall I suppose the amount that was passed onto consumers and the amount that was just absorbed by the company would have to depend on the specifics of the industry.

Well I'm not sure how the results of this would disappoint. If the predictions of our host come true the poor will soon consist not only of your favourite bogeymen (boogypeople?) - the African American community - plenty of non-superstar law school grads, engineers, teachers, university professors, accountants, scientists, and the like will be joining them down at the bottom of the pile. Oh I know they might not all be Einsteins but they can't all be so completely incompetent with money can they?

@CBBB it does not natter that corporate profits are good that restaurant down eh street might be a hairs breath form bankruptcy and a higher minimum wage might push them into bankruptcy just a little quicker and if all such businesses fair just a little quicker there would be less employment.

I think that a good debate should be between those who think that say: 9 people working at $10/hour and one involuntarily unemployed is better than 10 people working at $7.50/hour and those who think the opposite. I think that there are non-momentary benefits to having a job so I would choose 10 people working at $7.50/hour over 9 people working at $10/hour and one involuntarily unemployed. I also do not feel any need to punish people who employee workers at low wages.

It doesn't matter what the story is on an individual basis, it's the aggregate that counts. Since Keynesians, and government, can't possibly examine each individual case, only the big picture matters. When your round peg doesn't fit in their square hole, it's too bad for you. They tried. That's why farmers that sleep until noon get the same subsidies as the one's that are up with cock's crow. And the "progressives" weep about the unemployment of people that can't add any value to an employer's product. We are, after all, just cyphers in the macroeconomic statistical base.

CBBB: "I don’t even think I just automatically buy into the assertion that a higher minimum wage will mean more unemployment"

So if you discount supply and demand, then your economic theories work out precisely as planned? On a serious note, why don't you try to explain how a price floor that isn't below the equilibrium price will not result in less goods being sold. It seems to me that you may be well on your way to writing a new Introductory Microeconomics text.

I will not in fact just concede that unemployment will increases. You start this as you assumption but that is not necessarily true at all, and it seems that this issues has not in fact been settled. Circumstances seem to matter.
Corporate profits have been more then robust enough to allow for wage increases, but the long term weakness in the bargaining power of labour has meant that employers have been able to repress wage increases.

In your examples you have 10 workers taking home a total of $75 an hour. These are low wage workers so that money is almost certainly going to get spent: on rent, on transportation, at the grocery store. At 9 workers earning a total of $90 an hour now that's $15 of additional spending. The increase in demand means that the 10th worker could be hired.
Poor, low wage workers spend a far greater fraction of their income then the sort of people who derive their income from corporate profits.
It could of course be the case that you end up with more unemployment but this issue seems to be not settled at all so I refuse to just accept it as a given.
As for the restaurant - well I believe there are exceptions for professions where tips can be earned.

But that is your problem Jonathan Swift you are analysing the effect of a minimum wage increase across the economy using microeconomic analysis. It's nothing but a fallacy of composition.

Friedman had the minimum wage and unemployment right. Essentially, all else equal, a minimum wage will result in less employment of the least valuable employees. Given even a slight employer preference or institutional effects in favor of whites, the minimum wage will disproportionately unemploy African Americans. I think delayed labor force entry speaks for itself on this matter. Ironically, the same political group which tends to believe that racism exists simultaneously supports legislation which decreases the price of employer discrimination.

"All else equal" what does that mean? And you say Friedman had it right? Based on what? Your assertions?

For all your peddling of "economic principles" I don't actually think economics has much to say about the minimum wage. Seven Nobel Prize economics have called for an increase

Seems like this should be a slam dunk for economic theory. But one can seem to be able to find prominent practitioners in the field being able to argue either way so I don't think "economic principles" have much to say about this policy.

75 economists arguing that the disemployment effects of raising the minimum wage are outweighed by concepts of economic justice is supposed to mean what, exactly? Disemployment effects may be small, but they should tend to be concentrated on the poorest groups and least skilled groups.

Classical economists argued that unemployment is voluntary. Absent regulation, unemployment truly is voluntary unless the marginal value of an employee is $0. Pray tell, how does increasing this market distortion which makes unemployment even possible have no effect or decrease unemployment?

Have you ever looked at the data.

After every minimum wage hike the number of minimum wage employees increases, just the opposite of what you claim.

$5: 10 workers at minimum wage
$6: 10 workers above minimum wage

$0: 5 workers unemployed
$6: 15 workers at minimum wage

"After every minimum wage hike the number of minimum wage employees increases" - Of course.

All the part time teenagers get fired.

Even if the minimum wage would rise, the poor would not fully benefit from it. Because it is more than likely that employers will cut back on Labor and many will be unemployed. Why can't the minimum wage be raised and not affect the hours workers will recieve? In the long run, workers should be compensated for their dedication and determination to work, yes it is something they have to do to earn their money, but the employers are also benefiting from it as they make profits from the production.

The more relevant numbers appear in Table 2 of the Sabia and Burkhauser piece. 45% of the workers with an "income to needs" ratio of less than 1 earn within the range impacted directly by the proposed minimum wage increase. Thus the answer posed to the question in the paper's title "Will a $9.50 federal minimum wage really help the working poor" is "yes" for at least 45% of them and maybe for the other 20% who earn between 9.50 and 12/hr and may get a boost.

Note in Table 4, 49.8% of potentially affected workers are the highest earners in their family.

Note that currently the poverty line is 23,550 for a family of 4, 15510 for a family of 2, and 11490 for a family of 1. A single person working minimum wage for 40 hours a week would be above the poverty line. A person working for $9/hour 40 hours a week with a spouse working 20 hours a week would end up above the poverty line for a family of 4 (roughly $27K/year). I would not be bothered by paying a few cents more for a big Mac and seeing them benefit.

Thus the statement of 11.3% of workers who benefit from the minimum wage increase are in families below the poverty does not refutation, it is correct, but irrelevant, unless you are bothered by the teenager working 10/hours a week bagging groceries getting boost as a side effect.

Much of the rest of the article rests on regressions and simulations.

Furthermore, not the source of funding is one of the conservative think-tanks; hence the rather bias tone reflected in much of the article.

1. "I would not be bothered by paying a few cents..."

Yes, the common refrain. And you certainly have the choice to do so, but that is never enough is it?

2. "needs to income ratio..."

What are "needs"? We haven't witnessed a massive dying off of the poor for lack of consumption so "need" seems to be more of a moving target than a word that has a meaning. Or, in other words, your complaint is without meaning: "meaningless". On a related note, PPP would seem to suggest that the majority of humans on earth aren't having their "needs" met. Additionally, over 99% of all humans who have ever existed haven't had their "needs" met.

Sorry, civilized society is not an a la carte menu where you pay only for what you want and I pay only for I want. Most people who have enough to survive off of, strive to improve the lot of others. The desire to help those less fortunate is recorded in the bible, and archaeologists have even found evidence of this in prehistoric remains. This does not work very well on a piecemeal basis.

The "income-to-needs" ratio is a term used in the article to measure poverty.

1. You claim that most people who have enough to survive are striving to improve the lot of others.

If this is true, and if policies such as the minimum wage "improved the lot of others" why don't they emerge organically, why must they be imposed by force? Something doesn't fit.

2. The "income-to-needs" ratio, originating from the article or not, is a measurement you used to describe workers earning less than $12 per hour. If you don't agree with the measurement you used then your entire post is an exercise in mental masturbation.

The policies emerge organically...people organize into social structures, create a government, and insist on these laws.

By organic, You could really mean without government? If you d ok that is no police, military, patents, or property rights. In that kind of organic world you take what you can get, by stealing or killing if required. Doesn't work well, so even wolves have a social structure with rules.

Is minimum wage necessary at all. Good article.

A lot of folks here seem pretty content with the federal poverty line as proxy for who's poor. Of course, for the many poor people who live in cities, it doesn't even cover half the cost of living. I'd be interested in seeing similar localized studies if anyone can link to them.

According to a Natl Restaurant Association survey, "the average household income of restaurant workers that earn the federal minimum wage is $62,507."

Comments for this post are closed