Economics

Poor Policy

Minimum wage folly

|

The Democratic Party's 2012 platform promises to "raise the minimum wage" from $7.25 to $9.50 per hour and "index it to inflation." This plank appears in the section of the platform devoted to "poverty." But does raising the minimum wage actually reduce poverty? A study in the April 2012 issue of the Journal of Labor Research suggests it does not.

The authors—Michele Campolieti, Morley Gunderson, and Byron Lee, economists affiliated with the University of Toronto and China's Renmin University Business School—note that the demographics of workers who earn the minimum wage make it an ineffective tool for reducing poverty. Data from the U.S. Bureau of Labor Statistics indicate that nearly all minimum-wage workers are teenagers, college students, or secondary earners who belong to households that are mostly not poor. The researchers calculate that only 30 percent of the extra income from an increase in the minimum wage goes to people below the poverty line.

Furthermore, while raising the minimum wage marginally benefits most of the poor who are currently employed, it also reduces the number of low-wage jobs, and those losses more than offset the benefits. "Minimum wages are poorly targeted as an anti-poverty device," Campolieti et al. conclude, "and are at best an exceedingly blunt instrument for dealing with poverty." 

Advertisement