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Do Minimum Wages Fight Poverty?


David Neumark


University of California, Irvine - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

William Wascher


Board of Governors of the Federal Reserve System - Division of Research and Statistics

August 1997

NBER Working Paper No. w6127

Abstract:     
The primary goal of a national minimum wage floor is to raise the incomes of poor or near-poor families with members in the work force. However, estimates of employment effects of minimum wages tell us little about whether minimum wages are can achieve this goal; even if the disemployment effects of minimum wages are modest, minimum wage increases could result in net income losses for poor families. We present evidence on the effects of minimum wages on family incomes from matched March CPS surveys, focusing on the effectiveness of minimum wages in reducing poverty. The results show that over a one-to-two year period, minimum wages increase both the probability that poor families escape poverty and the probability that previously non-poor families fall into poverty. The estimated increase in the number of non-poor families that fall into poverty is larger than the estimated increase in the number of poor families that escape poverty, though this difference is not statistically significant. We also find that minimum wages tend to boost the incomes of poor families that remain below the poverty line. The evidence indicates that in the wake of minimum wage increases, some families gain and others lose. On net, the various tradeoffs created by minimum wage increases more closely resemble income redistribution among low-income families than income redistribution from high- to low-income families. Given these findings it is difficult to make a distributional or equity argument for minimum wages.

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Date posted: August 11, 2000  

Suggested Citation

Neumark, David and Wascher, William, Do Minimum Wages Fight Poverty? (August 1997). NBER Working Paper No. w6127. Available at SSRN: http://ssrn.com/abstract=225892

Contact Information

David Neumark (Contact Author)
University of California, Irvine - Department of Economics ( email )
3151 Social Science Plaza
Irvine, CA 92697-5100
United States
949-824-8496 (Phone)
949-824-2182 (Fax)
HOME PAGE: http://www.socsci.uci.edu/~dneumark/
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
William Wascher
Board of Governors of the Federal Reserve System - Division of Research and Statistics ( email )
20th and C Streets, NW
Washington, DC 20551
United States
202-452-2812 (Phone)
202-452-3819 (Fax)
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