Tuesday, January 21, 2014

The minimum wage is not well-targeted on poor families but it does seem to be targeted on low-income families

...which isn't to say it only affects low-income families of course. Lots of teenagers not from low-income families get their first work experience in a minimum wage job too.

But back to the question of poverty - this is somewhat of a cheat post because I am just reproducing a comment on David Henderson's recent post on the subject (see links to his NCPA paper for more details and his post for more links).


I have been writing a lot about the state time trends that Bob Murphy has been musing on lately, but I feel like I need to get to Meer and West and the flows, as well as Sabia-Burkhauser.

As a general reaction to the poverty reduction question, it sounds reasonable to me but I'm not sure poverty is the right lens to look through. I think a few basic calculations show in the first place that it's going to be more relevant for a broader category of low income families than poor families per se.

$7.25 x 35 hours x 50 weeks for someone that actually takes some time off but maybe doesn't have paid vacation and has a generous amount of hours on the cusp of full and part time (OR two part time jobs) gives you $12,687. That already exceeds the poverty line for a single person, and is just a few thousand short of a family of two. If you add minimum wage workers to the family, family income grows faster than the poverty line.

So this is not a poor person's policy from the beginning and certainly not if we're talking about the people making as high as $9.50. You don't even need to go to the data you just need to do a few thought experiments.

Whether it's well-targeted or not is a different question. A lot of these families are still low-income. We seriously consider expanding SCHIP to them, for example, even if not all benefits. I'm not sure how marginal these households are but as we've seen, one minimum wage earner in a household can account for a difference of up to 100% of the FPL, so losing that second or third person could make the family at 300% suddenly at 200%, or the family that's at 200% suddenly 100%. So it's not like these families are in a position where they're marginal workers - their income really matters even if they're not below the poverty line.

So all the commentary so far - from you [David Henderson], Cowen, etc - seems fine as far as it goes but I think it's still clearly a policy targeted at lower income families.


  1. Yes, yes, and yes - a lot of our debates about poverty are distorted by how we measure poverty.

    A few key things about poverty - it is both an absolute and relative condition. Obviously very few people in the United States are in absolute poverty the way people are in developing countries, but there are still a lot of people who are suffering from a great deal of economic stress, and are one mistake or bad break away from severe depravation, and generally face a high baseline of uncertainty, difficult choices, and exploitation, both illegal as well as legal and quasi-legal, with few resources to fall back on.

    Many of these people make more than the poverty line. That's because the poverty line is really, really low. Like, really low. For a family of four it's $23,550. That's not a lot of money. NGDP-per-capita in the United States is about double that, as is median household income.

    The poverty line does not account for regional differences in cost-of-living. $23,550 is a very, very different amount of money in Norman, OK than in my home city of Washington, DC - the median home price is 3-4 times as much, just to cite one example.

    The poverty line also doesn't account for wealth or other resources - a household may have very little income, but that's because they are living at home with their parents, or have free childcare through family or communal networks, or have a lot of savings, or may have no student loans due to scholarships, or may have inherited property. Income is not always the best proxy for how close someone is to the edge, so to speak. I made minimum wage part-time after I graduated from college when I sold tickets and popcorn at a movie theater while searching for my "real" job, and I'm sure I was, briefly, "poor" but I had some parental subsidies and after only a few months of frugal living I found my current white collar job and now five years later I'm a married homeowner in the top quintile of household income nationally and the top 35% in my metro area, and I'm about to complete my Master's degree which will almost certainly result in an increase of income that along with my wife's likely imminent raise will as likely as not place us in the top decile nationally and top quartile locally. Yet even that is misleading - a childless couple, combined age 58, making our salary is part of a very different economic lifelong narrative than one that makes the same salary yet has 2-3 children, combined age 115.

    Also, poor Americans are disproportionately likely to be black, and vice-versa, and the challenges particular to black Americans tend to compound the challenges of poverty, and vice-versa.

    So the fact that most beneficiaries of an increased minimum wage are not poor is not really the point at all.

  2. I have a my new post related to this issue: http://arindube.com/2014/01/22/the-poverty-of-minimum-wage-facts/

  3. I think it's worthwhile to ask if there are not at as many, or more, people who suffer due to minimum wage laws than there are beneficiaries. I believe there are far fewer beneficiaries than popularly assumed. Really, the only people who are benefitting from a given minimum wage statute at a given time are those whose wages would be marginally lower in a free labor market (absent wage controls). It's safe to assume that the majority of people making above the minimum wage would still be getting paid that wage in the absence of the statute; for those whose skills/experience/etc. would command the same as the minimum wage in a free market, the law is superfluous. It's most likely there is a relatively small group who would earn a slightly lower wage in a free market, but whose employers bite the bullet & pay them slightly above what their value-productivity commands because the State forbids them to be paid less. For all those who marginal value productivity is substantially lower than the minimum wage, they're effectively banished from the labor market. They're deprived of the opportunity to work for whatever wages they would otherwise be able to negotiate, in fact they're deprived of the opportunity to take advantage of the one bargaining chip they might otherwise have on more skilled/experienced workers: their willingness to underbid them, & the community is deprived of whatever productivity/services the worker would otherwise have been able to provide. If you take the long & wide view, I think the quantity of losers & the quality of the loss exceeds the quantity of beneficiaries & quality of benefits of minimum wage laws, & not by an insignificant margin.


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