Minimum Wage and Poverty

The CBO estimates that increasing the federal minimum wage to $10.10 per hour would lift 900,000 people out of poverty. Pew Research points out that full time minimum wage work “hasn’t been enough to lift most out of poverty for decades,” which sounds like an argument for increasing it. Meanwhile, the Mises Institute has a principles-of-micro (this can be either a compliment or a criticism, but here, I think for lack of empirics, it’s a criticism) explanation for how minimum wage laws increase unemployment and poverty, and Jeffrey Dorfman at Forbes interprets the CBO report as evidence that the minimum wage is “terrible anti-poverty policy.”

This is all very confusing. I looked at minimum wage rates by state and poverty levels by state over time to see if there was anything that jumped out/suggested a more likely correct explanation of the relationship between the minimum wage and poverty and foundthat (with a lazy, non-econometric approach to looking at the relationship between poverty and the minimum wage), conclusions are hard to come by.

The chart below shows the minimum wage rate and two-year moving average poverty rate for each state, D.C., and the U.S. on the whole from 1993 through 2005. Minimum wage is in red, and poverty rate is in blue. Each was normalized by its mean in the period to get values onto roughly the same scale.


…nothing really jumps out. Connecticut has a steadily increasing minimum wage over the period, but no interesting poverty trend. New Mexico has a nice big poverty wobble in a period with no minimum wage change. California’s nice little criss-cross is a terrible joke about the perils of putting separate series on the same graph. I guess Kentucky was on a downward poverty trend before their slight uptick in minimum wage, and then the trend reversed? I guess?

You’d need a better sense of what’s supposed to be related to poverty rates (Education levels? Demographics? Tax policy? I’m not sure what to control for here) before drawing any conclusions of course, but I’d expect, if anyone’s going to call minimum wage either a terrible or great anti-poverty policy, there’d be something more visible here.

Next step: the same but with unemployment.


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